FEBRUARY 2018 AUGUST 2016

Transcription

1 NOVEMBER AUGUST JULY FEBRUARY 2018 AUGUST 2016

2 LIST OF ACRONYMS BHL: CPI: DSI: EIU: EUR: FAW: FEWS NET: FMB: FMBCH: FSI: GBP: GDP: ILLOVO: IMF: LIDC: MASI: MASL: MERA MK: MPC: MPICO: MSE: MT: MRA: NBM: NBS: NICO: NITL: NPL: NSO: OML: OMO: OPEC: PCL: PIMA: RBM: SACCO: SDF: SGR: Standard: SSA: Sunbird: TB: TCC: TNM: UK: USA: US$: ZAR: Blantyre Hotels Plc Consumer Price Index Domestic Share Index Economist Intelligence Unit Euro Fall Army Worms Famine Early Warning Systems Network First Merchant Bank Plc First Merchant Bank Capital Holdings Foreign Share Index British Pound Sterling Gross Domestic Product Illovo Sugar Malawi Plc International Monetary Fund Low Income Developing Country Malawi All Share Index Meters Above Sea Level Malawi Energy Regulatory Authority Malawi Kwacha Monetary Policy Committee Malawi Property Investment Company Plc Malawi Stock Exchange Metric Tonnes Malawi Revenue Authority National Bank of Malawi Plc NBS Bank Plc NICO Holdings Plc National Investment Trust Plc National Publications Limited National Statistical Office Old Mutual Plc Open Market Operations Organization of the Petroleum Exporting Countries Press Corporation Plc Public Investment Management Asessment Reserve Bank of Malawi Savings and Credit Cooperative Organisation Southern Dark Fired Tobacco Strategic Grain Reserve Standard Bank Plc Sub-Saharan Africa Sunbird Tourism Plc Treasury Bills Tobacco Control Commission Telekom Networks Malawi Plc United Kingdom United States of America United States Dollar South African Rand

3 TABLE OF CONTENTS CONTENT PAGE Economic Overview for The Month Local Market Developments Economic Outlook... 4 Key Risks 5 Malawi Economic Data...6 Appendix

4 ECONOMIC OVERVIEW FOR THE MONTH Inflation (Source: NSO) Headline inflation for the month of July 2018 increased to 9.00% from 8.60% in June 2018 (July 2017: 10.20%). This was due to increases in both food inflation to 9.50% from 9.10% and non-food inflation to 8.70% from 8.20% for the same period. The monthon-month headline inflation rate for July 2018 stood at 0.6%, compared to negative 0.2% recorded in the preceding month. Government Securities (Source: RBM) During the month of August 2018, the all-type Treasury bill yield marginally decreased to 14.43% from 14.50% in July 2018 (August 2017: 17.01%). Total Treasury bill applications for August 2018 stood at K52.30 billion and K42.73 billion was allotted representing an 18.29% rejection rate. The 364 days paper accounted for the highest subscription rate at 48.01%, followed by the 182 days paper at 28.86% and the 91 days paper at 23.13%. On average, the yield for the 91 days paper decreased to 13.80% from 14.00% in July The yields for the 182 days paper and 364 days paper remained steady at 14.50% and 15.00% in August 2018, respectively. There were Open Market Operations (OMO) conducted in August 2018 totaling to K7.92 billion at an average rate of 15.00% compared to K22.69 billion at an average rate of 15.00% recorded in July In August 2017, K billion was allotted in OMO securities at an average rate of 17.00%. Interbank Market and Interest Rates (Source: RBM) Liquidity levels increased in August 2018, averaging K10.46 billion per day from K9.91 billion per day in July Access on the Lombard Facility (discount window borrowing) averaged K6.87 billion per day increasing from K6.12 billion per day recorded in the previous month, at an average rate of 18.00%. Overnight borrowing between banks increased to an average of K9.17 billion per day in August 2018 at an average rate of 15.26% from K6.12 billion per day in July 2018 at an average rate of 14.61% Foreign Currency Market (Source: RBM) As at the end of August 2018, the Kwacha was trading at: MK731.83:US$1 (0.01% appreciation from the previous month) MK950.71:GBP1 (0.89% appreciation from the previous month) MK49.73:ZAR1 (10.34% appreciation from the previous month) and MK852.32:EUR1 (0.05% depreciation from the previous month). Total forex reserves decreased to US$1, million (5.20 months worth of import cover) as at 31 August 2018 from US$1, million (5.23 months worth of import cover) as at 31 July 2018 but increased from US$1, million (4.91 months of import cover) in August Of the total reserves, US$ million (3.61 months of import cover) were gross official reserves and US$ million (1.59 months of import cover) were private sector reserves. Of the US1, million total reserves in August 2017, US$ million (3.13 months of import cover) were gross official reserves and US$ million (1.78 months of import cover) were private sector reserves. Stock Market (Source: MSE) The stock market was bullish in August 2018, with the Malawi All Share Index (MASI) increasing by 2.22% to settle at 31, points from 31, points the previous month (August 2017:18.80% increase). The year to date return for the MASI stood at 47.96% as at end of August 2018 compared to 49.76% in August The market gainers for the month of August 2018 were BHL (15.00%), TNM (11.92%), NBM (0.01%). The market losers were FMBCH (0.01%) and MPICO (0.26%). During the month, the Domestic Share Index (DSI) increased by 3.08% to 21, points from 20, points (August 2017: 19.04% increase). The Foreign Share Index (FSI) decreased slightly by 0.01% to 8, points from 8, points from the previous month (August 2017: 4.32% change). In the month of August 2018, the Malawi Kwacha marginally depreciated against the Euro; it, however, appreciated against other major trading currencies. 1

5 LOCAL MARKET DEVELOPMENTS Food Security Update (Source: FEWS.NET) The southern region of Malawi is expected to face the lean season in September 2018, earlier than anticipated. This will have a strong impact on the worse-off households in the Lake Chilwa Phalombe Plain, Lower Shire, Middle Shire Valley, and Southern Lakeshore livelihood zones as they are expected to deteriorate to crisis by October. However, carryover stocks from the previous season and cross border maize imports may support minimal to stressed outcomes in September Due to dry spells that affected crop development, estimated production of irrigated maize for September 2018 to November 2018 is likely to be 10 to 32 percent and 60 to 90 percent below the five-year average in southern and central Malawi, respectively. This year s yield of irrigated crops will be insufficient to improve food security outcomes in areas of concern. Due to the limited harvest, labour opportunities in the agriculture sector are expected to remain below normal levels until the start of the 2018/2019 farming season. The national price of maize increased by 9% from June 2018 to July 2018; this is 6% below the fiveyear average. Higher increases were seen in the key reference markets in Southern Malawi, such as 28% and 29% hikes in Phalombe and Nsanje, respectively. Informal cross-border maize imports increased by 42% from June 2018 to July 2018, however, this is 25% below the five-year average. Tobacco Market Update (Source: TCC) The cumulative results for week twenty of the tobacco marketing season show that tobacco average price declined by 14.07% to US$1.71 per kg from US$1.99 per kg recorded in the corresponding period during the 2017 tobacco marketing season. Despite this price decline, the value of tobacco traded was 32.50% higher than that registered in the previous corresponding period at US$314.8 million. Currently, the Mzuzu and Lilongwe floors are still open. The Chinkhoma and Limbe floors have been closed The table below shows the cumulative results as at 20 th week: 2018: Tobacco Sales: Week Twenty Cumulative Sales Versus Same Period in 2017 National % Change Volume (Kg Million) Value (US$ Million) Average Price (US$/Kg) Financial Stability (Source: RBM) 42.23% 32.50% % The Reserve Bank of Malawi released the Financial Stability Report for the month of June 2018, a report that analyzes the financial sector developments. After thorough analysis it was concluded that Malawi s financial system remained stable and could withstand domestic and external shocks, for the six month period under review. The observed stable exchange rate alongside managed interest rates and the current trade in inflation will aid in the financial system s stability. The banking sector was stable during the review period as the industry was sufficiently capitalized, liquid and profitable, with improved asset quality. Most of the companies within the general insurance sector registered profits during the review period and an improvement in capital. However, solvency and liquidity remained weak. The life insurance sector experienced increases in earnings and capital. The RBM thus expects the sector to continue being profitable and have growth in gross life premiums. This is partly dependent on the continuation of institutions complying with the requirements in buying group life cover as stipulated in the Pensions Act. It is anticipated that the pension sector will continue to grow with expected high level of investment returns. However, the report found that contribution arrears are a major challenge in the industry. 2

6 LOCAL MARKET DEVELOPMENTS (Continued) Financial Stability (Continued) Looking at the capital market, growth is expected to continue due to the current macroeconomic conditions. Share prices and market activity may continue to increase due to the continued attractiveness of equity investments over money market investments, coupled with increased capital markets financial literacy awareness. It is stated that the financial infrastructure is expected to remain robust and sound owing to continued monitoring by RBM to ensure safe, efficient and reliable payment and settlement process. Credit to the private sector (Source: RBM) The Reserve Bank of Malawi released its Monthly Economic review for May 2018, giving highlights on the economic developments during the review month. It was reported that credit to the private sector, during the period under review, had significant growth. Overall, the banking system credit to the domestic economy reduced to K950.2 billion from K1,009.7 billion in May This was primarily due to a decrease in net credit to central government. Focusing on the private sector, credit available maintained the upward trend observed from March Private sector credit grew by K7.1 billion to K428.3 billion. Commercial and industrial loans and mortgages increased by K3.8 billion and K1.3 billion to K176.0 billion and K40.3 billion, respectively. Individual household loans and foreign currency denominated loans also had a slight increase. Comparing the sectoral composition of private sector credit in June 2018 with June 2017 s, the agriculture, forestry & fishing sector had a reduced proportion as compared to The manufacturing sector took up a slightly larger proportion of the total private sector credit as compared to June Technical Assistance Report-Public Investment Management Assessment (Source: IMF) A Public Investment Management Assessment (PIMA) was conducted and its results were used to provide recommendations on improving management practices for public investment. The report primarily focused on the performance of domestically financed investment projects. Although slightly underperforming when compared to better-performing emerging markets, the results showed that Malawi broadly performs in line with other LIDCs and SSA countries. In detail, the results showed that Malawi s performance is mixed as results varied across different PIMA indicators. On the one hand Malawi performed well in areas such as the country s comprehensive national planning system, coordination between central and local government, and the comprehensive Public Sector Investment Program. On the other hand, several PIMA indicators had relatively sub-par ratings. Examples of such indicators included: the failure to apply cost benefit analysis systematically to large projects; significant data gaps in various published budget documents, unpredictability in the funding of capital projects, and their vulnerability to in year budget cuts and weakness in cash management. In-depth recommendations were made following the assessment results. Such recommendations included improvements in budget documentation on capital projects and existing data, and bringing forward the date of issuance of the budget ceilings for line ministries. Listed Company Financials (Source: Respective companies) Below are the listed company s half year financials. Profit after tax (K'bn) HY 2018 HY 2017 % Change HY 2018 HY 2017 % Change BHL % % Illovo % MPICO % % NBM % % NICO % % PCL % % TNM % % Standard % Bank 13.30% National % Bank % NBS % Profit after tax ($'mn) Interim Dividend ($) 12 months to 31 Dec months to 30 Jun 2018 Interim Dividend (MK) HY 2017 HY 2018 FMB

7 ECONOMIC OUTLOOK The Kwacha showed a slight appreciation against major currencies including the US Dollar. Overall, it has been relatively stable, maintaining the trend that lasted for most of 2017 and It is expected that the Kwacha will remain stable in the short-term due to continued availability of foreign exchange reserves, which are adequate to guard against the Kwacha volatility. In addition, reduced demand for foreign currency will assist with the Kwacha s stability. As the 2018 tobacco marketing season begins to close, it is anticipated that this will negatively affect the inflow of foreign exchange reserves thus impacting the Kwacha s value. Although showing a slight improvement, significant current account deficits and weak foreign direct investment inflows may cause the Kwacha to depreciate in the long term. In addition, the upcoming expenditures that accrue in the run up to the 2019 elections may negatively effect the exchange rate s stability. Despite food inflationary pressures subsiding in June 2018, the food inflation rate has increased for the month of July It is expected that the food inflation rate will continue to increase. This is primarily due to the lean season being expected earlier than usual. In addition, the Ministry of Agriculture has reduced estimated production in irrigated crops; the figure is significantly below the five year average. However, carry over stocks from the previous season and cross boarder maize imports may slightly cushion the effects. Non-food inflation increased in July The inflation pressures may continue to increase as the rise in global oil prices, and other factors such as wage increases in the public sector, rising housing cost and electricity tariffs, and current fuel prices may exert pressure on current prices. The monetary policy rate was maintained at 16%, following the second MPC meeting held from the 3 rd to the 4 th of July Due to existing inflationary pressures the monetary policy rate is not likely to change. Treasury bill yields are expected to remain below the monetary policy rate but are unlikely to substantially decrease. For the month of August 2018, the average interbank rate increased, compared to the previous month. Interest rates on the interbank market are dependent on the volatility of liquidity and therefore susceptible to change. According to June 2018 s Economic review government revenue rose by 33.3%, a turnaround from a decrease in revenue of 21.4% in the previous month. The increase was attributed to an increase in domestic revenue and foreign inflows. It is expected that the fiscal deficit will narrow in 2018/19, to 4.7% of GDP. With greater control over current spending, it is expected that the fiscal deficit will reduce to 2.6% of GDP in 2021/22. In 2018, real GDP growth is projected to be 4.00% based on RBM s forecasts. This is a decline from the estimated projection of 5.00% in the year This is primarily due to the contraction of outputs in both the agricultural and manufacturing sectors. The stability of growth, however, is partly dependent on a sufficient agricultural output especially with the expected reduction in the yield of irrigated crops. Intermittent power supply also poses as a threat to the projected growth. Prudent macroeconomic management is vital in avoiding further instability. (Sources: FEWS NET, RBM, EIU) 4

8 KEY RISKS Insufficient Power Supply Insufficient power supply may hamper economic activity in the country. Power shortages may also limit investment if alternative methods of power generation are not implemented. The proposed tariff increase may result in greater production costs, thereby exerting more pressure on non-food inflation. High Government Debt Levels High debt levels continue to create a future obligation for government to repay its domestic and foreign debts plus interest. Malawi s public debt increased by 19.3% as at the second quarter of 2018 to K3.0 trillion from K2.5 trillion recorded in the second quarter of Domestic debt increased by 9.0% to K1.50 trillion, while external debt increased by 3.3% to K1.49 trillion. Total debt to GDP ratio increased to 58.5% from 56.3% at the end of first quarter of The ratio of external debt to GDP slightly reduced to 29.5% from 29.6% in the first quarter of 2018, which is below the 30.0% IMF s regulatory threshold. The 2018/19 budget statement stipulates that the expected K243 billion fiscal deficit in the 2018/19 fiscal year will be partly financed by domestic borrowing which has been estimated to rise by K176 billion. Long term debt results in higher levels of interest payments which increase government expenditure and the budget deficit. Banking Sector Risk High lending rates may deter private sector growth and capital investments. High lending rates may also lead to high default rates on loan facilities and lower private sector activity. Persistent Weak Export Base Malawi is characterised by a weak export base. This may affect the stability of the Kwacha against the major trading currencies. Low tobacco prices are likely to reduce the export value thereby maintaining the wide current account deficit leading to the depreciation of the Kwacha. High Population Growth High population growth rate has a negative impact on average per capita income. As such, improved economic growth does not translate into real sector growth. Furthermore, the resources that the country could have allocated to more productive activities are used to take care of the growing population. 5

9 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr 18 May-18 Jun-18 Jul-18 Aug-18 Exchange rates (Source: RBM) MK : US$ % 0.04% MK : GBP , , , , % -0.71% MK : ZAR % 11.36% MK : EUR % 1.08% Forex reserves (Source: RBM) Gross Official Reserves (US$'mn) % 15.03% Private Sector Reserves (US$'mn) % % Total Reserves (US$'mn) 1, , , , , , , , , , , , % 5.67% Total Import Cover (months) % 5.91% Inflation (Source: NSO) Headline Inflation 9.30% 8.40% 8.30% 7.70% 7.10% 8.10% 7.80% 9.90% 9.70% 8.90% 8.60% 9.00% N/A 0.40% -1.20% Food 6.20% 5.10% 4.80% 4.70% 4.30% 7.60% 7.30% 10.60% 10.00% 9.50% 9.10% 9.50% N/A 0.40% 2.10% Non Food 12.20% 11.60% 11.70% 11.00% 10.00% 9.60% 9.40% 9.70% 8.90% 8.40% 8.20% 8.70% N/A 0.50% -4.00% Interbank Rates (Source: RBM) Monetary Policy Rate 18.00% 18.00% 18.00% 18.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 16.00% 0.00% -2.00% Average Interbank Rate 16.70% 16.02% 16.80% 16.61% 15.89% 14.95% 15.20% 13.85% 14.02% 15.41% 15.02% 14.61% 15.26% 0.65% -1.44% Average Base Lending Rates 27.55% 27.55% 27.55% 27.55% 27.55% 25.41% 25.41% 25.41% 25.41% 25.41% 25.41% 25.41% 25.41% 0.00% -2.14% Treasury Bill Yields (Source: RBM) 91 day Treasury Bill yield 16.31% 15.03% 13.18% 14.52% 14.73% 14.00% 13.98% 14.00% 14.00% 14.00% 14.00% 14.00% 13.80% -0.20% -2.51% 182 day Treasury Bill yield 16.91% 15.21% 14.26% 14.88% 15.10% 14.50% 14.50% 14.50% 14.50% 14.50% 14.50% 14.50% 14.50% 0.00% -2.41% 364 day Treasury Bill yield 17.80% 15.63% 14.64% 15.97% 15.77% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 15.00% 0.00% -2.80% Stock Market Indices (Point) (Source: MSE) MASI 20, , , , , , , , , , , , , % 59.39% DSI 15, , , , , , , , , , , , , % 34.00% FSI 2, , , , , , , , , , , , , % % Fuel Prices per Litre (Source: MERA) Petrol % 7.68% Diesel % 9.21% Paraffin % 10.88% M-O-M movement Y-O-Y movement MALAWI ECONOMIC DATA 6

10 APPENDIX - TREND GRAPHS Disclaimer This report has been prepared for indicative purposes only. Whilst every effort has been made to ensure the accuracy of information contained herein no responsibility or liability whatsoever resulting from the use of information contained in this report is accepted by NICO Asset Managers Limited. Recipients of this report shall be solely responsible for making their own independent appraisal and investigation into all matters contemplated in this report. 7

11 NICO ASSET MANAGERS LIMITED COMPANY PROFILE NICO Asset Managers Limited is a specialist investment management and advisory firm, providing a premier range of investment management, corporate finance, infrastructure development and investor services to institutional and individual investors. We are registered with the Reserve Bank of Malawi as a Portfolio/Investment Manager, Investment Advisor and Transfer Secretary. We are a wholly owned subsidiary of NICO Holdings Plc. Vision To be the preferred provider of investment and financial solutions through a culture of excellence and innovation Mission Statement To provide innovative investment and financial solutions that grow our client's wealth Our services Investment/Fund Management Corporate Finance Investor Services Infrastructure Development Pension fund management- Segregated Funds Pension fund management- Pooled Funds Institutional Fund management Trust fund management NICO Nominees Fixed Deposit NICO Nominees Invest Plus Capital raising Feasibility studies Company valuation Mergers and Acquisitions Company set up Transfer Secretarial Services Economic Research Company Secretarial Services Property development Project Management Property Management/ Monitoring Property advisory and transaction services Contact us: Head Office NICO Asset Managers Limited 19 Glyn Jones Road Chibisa House P.O. Box 3173 Blantyre Tel no: /086 Fax no: invest@nicoassetmanagers.com Website: Lilongwe Branch NICO Asset Managers Limited Corner Kenyatta Drive NICO Centre P.O. Box Lilongwe 3 Tel no: /086