The report states that inflationary pressures are currently in line with global trends, due to supply chain disruptions caused by the COVID-19 pandemic, high fuel prices, food shortages due to the Russia-Ukraine conflict, a strengthening US dollar, and restrictions in China. after the outbreak of COVID-19 has all contributed to the increase in global inflation. High inflation is also a major investment risk, as central banks in developed countries tend to approach higher interest rates to curb inflation.
The report predicts that the Central Bank of Kenya (CBK) may increase interest rates in 2023 to manage inflationary pressures and global risks. However, Uganda may be exposed to higher interest rate risk due to high liquidity in the money market. Meanwhile, the Bank of Tanzania is expected to maintain an accommodative monetary stance to boost private sector credit growth.
The report also notes that Kenya is particularly vulnerable to inflationary pressures due to its higher debt-to-GDP ratio and exposure to foreign currency debt. The country has a $2 billion Eurobond repayment due in June 2024, and the report predicts that CBK will prioritize foreign debt repayment, with the government increasingly relying on multilateral agency funding, commercial syndicated loans, and CBK forex reserves to finance foreign . debt maturities.
The outlook for the Kenyan stock market is also bleak following a 23.4% market decline in 2022; stock market valuations are currently lower and could be an attractive entry point for long-term investors. However, the strength of the US dollar and high yields in local government bonds may still reduce investor participation in the stock exchange, Africa Exchange reported.
The report shows that investors are considering a variety of alternative assets such as private equity and emerging real estate opportunities, such as data centers, healthcare, student housing, cold storage, affordable housing, and infrastructure, as these can provide higher returns than traditional investment.