©2007 Deloitte Touche Tohmatsu

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

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa3 Africa exhibited real GDP growth of 5.8% in 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 East African Debt Capital Markets Macro-Economic Performance

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa4 Tightening of the governments’ monetary policies continues unabated, mainly to contain inflation East African Debt Capital Markets Macro-Economic Performance

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa5 Bond market small with only a handful of issues East African Debt Capital Markets Market Character, Structure & Bond Issues

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa6 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 East African Debt Capital Markets Challenges to Bond Market Development

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa7 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. East African Debt Capital Markets Recent & Key Emerging Trends

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa8 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) East African Debt Capital Markets Sectors to Watch

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa9 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 East African Debt Capital Markets Concluding…

©2007 Deloitte Touche Tohmatsu Securitisation & Debt Capital Markets in Africa10