A budget that won’t fly and some deals that might

KNBS released data that looks positive about the economy. But whichever way you look at it, it feel's like there's no money here, and wherever there is any, it's debt (increasingly non-performing). The blaring noise surrounding the budget speaks volumes and as the public participation deadline draws near, the President has returned from America with enough pledges to cover his flight and leave some...change.

Here are the main stories in investing over the week:

• Protests follow the Finance Bill 2024
• KCB posts strong Q1 growth, NPLs rise
• US pledges more investments & debt relief

SPOTLIGHT

Kenyan economy accelerates on agriculture

The KNBS last week released the Economic Survey 2024 indicating that Kenya’s economic growth accelerated to 5.6% in 2023 compared to a revised 4.9% in 2022.

What happened

Improved rains after two years of drought resulted in the agricultural sector registering 7% growth in 2023 versus a -2.3% contraction in 2022. Agriculture’s contribution to GDP growth was 19.8%. Formal employment grew by 2.7% to 362,300. The tourism sector also registered decent growth with international visitor arrivals surpassing pre-pandemic levels, growing by 35.4% to 2.1mn in the year.

Between the lines

The numbers are broadly positive with some notably strong sectors. However, the current state of the economy may guide one as to how much reliance to place on this past data as a guide to investing. The report however gives valuable insight into where Kenya's growth came from & what sectors underperformed. This is valuable in making investing assumptions.

Should you care?

We'll dig into the importance of GDP growth from an investing perspective in today's 'INSIGHT' feature later in the edition.

HEADLINES

The week's big stories

• Protests follow the Finance Bill 2024. As the May 28th deadline for public participation nears, more parties have opposed proposed new tax measures, arguing that it will increase the cost of goods and services. "With prices of household necessities estimated to increase by as much as 80%, we expect to see a re-prioritisation of household expenditure away from non-essential consumption, thereby negatively impacting the forecasted 5.0% growth in GDP," said Gladys Makumi, Deloitte East Africa. Say less...
• KCB posts strong Q1 growth, NPLs rise. KCB Group Plc reported a 69% increase in after tax profits to KES 16.5bn for 1Q2024 on the back of growth in non-funded income & net interest income to KES 27.8bn. Loan loss provisions jumped by 53.4% to KES 6.3 bn, as gross NPLs increased by 16.3% to KES 205.3 bn. Most NPLs were in sectors like manufacturing, trade, transport, and construction. Strong performance, but NPL's...(across the sector).
• US pledges more investments & debt relief. U.S. President Joe Biden and Kenyan President William Ruto on Thursday announced investments in green energy, education and health manufacturing in the East African nation and a plan to reduce its debt burden. The raft of deals will see the US invest millions of dollars into different sectors, including startups and government institutions. The proof is in the pudding.

INSIGHT

Explained by AI (and I): GDP growth

You will never regret having a view into the GDPs of economies you're invested in. Understanding the performance of different sectors and their contributions to the economy is crucial in making decisions around your investment holdings.

Definition

Gross Domestic Product (GDP) growth refers to the increase in the value of all goods and services produced by an economy over a specific period, usually measured annually or quarterly. It is a key indicator of economic health and performance.

Calculation

GDP growth is calculated as the percentage change in GDP from one period to another, typically expressed on a quarterly or annual basis. Positive GDP growth indicates a growing economy, while negative growth signals economic contraction.

GDP is composed of various sectors, such as manufacturing, services, agriculture, and construction, each contributing differently to the overall economic output.

Significance

By understanding how different sectors contribute to an economy's GDP and analyzing their performance, investors can make informed decisions to optimize their portfolios.

Here's how GDP growth is useful to you as an investor:

1. Economic Health Indicator: GDP growth provides a snapshot of the economy's health. Strong GDP growth suggests robust economic activity, potentially leading to higher corporate profits, increased consumer spending, and favorable market conditions for investments.
2. Market Sentiment: Positive GDP growth can boost investor confidence, leading to higher stock market valuations and increased investment inflows. Conversely, weak GDP growth can dampen market sentiment and lead to cautious investment behavior.
3. Monetary Policy: Central banks often adjust monetary policy based on GDP growth rates. For example, strong GDP growth may lead to higher interest rates to prevent overheating, while weak growth could prompt lower interest rates to stimulate the economy. Changes in interest rates affect bond yields, borrowing costs, and overall investment returns.
4. Sector Performance: Different sectors contribute to GDP growth in varying degrees. By analyzing sector-specific performance, investors can identify which industries are driving economic growth and which are lagging. This information can guide investment strategies and portfolio allocation.

Staying informed about GDP trends and sectoral shifts enables investors to navigate economic cycles and capitalize on growth opportunities.

PAUSE

ROUNDUP

Other news

• Collective Investment Schemes (CIS's) in Kenya added KES 10.3bn in assets in Q1, 2024 according to data from the Capital Markets Authority, rising to KES 225.4bn from KES 215.1bn at the end of December 2023. Unit trusts have grown on the back of technology, innovations such as daily distribution of interest and low minimum initial investment amounts.
• MPs have questioned the procedure used by the Ministry of Housing to invest KES 20 bn collected from the housing levy fund in Treasury Bills, raising concerns on the safety of the investment. Lands Cabinet Secretary Alice Wahome defended the move to invest saying it is short term.
• Real estate developer Acorn Holdings has signed a USD 180mn (KShs. 23.6bn) financing deal with the US Development Finance Corporation (DFC) to develop 35 new affordable student housing units. The company will use the financing to secure over $380 million in Kenya Shilling and also crowd in over $315mn from capital markets.

One liners

• Trade deficit narrows as export earnings hit Sh1tr [The Standard]
• NSE bets on secondary listings to boost activity amid IPO drought [East African]
• Former Britam executives off the hook after DPP drops Sh1bn theft charges [Business Daily]
• Lipton Teas withdraws offer to acquire remaining shares of Limuru Tea [Kenyan Wall Street]
• Equity reduces borrowings by Sh25bn on high interest rates [Business Daily]

REGION

What in the East Africa?

[UG] Credit to private sector declines [New Vision]

[UG] MTN Uganda to sell shares left over from undersubscribed 2021 IPO: Telecom firm MTN Uganda plans to sell shares left over from its deeply undersubscribed 2021 Initial Public Offering to local investors to expand local ownership and comply with regulatory requirements. MTN Uganda said it will sell the shares on the secondary market of the Uganda Securities Exchange (USE) between May 27 and June 10. [Story]

[TZ] Tanzania's CRDB Bank plans to boost its retail business [East African]

[TZ] Government promotes green bonds for public projects after Tanga Uwasa success: Following the successful issuance of a green bond for water infrastructure by Tanga Uwasa, the government is now promoting the use of green bonds by other public institutions. The Tanga Uwasa bond, valued at TZS 53.12bn (USD 20.8mn) was oversubscribed by 3% and was a first in East Africa by a sub-national entity. [Story]

[RW] Ten key projects to be funded under proposed Rwf5.7tn national budget [New Times]

[RW] MTN Rwanda investors set for Rwf5.7 billion dividend payout: The payout will be approximately Rwf4.24 per share. MTN Rwandacell Plc’s net earnings dropped significantly by 28.9% to Rwf11.4 billion in 2023, despite an 11% increase in service revenue to Rwf246.5 billion and a 6.5% year-on-year growth in subscriber base. [Story]

[ET] Budget deficit weighs heavy despite external debt relief [The Reporter]

[ET] Ethiopia on track for 7.9pc economic growth in 2023/24 fiscal year: The performance in the country's agriculture, industry and service sectors over the first nine months of the fiscal year indicates that the target is attainable, said Fitsum Assefa, Ethiopian minister of Planning and Development. In terms of revenue generation, the Ethiopian government has collected about 374 billion Ethiopian birr (about $6.5 billion) in the past nine months. [Story]

CURIOUS

Two good not to share

One: I came across this video when putting off some work, and it was work well postponed. If you're human, it might change your relationship with procrastination which can be argued to be  an ‘emotional defense mechanism’. How do you overcome this? Press play.

Two: I had to read this one twice:

As the area of our knowledge grows, so too does the perimeter of our ignorance.

-Neil deGrasse Tyson

I know you’ve been procrastinating something small, like sharing this newsletter with friends. So if you enjoyed this edition of The StrongRoom, let's put that newly acquired knowledge to use. Take wins or make them!

Have the best week possible!

Yours truly.

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