AFRICA REGIONAL RISK SNAPSHOT SEPARATING FACT FROM FICTION. Dr Robert Besseling, Executive Director, EXX Africa

WWW.EXXAFRICA.COM

AFRICA REGIONAL RISK SNAPSHOT SEPARATING FACT FROM FICTION Dr Robert Besseling, Executive Director, EXX Africa WWW.EXXAFRICA.COM

Are we witnessing a resurgence of Africa s large economies this year?

Nigeria South Africa Egypt Algeria Angola Sudan Morocco Ethiopia Kenya Tanzania DRC Tunisia Ivory Coast Libya Ghana Cameroon Uganda Zambia Botswana Gabon Mauritius Mozambique Burkina Faso Mali Namibia Zimbabwe Senegal Equatorial Guinea Chad Madagascar Benin Rwanda Congo Republic Guinea Niger Eritrea Malawi Togo Mauritania Swaziland Sierra Leone Burundi South Sudan Liberia Djibouti Lesotho Central African Rep Cape Verde Seychelles Guinea-Bissau Gambia Comoros São Tomé & Príncipe Africa: Size of the Economy (Nominal GDP: $,millions) 450,000.0 400,000.0 350,000.0 300,000.0 250,000.0 200,000.0 150,000.0 100,000.0 50,000.0 0.0 400,725 2017 344.3 Sources: AFED & AfDB WWW.EXXAFRICA.COM

Polling Question 1 - Will we witness a resurgence of Africa s large economies this year? 1. Yes 2. No 3. I don t know

Country Focus South Africa, Nigeria, Angola, Kenya

South Africa How long can the Ramaphosa Honeymoon last?

Polling Question 2 - To what extent are you feeling more confident about South Africa s outlook since the leadership change in February? 1. Very confident, I will now sign any deal that comes across my desk 2. Moderately more confident 3. No change 4. Still downbeat and uncertain

South Africa: The limits of Ramaphoria Business confidence is on the up 3.0 South Africa Real GDP Growth (%) Tough but hopeful budget 2.5 2.2 2.5 SA Reserve Bank IMF, WEO forecast 2.2 SOE reform is a key priority Further credit downgrades loom 2.0 1.5 1.0 1.7 1.3 Gov forecast 1.5 1.0 0.9 0.9 0.9 2019 elections may pivot policy 0.5 0.3 Land reform as a political football 0.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED, Local Sources & IMF, WEO Oct 17

Land expropriation as a political football 1. Land reform is not aimed at white or foreign-owned commercial agricultural holdings. Populist rhetoric targeting such farms is politically expedient, but harmful to South Africa s international investment reputation 2. State expropriation of land without compensation is unconstitutional, illegal, and in breach of multiple multilateral treaties. 3. ANC policy of land reform is aimed at undercutting the political campaign of the radical leftist EFF opposition ahead of the 2019 national elections. 4. The real expropriation target is land ownership by traditional authorities, particularly the Ingonyama Trust of Zulu King Goodwill Zwelithini, which owns 60% of KwaZulu-Natal province

2015-2018 2017-2018 Security Incidents In South Africa www.exxafrica.com

Nigeria Elections, debt, and the oil sector

Nigeria shifts into election mode Is President Buhari the man to beat in 2019? Government inertia and stalled economic reform What is needed to ensure economic recovery? Unifying multiple currency exchange rates Economic Growth and Recovery Plan Oil industry reform and Niger Delta compromise The Nigerian economy s tentative recovery may be frustrated by electioneering

Polling Question 3 - Should Nigeria continue to raise debt to finance its gaping budget deficit? 1. Yes, both more Eurobonds and local currency debt issuance 2. Yes, but only if the oil price continues to recover 3. No, Nigeria has already piled up too much debt 4. I have no opinion

Nigeria Growth and Public Debt: 7.00 6.00 5.00 4.00 3.00 2.00 1.00 0.00-1.00-2.00 Nigeria Real GDP Growth (%) 6.3 IMF Forecast 5.4 4.3 2.7 2.1 1.9 1.7 0.8-1.6 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED & IMF, WEO Oct 17 26.00 24.00 22.00 20.00 18.00 16.00 14.00 12.00 10.00 Nigeria Total Public Debt (% of GDP) IMF Forecast 24.3 23.8 22.8 21.3 17.6 13.2 12.6 12.4 12.5 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED & IMF, WEO Oct 17 WWW.EXXAFRICA.COM

Total External Debt (% of GDP): Nigeria, South Africa & Mozambique 100.00 90.00 80.00 70.00 60.00 50.00 40.00 30.00 20.00 10.00 0.00 Sources: AFED & IMF 82.5 50.6 51.4 10.7 11.7 2012 2013 2014 2015 2016 2017 Nigeria South Africa Mozambique 89.3 WWW.EXXAFRICA.COM

Key sectors to watch out for in 2018 Oil & Gas Development Projects in Niger Delta, including refineries Military & Defence after sign-off of US procurement deal Massive infrastructure boost commits new transport, water, and power projects Nigeria has the most valuable intra-regional trade, although it is dominated by crude oil exports.

2015-2018 2017-2018 Security Incidents In Nigeria www.exxafrica.com

3. Angola A New Dawn for Sonangol and the banks

The implications of Angola s political transition The political transition has triggered the most significant shift in influence dynamics since the 1970s, while taking place in an increasingly tense socio-economic environment.

The battle over Sonangol & the banking sector The first political battle of the transition will be over the future of the struggling state oil company and extensive oil sector restructuring plans. This contest will determine the new government s policy on the oil sector, transparency, and the potential return of the IMF.

Kenya Moving beyond the 2017 elections and finding new avenues for growth

Polling Question 5 - How badly tarnished was Kenya s investment reputation by last year s elections and subsequent political crisis? 1. Disastrous, it will take years to recover 2. It was a bad year, but things will come right in 2018 3. It s Kenya, what did you expect? It makes no difference.

Kenya Growth and Public Debt: 6.50 6.00 5.50 5.00 4.50 4.00 Kenya Real GDP Growth (%) IMF Forecast 6.2 6.0 5.9 5.8 5.7 5.5 5.4 5.0 4.6 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED & IMF, WEO Oct 17 58.00 56.00 54.00 52.00 50.00 48.00 46.00 44.00 42.00 40.00 Kenya Total Public Debt (% of GDP) IMF Forecast 56.2 56.0 52.6 52.5 51.6 51.4 48.6 43.9 44.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED & IMF, WEO Oct17 WWW.EXXAFRICA.COM

Exchange Rates: Kenyan Shilling to US Dollar 104.0 Kenyan Shilling to 1 US Dollar Source: AFED 103.0 102.0 101.0 100.0 WWW.EXXAFRICA.COM

Key sectors to watch in 2018 Banking Growing pressure to uncap interest rates Infrastructure will be part of the Kenyatta Legacy Kenya & Brexit will there be new opportunities? The oil game changer oil and pipeline construction

Kenya: Already looking towards 2022

2015-2018 2017-2018 Security Incidents In Kenya www.exxafrica.com

Real GDP Growth: Aggregates and Regions (year-on-year % growth) 2016 2017 (f) 2018 (f) Regional Real GDP Growth Africa 2.2 3.6 4.1 7.00 6.00 5.00 5.9 5.6 2016 2017 (f) 2018 (f) 5.1 5.0 Sub-Saharan Africa North Africa with Sudan Sources: AFED & AEO 1.5 2.8 3.3 3.5 4.9 4.9 0.00 2.00 4.00 6.00 4.00 3.6 3.00 2.5 2.4 2.00 2.0 1.6 1.00 0.7 0.00 East Africa West Africa North Africa Central Africa Southern Africa Sources: AFED & AEO WWW.EXXAFRICA.COM

Key trade corridors: East & Southern Africa 187 Uganda Kenya has the most diverse intra-regional flows in Africa Kenya DRC Rwanda Kenya exports industrial raw materials, food, and consumer goods to its neighbours. Tanzania Kenya imports imports tobacco and some food, for which it acts as a conduit for exports of commodities to world markets. Source: Ecobank Research Zambia 471 Trade flows, USD millions, 2014 30 30

Which African countries face the highest political risk?

2015-2018 Heaviest concentration of security incidents around Goma, North Kivu. High density of security incidents remains focused on the Northeast. High density population centres also reflect higher concentration of incidents Kinshasa, Lubumbashi, Kisangani, etc. Uptick in violence around Mbuyi-Mayi and Kananga. www.exxafrica.com

Scenario Analysis for DRC in One Year Outlook SCENARIO ONE SCENARIO TWO SCENARIO THREE Elections take place in December 2018 Probability: 60% Commercial Impact: Kabila third term improves political certainty and supports economic recovery as sanctions are lifted and fresh FDI is encouraged Elections are yet again postponed beyond 2018 Probability: 30% Commercial Impact: Kabila fears an opposition win and delays the vote, thus extending the status quo of political uncertainty, economic weakness, and sanctions Unconstitutional transfer of power before the vote Probability: 10% Commercial Impact: Socio-economic protests and political unrest force the military and/or regional countries to intervene, possibly triggering further conflict. www.exxafrica.com

EXX Africa Risk Map Colour-coded risk map is based on quantitative and forward-looking risk analysis and a proprietary scoring system. For more information on scoring methodology visit https://www.exxafrica.com/ RISK RATING SCALE Severe High Elevated Moderate Low www.exxafrica.com

Mozambique: Still in limbo with no debt deal Structural indicators improving Mozambique Real GDP Growth (%) Prospect of peace with RENAMO Gas sector development on track 8.0 7.0 6.0 5.0 Mozambique NIS 7.4 7.2 7.1 6.6 IMF, WEO forecast Gov forecast 6.0 5.5 5.3 5.3 4.7 6.5 BUT 4.0 3.0 3.8 Unsustainable debt outlook 2.0 1.0 Little confidence from donors 0.0 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED, Local Sources & IMF, WEO Oct 17

Security risk along Mozambique railways and pipelines

Zambia Growth and Public Debt: 8.00 7.00 6.00 5.00 4.00 3.00 2.00 Zambia Real GDP Growth (%) 7.6 IMF Forecast 5.1 4.7 4.5 4.5 4.5 4.0 3.4 2.9 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED & IMF, WEO Oct 17 70.00 65.00 60.00 55.00 50.00 45.00 40.00 35.00 30.00 25.00 20.00 Zambia Total Public Debt (% of GDP) IMF Forecast 61.4 60.5 62.4 63.3 60.0 55.6 35.6 25.4 27.1 2012 2013 2014 2015 2016 2017 2018 2019 2020 Sources: AFED & IMF, WEO Oct 17 WWW.EXXAFRICA.COM

Zambia s lost opportunity Perceptions of government authoritarianism, arbitrary lawsuits in the copper mining sector, and intensifying political intrigue are likely to cast a dark cloud over upcoming negotiations with the IMF Growing political risk may undermine Zambia s chance of economic recovery on the back of rising global copper prices.

The Rise of Africa s New Nationalism Underlying socio-economic grievances are steering usually business-friendly governments into a more nationalist and authoritarian direction that will begin to limit the sustainability of their success.

Tanzania: Magufuli s Way Magufuli s self-styled economic war has targeted the mining, power, and LNG industries. Examples include export bans, mine shutdowns, visa suspensions, contract cancellations, and unrealistic fines. Magufuli is stacking key state institutions with ideologically-aligned loyalists. Opposition warnings of a fall in the value of the shilling against the dollar as gold exports slump are falling on deaf ears.

Where are the remaining African success stories?

Africa Real GDP Growth: 2017 Top & Bottom Performers (excl. Libya) (year-on-year % growth) 2018 Top Performers 2018 Bottom Performers Ghana 8.9 Chad 2.4 Ethiopia 8.5 Nigeria 2.1 Ivory Coast 7.3 Angola 1.6 Senegal 7.0 South Africa 0.9 Djibouti 7.0 Zimbabwe 0.8 Rwanda 6.8 Algeria 0.8 Tanzania 6.8 Burundi 0.1 Burkina Faso 6.5 Swaziland -0.9 Sierra Leone 6.1 South Sudan -3.4 Benin 6.0 Equatorial Guinea -7.8 4.0 5.0 6.0 7.0 8.0 9.0 10.0 Sources: AFED & IMF, WEO Oct 17 & Jan 18-10.0-8.0-6.0-4.0-2.0 0.0 2.0 4.0 Sources: AFED & IMF, WEO Oct 17 & Jan 18 WWW.EXXAFRICA.COM

Economic recovery in Africa s large economies underpins the entire continent s success

Any Questions?