Financing East Africa's Infrastructure Needs Theme

Financing East Africa’s Infrastructure Needs

Theme: Role of Stakeholders

Presented by: Britam Asset Managers

28th June 2017 Presentation Outline

Part One: Who We Are

I. Overview of Britam Group

II. Introduction to Britam Asset Managers

Part Two: East African Trends & Opportunities 2017

I. Introduction

a) Focus on infrastructure

b) Potential of PPP Models

c) Sectoral opportunities

III. Lessons from other integrated regions

IV. Way forward

2 I. Who We Are

I. Overview of Britam Group

II. Introduction to Britam Asset Managers I. Britam Holdings Ltd Overview

. Britam is a diversified financial services group, listed on the Nairobi Securities Exchange. The group has interests across the Eastern and Southern Africa region, with operations in Kenya, Uganda, Tanzania, Rwanda, South Sudan, Mozambique and Malawi.

. The group offers a wide range of financial products and services in Insurance, Asset management, Banking and Property. Our Footprint

1965 2017

5 Corporate & Business Leadership

Gladys Karuri Muthoga Ngera Nancy K. Kiruki, • •Director, Marketing & Corporate Affairs Director, Group Finance and Strategy •Director, Legal& Company Secretary

“ experienced, dynamic and cohesive leadership team and staff”

6 Britam Holdings

0 Insurance . Asset Property Banking Business 6 Management Business Business |1 Unit Trust Funds | Wealth Management | Pensions | Property 1. | Discretionary Management | Offshore Investments | Alternative • Life Insurance.0 • Unit Trust Funds • Britam Properties- • Equity Bank 0%Investments • General % • Discretionary 100% Stake – 10.1% Insurance Portfolio • Housing • Health Insurance Management Finance Stake – • Pension Business • Property 48.63% • Pensions • Wealth Management • Diaspora Services

7 II. Introduction to Britam Asset Managers Asset Management Executive Team

Miriam Kahiro Dennis Katei Janet Waweru ACCA Eva Mbora Legal Manager Compliance Manager Chief Accountant Human Resources Manager

9 Our Business Is Categorized as follows:

Asset Management Businesses

| Unit Trust Funds | Wealth Management | Pensions | Property Real Estate Retail |Products Discretionary ManagementInstitutional | Offshore SolutionsInvestments | Alternative Investments Investments • Unit Trust Funds • Pension Schemes • Development Funds • Wealth Management • Income Funds • Diaspora Services • Discretionary Portfolio Management

10 Our Approach Is To Understand Client Needs And Apply Our Resources To Meeting Those Needs, through:

Customized Investment Approach

Experienced & World Class Capabilities

Strong Brand & Group Backing

11 Our Accolades

Britam Asset Managers Clinched the Fund Manager of the Year Award in 2011, 2012 and 2013 and the Unit Trust of the Year Award in 2012, 2013, 2015 and 2016

Think Business Awards 2011-2016

• Unit Trust of the Year, Winner - 2012, 2013, 2015, 2016

• Best Performing Money Market Fund, Winner - 2014, 2016

• Fund Manager of the Year: Overall Winner – 2011, 2012, 2013, 2nd Runner up 2014, and 1st Runner up 2015, 2016

• Fund Manager of the Year: Pensions - 1st Runner-up, 2014, 2016

• Fund Manager of the Year: Equity- 1st Runner Up, 2014, “Our history of success provides 2016, Winner – 2015

• Fund Manager of the Year: Money Market - 1st Runner-up, financial security for our clients” 2014, 2016

12 II. East Africa’s Infrastructure Needs

I. East Africa Global Competitiveness

II. Infrastructure Needs

III. Priority Areas

IV. Traditional Sources of Financing The East African Community The EAC consists of 6 countries with a combined GDP of USD 157bn in 2016 and a population of 169 million people

EAC Member States

Uganda South Sudan GDP – USD 26.2bn GDP – USD 2.9bn Population – 41.1mn Population – 12.5mn

Burundi Tanzania GDP – USD 3.1bn GDP – USD 47.2bn Population – 9.7mn Population – 48.6mn

Source: www.eac.int, BAM Research 14 EAC region remains uncompetitive despite strong economic growth Despite overall improvement in competitiveness, EAC remains in in the bottom half of global rankings Global Competitive Index Global Competitive Index Country Rank (2015) Rank (2010) Kenya 96 111 Tanzania 116 113 Rwanda 52 85 Uganda | Unit Trust Funds | Wealth Management113 | Pensions | Property 118 | Discretionary Management | Offshore Investments | Alternative Burundi Investments 135 137 Countries in Index 138 144

 While East African countries have made significant improvements towards improved global competitiveness, a majority remain in the bottom half of global rankings  Poor infrastructure, poor access to financing and unfavourable tax rates are some of the reasons why East African countries are ranked lowly in terms of global competitiveness  According to AfDB, the poor state of infrastructure in Sub-Saharan Africa cuts national economic growth by two percentage points every year and reduces productivity by as much as 40 per cent.

Source: World Economic Forum, BAM Research 15 Infrastructure Needs in East Africa EAC members are actively collaborating on infrastructure inter-connectivity EAC Vision 2050 Infrastructure Targets

Indicators 2014 2030 2050 Quantity of Regional Railway Network (Km) 2254 2344 2438 Paved Road Networks (Km) 24,523 39,250 65,700 Regional inter-connectivity Marine-Port Services Network 4 6 12 Pipeline length (km) 2,074 3,150 5,600 ICT (internet penetration and mobile networks), % 65 80 95 | Unit Trust Funds | Wealth Management | Pensions | Property Energy Production (Megawatts) 3,965 70,570 122,569 Energy | Discretionary Management | Offshore Investments | Alternative InvestmentsElectrification rate (%) 19.1 58 74

Oil and Gas Regional refineries 1 5 12

 Kenya, Tanzania, Uganda, Rwanda, South Sudan and Ethiopia are part of the East African Railway Master Plan to connect the cities of Mombasa, Nairobi, Kigali, Kampala & Juba by 2018 at a cost in excess of USD 30bn

 Plans are also underway to build 3 oil pipelines between Kenya, South Sudan, Ethiopia, Uganda & Tanzania to transport both crude and processed oil. Total costs are expected to exceed USD 8.0bn. Planned refineries in South Sudan and Uganda could cost up to USD 5.0Bn

Source: EAC Vision 2050, Oxford Energy, LAPSSET Website, GOK, Railway-technology.com, BAM Research Need to prioritize key infrastructure projects: Change narratives EAC’s Savings/GDP and Investment/GDP remains below peer emerging and frontier economies EAC Savings and Investment as % of GDP

22.6% 20.9% 20.2% 19.4% 17.2% 14.0% 13.0% 10.2%

 East Africa’s savings level remains below peers in the developing world, resulting in over-reliance on government borrowing domestically and abroad to finance this level of investment  Government’s cannot rely too much on public borrowing since debt levels are already around the EAC common targets of 50% Debt/GDP and budget deficits are above the 6% common target for East African governments  East African governments must therefore prioritize the infrastructure investments that have the greatest economic value in the region and greatest multiplier effect to other sectors in the economy

Source: IMF, BAM Research 17 Priority Areas: Rail & Energy Sectors Investment in Rail & Energy sectors have the greatest multiplier effect on EAC economies Rail Sector Energy Sector

| Unit Trust Funds | Wealth Management | Pensions | Property | Discretionary Management | Offshore Investments | Alternative Investments  Current rail stock underutilized  EA access to electricity at 23% vs 43%  Decongest ports in other low income African countries  Open up regional trade  Boost industrialization

 Railway transport could reduce product costs by 10% by easing decongestion

 EAC electricity costs average USD 18-22cts per kwh, much higher than Ethiopia (USD 5cts per kwh)

 EAC collaboration has the potential to reduce electricity costs by USD 2bn per year

Source: BAM Research, AfDB Traditional Sources of Financing have not been enough EA countries have relied on foreign aid, commercial loans, bilateral debt & domestic borrowing for funds Traditional Sources of Funds for East African Countries

 With East African economies raising approximately USD 13bn via traditional sources, it is clear that EA countries need to diversify their sources of financing, as foreign aid is expected to be eliminated by 2050 as per the EAC Vision 2050 plan

Source: BAM Research, Respective EA Countries’ 2016-17 Fiscal budgets 19 Traditional Sources: Bilateral funding- Pivoting East EAC countries have been resorting to more Chinese funding for key infrastructure projects on non-concessional terms

China Commitments to Africa Infrastructure (USD Bns) 10,000 9,320 80% 69% 8,000 6,816 60% 6,000 40% 3,354 33% 33% 4,000 | Unit Trust Funds3,107 | Wealth Management | Pensions | Property 23% | 22%Discretionary Management | Offshore Investments | Alternative 20% 2,000 1,025 Investments 0 0% 2011 2012 2013 2014 2015 East Africa East Africa % of total commitments to Africa

 East Africa major corridors form a part of China’s One Belt One Road (OBOR) initiative that seeks to connect Asia, Middle East and China, with Kenya as a key destination

 East African countries have welcomed the new financing from China as traditional sources of financing dry up or remain contingent on certain human rights conditions

Source: ICA (Infrastructure Consortium for Africa) 2014,2015 Annual Report III. Alternative Sources of Financing

I. Alternative sources of financing

II. Roles of EA Stakeholders How East Africa can raise more funds – Alternative financing EA can raise more funds via Public Private Partnerships, Bank syndications & Asset Backed Securities

Government

Build Own Operate Payments and/or Transfer Service right to charge

Payments for O&M Construction Contractor

EA currently has 58 active PPP projects worth USD 7.32bn With estimated funding needs of USD 100bn, East African countries should encourage more PPP projects via: Improved FDI inflows Attracting more local private financing Source: World Bank, BAM Research 22 Types of Alternative financing under the PPP framework PPP framework provides alternative financing opportunities for infrastructure opportunities

Private Partner/ Project Company

Equity Financing Loan Financing Debt Financing | Unit Trust Funds | Wealth Management | Pensions | Property -Private -Opportunities for -Issue of debt by | Discretionary Management | Offshore Investments | Alternative Ratings investment intoInvestments the syndication by the Project project company East African Company Agencies by local investors banks in either local currencies -Rating of the -Cross-listing of or US Dollars issuer by ratings the project agencies company in EAC Regulators -Creation of asset- backed securities (ABS)

23 Potential of the East African Capital Markets The EAC has a deep capital market, with an equity market capitalization of USD 39 Billion and a bond market of USD 17 Billion, against a combined GDP of USD 157 Billion

Kenya Tanzania Uganda Rwanda Total Equity Market Cap (USD Bns) 21.2 8.4 5.9 3.2 38.7

Value of Listed Bonds (USD Bns) 12.2 2.0 1.4 0.2 15.8

Longest Tenor of Corporate Bonds (Yrs) 12 6 10 5 10.0

 The deepening of capital markets across East Africa enhances the ability of private funding for infrastructure projects across the regions

Source: NSE; DSE; USE; RSE; BAM Research Role of the East African Capital Markets: Regulators Regulators must look at infrastructure linked projects and securities across the East African region as a distinct asset class, given distinct characteristics and implied government guarantees for some of the projects

Easing regional flow Flexible asset Infrastructure as an of capital allocation asset class

• To allow| privateUnit Trust Funds | Wealth Management• To allow | Pensions | Property • Regulators sector prioritizing| Discretionary Management | Offshoremovement Investments of | Alternative should consider of competingInvestments long-term capital allowing a 10% projects, from insurance allocation for rewarding of companies and infrastructure efficiency and pension funds investments projects with the into quality across the region greatest opportunities economic value within this sector

Source: BAM Research Role of the East African Governments The EAC government’s main responsibility revolves around providing an enabling environment for PPP Projects

| Unit Trust Funds | Wealth Management | Pensions | Property | Discretionary Management |Collaborating Offshore Investments | Alternative De-risking Launch of Launch of Harmonization Investments on strategic Infrastructure Infrastructure independent of favourable East Africa Projects Bonds PPP Unit tax regime projects

Source: BAM Research Role of the Banking Sector The banking sector in East Africa is relatively well developed, and could play a key role in financing infrastructure investments in the region

Syndication Participation in the Advisory services bond market

• With a balance| Unit Trust Funds | Wealth Management• Banks can | Pensionsinvest | Property • Provision of sheet of| USDDiscretionary 50 Management | Offshorein bonds Investments issued | Alternative advisory services billion, banksInvestments are by the project to companies able to form companies or wishing to syndicates to infrastructure access the finance small bonds issued by capital markets infrastructure the underlying projects in the governments region

Source: BAM Research Role of the Investing Public Long-term institutional investors like insurance companies and pension funds have a key role to play in financing East Africa’s infrastructure needs

| Unit Trust Funds | Wealth Management | Pensions | Property | Discretionary Management | Offshore Investments | Alternative Investments  Life Insurers can  Pension Funds can  Building of a savings apportion part of their also invest part of culture to tap into USD 5bn balance their USD 17bn innovative deposit sheets towards holdings in mobilization products infrastructure infrastructure projects such as M-Akiba investments

Source: BAM Research Summary PPP Stakeholders for Infrastructure Financing

Regional Government Integration Support

 Continued collaboration between East African Governments towards regional integration and private sector investors will boost infrastructure developments in the greater East Africa, leading to faster economic growth, from current levels of 5% - 6% to higher levels of 7%-8% in the medium term THANK YOU

With you every step of the way