Comparing Africa with other Emerging Markets . East Africa

2. Comparing Africa with other Emerging Markets.East Africa • Presented by • Rosemary Ndiritu • Director, Corporate Finance Services • Deloitte Consulting Ltd. • East Africa

3. East African Debt Capital Markets • Macro-Economic Performance • Africa exhibited real GDP growth of 5.8% in 2006. The main factors supporting this growth performance were strong external demand for oil and other minerals, increased investment in these sectors, and recovery from drought in a few countries. • East Africa growth supported by Kenya 6.1%, Uganda 5.6% & Tanzania 6.2%; however, all below their targets of 7%. • Agriculture a backbone of the 3 economies - contributed 24%, 34% & 45% to GDP in Kenya, Uganda & Tanzania, respectively, in 2006. Securitisation & Debt Capital Markets in Africa

4. East African Debt Capital Markets • Macro-Economic Performance • Tightening of the governments’ monetary policies continues unabated, mainly to contain inflation Securitisation & Debt Capital Markets in Africa

5. East African Debt Capital Markets • Market Character, Structure & Bond Issues • Bond market small with only a handful of issues Securitisation & Debt Capital Markets in Africa

6. East African Debt Capital Markets • Challenges to Bond Market Development • Nascent market • ignorance & reluctantance to participate in an unfamiliar market • relative ease of bank financing makes debt more attractive • Lack of credit ratings • would-be issuers do not want their financial information made public • Rigid Market Regulation • government regulators tend to be merit based rather than disclosure based • credit guarantees & other enhancements often required - adds costs • requirement for bonds be listed & not privately placed a disincentive • Undeveloped Yield Curves • for government securities on which pricing for corporate issues can be developed - makes pricing of longer term issues on a fixed rate basis difficult resulting in most issues being floating rate issues Securitisation & Debt Capital Markets in Africa

7. East African Debt Capital Markets • Recent & Key Emerging Trends • local currency issuance - becoming more feasible e.g Tanesco (US$ 240M), Entebbe Airport (US$ 40M), Celtel (US$ 75M), Safaricom (US$ 179M) • emergence of local institutional investor base - pension funds, insurance companies, unit trusts & high net worth individuals - absorbs large issues e.g. in Kenya from US$ 1.9B in 2005 to approx. US$ 2.7B in 2006 • international credit rating of sovereign debt - several countries have for the first time had credit ratings done. e.g. Ghana issued a US$ 750M bond in Sep’07, Guaranty Trust Bank issued a US$ 350M 5-yr bond early ‘07, First Bank launched a 10-year US$ 175M bond in Mar’07, etc. Kenya & Zambia considering sovereign debt issues • pan-africanisation of businesses - leading to the growth in scale of African companies to the extent whereby they could tap into the international debt markets for financing e.g. Ecobank, KCB, ABSA, MTN/Vodacom, etc. Securitisation & Debt Capital Markets in Africa

8. East African Debt Capital Markets • Sectors to Watch • Banking Sector - in issuance of corporate bonds e.g. Barclays Bank Kshs. 3B • Infrastructure- need to upgrade the country’s physical infrastructure to support further economic growth. Expected from Government bodies (parastatals like KPLC, KPA, KAA, Kengen, KPC), PPPs (e.g. TEAMS, Nairobi By-Pass roads to be concessioned, RVR), purely private players (IPPs e.g. IPS investment in Tsavo Power - US$ 500M 220MW Bujagali Hydro project in Uganda) & DFI’s (e.g. EIB through the EU-Africa Infrastructure Trust Fund). • Telecommunications- a pioneer in the issuance of debt on the financial markets e.g. Safaricom, Celtel. Opportunities: proposed construction & landing of fibre optic cables along the Eastern African seaboard, the ongoing privatisations (i.e. Telkom Kenya), licencing of new operators (Econet), etc. • Supra-National Bodies - established by regional country groupings in order to provide strategic interventions in economic development in the region e.g. PTA Bank, EADB, Shelter Afrique, etc. Have issued bonds in the local capital markets in order to finance their operations in each country; most recent Shelter Afrique (US$ 14M issue) Securitisation & Debt Capital Markets in Africa

9. East African Debt Capital Markets • Concluding… • Although the prospects for off-shore issuance by East African countries are increasing, corporates are likely to remain infrequent issuers on the international market due to: • Lack of sovereign credit ratings to provide a benchmark in the international market • Requirement for credit enhancement by international due to perception of African issuers as higher risk • Foreign currency risk where issuers do not have access to foreign currency revenues to act as natural hedge • Historically low interest rate differential between local and international interest rates coupled with large local investor appetite which makes local borrowing more effective e.g. in Kenya. • Small size of issues compared to international norm may not make issuance cost effective Securitisation & Debt Capital Markets in Africa

10. Securitisation & Debt Capital Markets in Africa