Thoughts from a Renaissance man Morocco’s ‘first world’ problems

Thoughts from a Renaissance man Economics & Strategy

29 February 2016

The macro backdrop is the best of the top five equity markets in Africa.

We think Morocco looks good within the frontier space today

This economist’s most recent ‘first world’ problem was being allocated the dreaded middle seat on the Ryanair flight back from

Rabat, landing at midnight, at Stansted (that’s actually four problems in one sentence). Morocco also has little to really complain

about. The country has trains and modern trams you might associate with the Netherlands, and smart airports, roads and buildings

(residential and commercial) similar to Spain or South Africa. Over the past decade or two, Morocco has already delivered the

physical infrastructure that Kenya and Nigeria still aspire to. As a result, car manufacturing (Renault’s capacity is 170k cars a year)

has now become its number one export – and in this regard the country can be compared to frontier peer Romania. With

aerospace components and additional car manufacturing (Peugeot plans 90k vehicles by 2019), Morocco should continue to move

up the value added curve. Morocco’s 34mn people – only a little fewer than Poland or Spain – have a better demographic profile

than either, and, in our view, the $104bn economy looks understated (or everyone else is overstated). Access to banking has

widened sharply; meanwhile Morocco’s banks and telecom companies have used this strong foundation to expand across Africa

over the past 10-15 years.

This has seemingly all been achieved under the benign rule of Morocco’s king (similar to Dubai or Oman, but he’s only 52) and via

Morocco’s very high domestic savings. Unlike Brazil or Russia, it would appear that Morocco’s savings have never been wiped out

by hyperinflation or deep economic shocks. High domestic savings have meant Morocco’s lending to GDP ratio is much higher

than many EM countries at 97% of GDP (source: IMF) and this has not been financed from abroad. External debt was just 32% of

GDP in 2015. The loan-to-deposit ratio is 95% and so in this regard Morocco is more similar to China or Vietnam than most of Sub

Saharan Africa (SSA). As with these two countries, the plentiful supply of savings mean interest rates are low at just 2.5% and the

IMF expects inflation to end 2016 at 1.3%.

So what’s the problem?

The only ‘problem’ is that Morocco is not growing as fast as local officials would like. The prime minister (facing re-election in

October) targeted 7% growth at the last election, but in 2015 the IMF estimates it was 4.7%. Stripping out extremely volatile

agriculture, GDP has risen by just 3% annually since 2013, which we think is pretty good relative to many in EEMEA and given

weakness in Europe (62% of exports in 2014). Officials believe better than 5% should be the target. Morocco, a little like Romania

or Pakistan, is seeing little demand for new loans (credit growth was 1-2% in 2015) after a pre-global financial crisis (GFC) lending

boom. We believe an interest rate cut in March, or further central bank (CB) support for lending growth (similar to Hungary’s

support for SMEs, or the UK’s CB support for lending) is likely.

Exchange rate flexibility is coming

The impressive economic backdrop makes this an ideal year for Morocco to loosen the currency peg (60% euro, 40% US dollar)

according to the IMF. The current account deficit was 1% of GDP in 2015. The currency is fairly valued according to our REER model and

inflation is low. The lack of a significant interest rate premium over the ECB or Fed means even with wider bands – we would guess 3%

bands around a central parity rate as the first move – we see no obvious reason for the currency to move much in any direction.

Macro good – but valuations high

Our data imply Morocco is the second-biggest underweight (after Kuwait) for frontier investors despite offering what we consider to

be the best macro picture among the largest African equity markets. While we are not convinced that either credit or GDP growth

is about to surge, we do like an African currency that is fairly valued and protected by high FX reserves. Daniel Salter, our Global

Equity Strategist, rates Morocco as an Overweight.

© 2016 Renaissance Securities (Cyprus) Limited. All rights reserved. Regulated by the Cyprus Securities and Exchange Commission (Licence No: KEPEY 053/04). Hyperlinks to important information accessible at www.rencap.com: Disclosures and Privacy Policy, Terms & Conditions, Disclaimer.

Charles Robertson +44 (203) 379-7835 CRobertson@rencap.com Mobile +44 7747 118 756

@RenCapMan

2

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

There were two reasons for this week’s visit to Rabat and Casablanca, where we met with

local officials from the public and private sectors.

First, we wanted to find out if there were macro or political risks that we have been

missing. In September 2015, we got more interested in Moroccan macro – particularly in

the African context – because our REER model suggests that unlike overvalued Nigeria,

Egypt or Kenya, the Moroccan dirham (MAD) was marginally cheap compared to its own

history. Our January update reiterated this point. Below we touch on some of the potential

issues, but the short answer is no, we do not see significant risks.

Second, we wanted to understand how Morocco managed to avoid a bust after the private

sector debt boom in the run-up to the GFC. We have been arguing (Frontier and

emerging markets: Reform awakens, published 14 May 2015) that Turkey is vulnerable to

a bust because the only other EM countries that have seen credit/GDP rising as fast as

Turkey in the past decade are Brazil and Greece. All three have seen the credit/GDP ratio

rise by at least 50 ppts of GDP. The result for both Brazil and Greece is well known.

Morocco also saw a credit/GDP boom of 50 ppts but has not crashed. Might this provide a

ray of hope for Turkey?

Figure 1: The rise in GDP vs the rise in credit to ‘other sectors’ (private sector, state owned enterprises, local government but not central government) as % of GDP

Source: IMF

We are not sure we have all the answers to this second question. One official we met said

it may be too early to tell if Morocco has really avoided a crash, but in our view, we would

have seen a blow-up by now if it was coming.

The two key reasons for Morocco avoiding an implosion probably relate to 1) how lending

has been financed; and 2) who has borrowed. It is probably to the great credit of the

banking regulator that the credit cycle has been managed so well.

It is worth noting that the IMF shows Morocco to have the best supervision standards in

the region (see appendix table 1 on page 46 of the IMF’s report) – followed by Kenya,

helped by IRFS standards and (parts of) Basel III capital adequacy standards. IMF stress

tests show the banking sector can cope with either a global shock or prolonged weakness

in the eurozone, and despite expansion to SSA, any problems there too should not impact

too significantly on Moroccan banks. Moroccan bank operations in SSA are funded

locally, unlike Greek bank operations in the Balkans up to the 2007-2008 GFC.

As noted on the front page, domestic sources seem to have financed the lending. Unlike

eastern Europe in the run-up to the GFC, Morocco’s banking system seems to have been

flush with sufficient savings to fund its own growth rate. Until 2007-2008, credit growth

that peaked at 30% pa (see Figure 4) fuelled a big rise in real estate prices, much like in

eastern Europe. As in the Baltic states in 2006-2007, this growth came to a halt because

0

2

4

6

8

10

12

14

16

18

20

02 03 04 05 06 07 08 09 10 11 12 13 14 15F 16F

Change in lending as % of GDP Real GDP %YoY

Credit booms like this usually end in a growth or banking crash - but Morocco avoided both

3

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

house prices reached levels that locals became uncomfortable with, but eastern Europe

relied on foreign funding because local savings had been inadequate to fund demand for

borrowing. When the GFC saw this foreign funding dry up (central Europe) or even

reverse (Kazakhstan, Ukraine, etc), the boom became a bust. In Morocco by contrast,

transactions in the real estate market fell but prices did not fall dramatically. Today the

IMF says it sees little evidence of a housing bubble.

Quite where Morocco’s savings have come from is a good question. Perhaps 500 years of

relative peace since the Moors were expelled from southern Spain has helped. But one

consequence is that there is plenty of bank funds available for loans to companies, which

may have been to the detriment of the stock exchange. In contrast, Kenya or Nigeria have

a shortage of savings that has encouraged growth in their stock markets.

In any case, the loan-to-deposit ratio is far better than in those countries that have had a

boom-bust cycle at around 100-105% from 2012-2014. It gently fell to 95% by September

2015 according to Figure 2 below and page 16 of the IMF report.

The borrowing also appears more sustainable to us. While Russia, or Brazil, or SA have

recently had a problem with consumer finance when debt in this sector reached around

10% of GDP, in Morocco, much of the borrowing was done via mortgages. While

mortgages remain in single digits in Russia or Turkey, in Morocco, helped by government

guarantees, mortgages have now risen to 18% of GDP. Moroccans have proven to be

resolute in meeting their mortgage commitments and as there has been no recession,

there has been no obvious reason for NPLs to pick up significantly. Mortgages also look

affordable. The borrowing rate is around 6-7% now and the maturity is up to 30 years for

younger borrowers.

Figure 2: Mortgages-to-GDP ratio more in line with richer EM countries or SA (1 December 2015, unless otherwise stated)

Note: All data as of 1 December 2015, except SA (1 November 2015), Turkey (1 August 2015) and Morocco

Source: BAM, Renaissance Capital

So Morocco has seen a credit boom that ended quietly as there was no interest rate

shock, nor a withdrawal of foreign funding. The reason Turkey cannot take comfort from

this is that Turkey’s loan-to-deposit ratio is around 120% so foreign financing is an issue,

and the failure to control inflation means that interest rate shocks are a threat too.

What happens next? Access to credit has broadened and both Egypt and Pakistan might

look to Morocco to see how this has been achieved. In 2011, 41% of the population had

access to a bank account compared to closer to 10% in both Egypt and Pakistan1. This

remains well below the 60-70% rates in Greece and Oman, so there is room for further

1 See Figure 2 in Thoughts from a Renaissance Man: Pakistan – thanks for the reminder, 19 February 2015

0

5

10

15

20

25

Poland South Africa Czech R. Hungary Turkey Russia Morocco(2009)

Morocco(2014)

4

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

growth. Note this comparative World Bank data is different from Moroccan figures cited by

the IMF (see page 11 of the IMF’s report) which shows a rise from 43% of the population

with a bank account in 2008, to 63% in 2015, alongside a 50% rise in bank branches

since 2008. However, in that report the IMF also cites the 41% figure for Morocco.

In addition, when mortgages are 60% of GDP or more in the US or UK, and just 18% of

GDP in Morocco, there is scope for the stock of debt to keep rising. Low interest rates

help. We believe that total credit growth of around 6-7% annually should be sustainable

(when inflation is around 1%). Contrast this with Vietnam, which in our view is risking an

unsustainable boom with credit growth closer to 20% from a high base. We believe even

10-15% would be acceptable for one to two years and high single digits would be

acceptable over three to five years if inflation picked up to 2-3%.

As a result we should assume more CB action to deliver higher credit growth, as early as

the March 2016 CB meeting. The conservative assumption would be a 25 bpts cut; but

the CB could try and shock depositors and potential borrowers by pushing for a 100-200

bpts cut, although 25 bpts is far more likely, in our view. The CB may also lend more to

banks at the deposit rate, for on-lending to the rest of the economy. Already reserve

requirements have been slashed from 16.5% in 2007 to 2% so there is limited scope to

use that to encourage more lending.

We are not sure how effective this will be. Morocco has a high lending-to-GDP ratio

already and perhaps after the boom that ended in 2009, subdued borrowing will continue

in the medium term. Romania and Pakistan have both struggled to get lending up after

their pre-GFC credit booms. Moreover, Moroccan companies seem reluctant to invest

heavily at a time when global growth is weak and the key export market (Europe) is

weaker still.

Figure 3: Claims on ‘other sectors’ as % of GDP in 2014 (DM in red, EM in blue, Frontier in green, Beyond Frontier in yellow)

Note: Some countries such as China and India only provide data on the narrower definition of "claims on the private sector"

Source: IMF

We do not advise that investors should assume a renewed credit boom. We pencil in 4%

nominal growth in 2016, but given the CB willingness to encourage this, we believe there

is potential upside to this figure.

0

50

100

150

200

Net

herla

nds

Uni

ted

Sta

tes

Spa

in

Japa

n

Aus

tral

ia

Sou

th K

orea

Chi

na

Uni

ted

Kin

gdom

Ger

man

y

Fra

nce

Italy

Gre

ece

Vie

tnam

Mor

occo

Sou

th A

fric

a

Bra

zil

Tur

key

Rus

sia

UA

E

Pol

and

Cze

ch R

epub

lic

Iran

Indi

a

Hun

gary

Phi

lippi

nes

Kaz

akhs

tan

Indo

nesi

a

Ken

ya

Egy

pt

Rom

ania

Mex

ico

Sri

Lank

a

Nig

eria

Pak

ista

n

Arg

entin

a

Private sector debt as % of GDP - 2014

5

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Figure 4: Morocco's bank lending % ch YoY

Source: IMF

Talking with officials actually reminded us more of the debate in developed markets such

as the eurozone – how to lift borrowing demand – than the typical discussion we might

have in other frontier markets. Morocco shares more characteristics with central Europe

than with most African countries. The eurozone disease of very low inflation and very low

interest rates seem to be contagious.

Figure 5: Inflation is now below that of Poland, Hungary and the Czech Republic

Source: Bloomberg

Figure 6: Interest rates may follow central Europe further down too

Source: Bloomberg

-5

0

5

10

15

20

25

30

35

Dec

-02

Jun-

03

Dec

-03

Jun-

04

Dec

-04

Jun-

05

Dec

-05

Jun-

06

Dec

-06

Jun-

07

Dec

-07

Jun-

08

Dec

-08

Jun-

09

Dec

-09

Jun-

10

Dec

-10

Jun-

11

Dec

-11

Jun-

12

Dec

-12

Jun-

13

Dec

-13

Jun-

14

Dec

-14

Jun-

15

Dec

-15

Claims on other sectors Claims on private sector

-4

-2

0

2

4

6

8

10

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16Czech CPI, % YoY Hungary CPI, % YoY Morocco CPI, % YoY

Poland CPI, % YoY Romania CPI, % YoY

0

1

2

3

4

5

6

7

8

Jan-

10

Apr

-10

Jul-1

0

Oct

-10

Jan-

11

Apr

-11

Jul-1

1

Oct

-11

Jan-

12

Apr

-12

Jul-1

2

Oct

-12

Jan-

13

Apr

-13

Jul-1

3

Oct

-13

Jan-

14

Apr

-14

Jul-1

4

Oct

-14

Jan-

15

Apr

-15

Jul-1

5

Oct

-15

Jan-

16

Czech CB rate Hungary CB rate Morocco CB rate

Poland CB rate Romania CB rate

6

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

The currency

As we outlined on the front page, a shift towards currency flexibility is likely. Preparations

have been underway for many years and we believe that only external shocks may have

prevented a move a few years ago. IMF analysis in the latest IMF Article IV (see page 16)

suggests there are minimal risks attached to moving now (assuming no new external

shocks). Low external debt and banks that are long dollars means any depreciation may

actually benefit banks. The pass-through from exchange rate moves is estimated at 0.18.

We do not expect the CB would widen the bands sufficiently to make any currency move

that meaningful for inflation.

Morocco’s fundamentals look pretty good as they are – so we did ask why move at all?

The answer is that Morocco aims to be a hub for Africa and a more flexible exchange rate

regime is seen as a step on the road in helping this process.

Note that while foreigners can put money into and take it out of Morocco with no

restrictions, this is not the case for local citizens. The IMF recommends separating

liberalisation of the currency peg with liberalisation of the capital account. We assume the

latter will come in future years.

The political economy

It is not possible to talk MENA without touching on geopolitical and security risks.

According to the global terrorism database, there have been no fatalities in Morocco from

terrorism since one attack in 2011 and prior to that the only attacks were as far back as

2007. The stability of Morocco is one reason why Renault in 2012, Citroen, Peugeot and

potentially Volkswagen are investing in Morocco.

Political stability may in part be because of the country’s commitment to espousing

moderate Islamic principles, but also reflects the popularity of King Mohammed VI. Born

in 1963, and after studying law (and working in Brussels with the EU Commission), before

taking power in 1999. He has played a key role in overseeing Morocco’s development

since then. In March 2011, just months after the Arab Spring erupted, he proposed a new

constitution that granted more powers to parliament. This resulted in a shift in Morocco’s

political system score from -6 to -4 in the benchmark Polity2 database (where -10 is Saudi

Arabia and +10 is Germany). Morocco may well become one of those countries that

transitions peacefully towards a +10 rating in the coming decades. The king remains the

most powerful political force in the country and his role in the country reminds us of Oman

or Dubai’s experience in recent decades.

The forthcoming elections on 7 October 2016 will be the second since the new

constitution was promulgated. In 2011, the Islamist Justice and Development Party (PJD)

won 107 of the 395 seats and its leader Abdelilah Benkirane became prime minister.

Economic portfolios went to the centre-right RNI, which won 52 seats in parliament.

The 2011-2016 government has made important reforms – “perhaps the most rational

reforms undertaken in the Middle East and North Africa region in many years” according

to a World Bank paper. Faced with a 2012 budget deficit of 7% of GDP and a current

account deficit of 10% of GDP, due in part to subsidies that cost 6.5% of GDP, the

government decided to abolish fuel subsidies. From our conversations with local officials,

we understand that subsidies in 2016 are expected to cost the country no more than 1-2%

of GDP, with sugar subsidies to be phased out too (we were told that just cooking gas

may remain as a subsidised item). The budget deficit is targeted to be 3.5% of GDP in

2016 and the current account deficit is expected to be 1-2% of GDP. There is widespread

praise for these reforms from economists, but there is uncertainty about how the

7

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

electorate will react in the 2016 elections. Elections may jeopardise or delay further

pension reforms planned for 2017, which are needed to address long-term funding issues.

The model of development

A question posed by the World Bank is whether Morocco may reach southern European

levels of development by 2040. That is a little too ambitious, in our opinion, but the

comparison point is accurate. Morocco reminds us of Spain. Mexico is another potential

comparison point – from the impressive pension reforms enacted in the 1990s to the

successful drive to build a manufacturing base aimed at exporting to its northern neighbour.

We were struck by the impressive infrastructure, from transport to electricity. A $7 first

class fare (which breaks our travel policy) on the train from Rabat to Casablanca was

quick and efficient.

Figure 7: Casablanca’s railway station (lhs) – an example of modern infrastructure

Source: Renaissance Capital

Morocco is now advancing solar power – and intends to push renewable energy from a

42% target in 2020, to 52% by 2030. On 4 February 2016, the king switched on the

world’s largest concentrated solar power plant.

The government has also advanced business reforms – pulling Morocco to 75th place

from 80th in the latest Ease of Doing Business survey.

As an aside, we generally do not like excluding volatile data when we analyse Frontier

and EM countries that are by their nature usually a little volatile. However, when it comes

to GDP, we do see why the authorities talk about non-agricultural growth, as the following

table shows clearly. GDP growth in 2016 is likely to be weaker purely because of

agriculture but this tells us little about the Moroccan economy over the medium term.

8

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Figure 8: For Morocco it makes sense to look at non-agricultural GDP

Source: Moroccan authorities; and IMF staff estimates (IMF Article IV consultation)

As another aside, we were struck by the data showing that government tax revenues

were 26% of GDP in 2015. This is pretty high and we wonder if it implies that GDP is

understated. We heard two estimates that the informal economy may be 30% or 40% of

GDP, but officials we spoke to argued that their GDP figures are accurate, it may be

others who overstate their figures.

Weaknesses

We see one absolute (education) and one relative (peer group comparison) weakness in

Morocco.

Education failed many Moroccans in the past. A recent IMF paper outlined the education

situation in great detail. Since King Mohammed VI took power, we can see strong

government spending on education. At 5% of GDP in 2010-2014, this is now among the

highest in the world but the historical legacy still causes difficulty. The lack of education in

the past means that too many teachers are themselves not educated to university level

(see figure 8 on page 25 of the report). We suspect a lower proportion of Moroccans than

Vietnamese for example are getting a university education abroad. Given the commitment

to education in the budget, we are sure this will change but for now it is a constraint on

Morocco’s development.

Figure 9: Morocco achieved the needed minimum for education in 1983 but then stagnated until around 2000

Source: UNESCO

34.7

2.44.7

3.1

-9.1

17.9

-2.5

15.2

-1.8

4.73 3.1 3.3 3.8

-15

-10

-5

0

5

10

15

20

2012 2013 2014 2015 2016

Agriculture is a volatile component within Morocco's GDP

GDP % ch Agricultural GDP % ch Non-agricultural GDP % ch

0

10

20

30

40

50

60

1971

1973

1975

1977

1979

1981

1983

1985

1987

1989

1991

1993

1995

1997

1999

2001

2003

2005

2007

Gross secondary school enrolment (%)

Morocco crossed the 28% threshold to escape poverty in 1983 - but only recently has half the population attended secondary school

9

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

The second problem is Morocco’s peer group. We think the economy is the best in Africa

relative to any peers with a significant equity market (SA, Egypt, Nigeria and Kenya). It

has better growth and an elite that is more successful in driving reform than SA. It has a

competitive currency unlike the overvalued and capital account-restricted situation in

Egypt or Nigeria. It has fewer imbalances than Kenya and greater savings than either

Kenya or Nigeria.

However – if we compare Morocco to central Europe – the situation looks different.

Morocco has far better demographics than ageing eastern Europe2 but this is partly offset

by the far better education levels that are the result of communism’s positive legacy from

Poland to Romania. Demographics mean Morocco should be able to grow faster than

most of eastern Europe, but the lower education levels mean we doubt per capita GDP

can converge in the next generation.

To answer the World Bank’s question “can Morocco converge by 2040 with southern

Europe income levels of 2015?” it is worth comparing secondary school enrolment rates.

The latest 2007 figure of 56% for Morocco is below the 58% of Spain in 1971 or the 63%

of Greece in that same year. Education levels are 45 years behind southern Europe, so

we do not see how Morocco can achieve Spain’s current level of per capita GDP in the

next 25 years. By comparison, Romania had 73% secondary school enrolment in 1971

and Poland had 74%. Unfortunately that high level of education could not offset the

income damage caused by communism – hence central Europe being poorer than

southern Europe today.

Figure 10: Secondary school gross enrolment rates (%)

Poland 1971 74 Romania 1971 73 Greece 1971 63 Spain 1971 58 Morocco 2007 56 Egypt 2004 79 Kenya 2009 59 Nigeria 2007 30

Source: UNESCO

In addition, EU membership has two important effects on the investment climate that

should benefit eastern Europe but not Morocco. First, the EU gives 3-4% of GDP a year

to east European EU member states. Nearly half goes to the agricultural sector and the

remainder mainly focuses on infrastructure. Morocco will not get such inflows (although

Gulf money does help).

Second, EU membership improves the legal climate. The Renaissance Capital legal score

for Morocco was around 40/100 (similar to Colombia or Ghana) in our most recent

update. This compares to around 65 for Romania and over 80 for Poland and the Czech

Republic. As we have written previously3, EU membership appears to lift the legal score

well above what per capita GDP data alone might suggest was likely.

This makes east European EU member states a more trusted investment destination for

foreign direct investment (FDI). FDI decision makers do not need to think about the same

level of potential risks when they invest in EU member states as they do when they invest

in Morocco.

Having said all that – there is of course a price for everything. Per capita GDP in Morocco

of around $3,000 compares to $9,000 in Romania and over $12,000 in Poland. When

Morocco is this much cheaper than eastern European countries, and because we assume

2 See The final frontier and beyond 28 April 2014 3 See Thoughts from a Renaissance Man: Are you constrained by the law? 31 March 2015

10

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

that differential is likely to last over decades (because of shrinking labour forces in eastern

Europe and a growing labour force in Morocco, as well as education) – it makes sense

that Morocco should now be attracting automotive sector investments.

Note, however, that per capita GDP might be misleading (it is an average that will include

low value-added employees in agriculture). We do not have reliable data on

manufacturing wages. It was announced in April 2015 that the public sector minimum

wage would be raised to MAD3,000 in July 2015, equivalent to EUR278 today. This is

high relative to per capita GDP (28% above Romania, despite Romania’s much higher per

capita GDP). Nonetheless, we know that Renault, which operates in both Romania and

Morocco, has chosen to build up in Morocco too – implying this makes economic sense

for the company – and is not just investment directed by Paris for political reasons.

Figure 11: Morocco has quite a high minimum wage relative to its per capita GDP

Source: Reuters, Eurostat

Conclusion

In our opinion, Morocco has the best macro situation of any country in Africa with a

significant equity market. We think there is a good chance of (non-agricultural) growth

picking up from 3% in recent years towards 5% by 2020. Broadening access to banking

services in the medium term and broadening access to education in the longer term mean

we are pretty bullish on this country. We are struggling to identify risks but then so is the

IMF in its latest positive reports.

Morocco – Equity Strategy Comment from Daniel Salter

We like Morocco from an equity strategy perspective (particularly against more

challenged markets elsewhere in Africa for Africa funds).

We initiated on Morocco as an equity strategy Overweight in November’s SPECTRE

report.

Since then, Morocco is up 3.3% in dollar terms – on the face of it unexciting, but

actually making Morocco one of the top five performing markets in Frontier, way ahead

of the 9% decline in MSCI Frontier and the top performing African market in MSCI

Frontier or Emerging (the only one in positive territory – Nigeria, Kenya and Egypt are

all down) since then.

0

150

300

450

600

750

900

-

5,000

10,000

15,000

20,000

25,000

30,000

Slo

veni

a

Spa

in

Gre

ece

Por

tuga

l

Pol

and

Tur

key

(if 3

0% h

ighe

r)

Cro

atia

Est

onia

Slo

vaki

a

Latv

ia

Hun

gary

Cze

ch R

epub

lic

Tur

key

2015

Lith

uani

a

Mor

occo

(20

15)

Rom

ania

Bul

garia

Per capita GDP ($, lhs, 2015) vs minimum wage (euros, rhs, 2014 or now)

Per capita GDP in 2015 ($), IMF Minimum wage in Euros, end-2014

Daniel Salter +44 (203) 379-7824 DSalter@rencap.com

11

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

We reiterated our Overweight in this month’s The Strategy Show:

Figure 12: Renaissance Capital country summaries – FM (extract)

Country Rec Bull case Bear case

Morocco OW

Morocco is under-owned, yet the currency (and much financing) is euro-linked and not overvalued by our REER measure. The market has de-rated from 19x 12M fwd P/E to 14x over the past 12 months. Investors tell us they are looking for new markets in Africa, given currency questions in Nigeria/Egypt.

Investors tell us that Morocco’s corporate stories are underwhelming – we intend to visit Morocco this quarter to do more work.

Source: The Strategy Show, 19 February 2016

Investors always come back with three pushbacks on Morocco (i) expensive valuations vs

Frontier; (ii) poor liquidity; and (iii) uninspiring corporate stories.

Valuations admittedly have come down, but you still pay 14.7x 12M fwd PER for MSCI

Morocco vs 9.5x for MSCI Frontier, representing a 50% premium. Admittedly, bond yields

in Morocco are very low: 10-year MAD bond yields are about 3.4%, so a premium is fully

justified vs SSA and Egypt, in this strategist’s opinion. This low bond yield might also

tempt local investors to add positions in the equity market that offer a dividend yield of 4-

5%.

Figure 13: MSCI Morocco and Frontier – 12M fwd PER (x)

Source: Bloomberg, Renaissance Capital

On liquidity, the story’s not pretty. There was a burst of liquidity in December 2015, but

that seems to have subsided and over the last month, the market is trading just around

$7.5mn a day (1M ADTV) with only two stocks trading over a million dollars a day (real

estate developer, Douja Promotion and telecoms operator, Maroc Telecom – not

covered). Even market favourite, Bank Attijariwafa (not covered) has traded only $0.9mn

a day over the past month.

We have a BUY rating on Residences Dar Saada (TP MAD 223, CP MAD 152).

As a last aside, this government has not prioritised the stock market. The downgrade from

EM to Frontier status in 2013 was due to a fall in transaction volume that may be a

symptom of this. We doubt this will change in the near term, but the stock exchange is

planning a series of reforms that might encourage more volatility. Allowing short selling is

one such planned reform. The exchange also hopes to see African companies from other

countries list on the exchange, which would give local savings an opportunity to diversify.

8

10

12

14

16

18

20

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

MSCI Frontier MSCI Morocco

12

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Figure 14: Key data Local currency MAD

GDP/capita, $ (2015) 3,071 Population, mn (2015) 33.7 S&P/Moody's rating BBB-/Ba1 Weight in MSCI FM, % 7.5%

MSCI Index MXMA

2015 P/E, x 15.2 2015 FY EPS growth 7.7% Trailing P/B, x 2.5 Beta to FM 0.3 MSCI full MktCap, $bn 32.6 MSCI free float MktCap, $bn 6.3 No. of companies 9 3M ADTV, $mn, MSCI cos 12.2

Local index MOSEMDX

MktCap, $bn 43.3 No. of companies 54 3M ADTV, $mn 18.4

Figure 15: Index performance

Figure 16: MSCI sector weights

Figure 17: Index and stock data

Ticker Name Sector MktCap FF MktCap 3M ADTV $ performance (%) 12MF Trail 12MF # analyst MSCI

($mn) ($mn) ($mn) 1M 3M 12M P/E (x) PBV (x) RoE (%) Recs wgt (%)

MXMA MSCI Morocco 32,630 6,301 12.2 5.2 4.0 -14.6 15.0 2.5 21.3 47 7.5

IAM MC Maroc Telecom Telecoms 10,551 2,125 1.3 4.8 7.4 -13.4 16.7 6.8 35.2 10 34 ATW MC Attijariwafa Financials 6,796 1,367 5.4 0.4 1.6 -15.6 13.3 1.9 12.3 7 22 LAC MC Lafarge Ciments Materials 3,019 755 1.2 10.4 5.3 -14.6 20.3 6.6 28.2 5 12 BCE MC Banque Marocaine Financials 3,669 566 0.9 -4.4 -5.9 -18.2 15.1 2.2 na 3 9 BCP MC Banque Centrale Financials 3,986 417 1.3 0.8 1.1 -11.8 14.7 1.1 9.4 6 7 ADH MC Douja Prom Addoh Financials 1,033 420 1.6 17.7 12.8 -4.8 8.8 0.9 9.4 4 7 CMA MC Ciments Du Maroc Materials 1,762 352 0.2 10.0 5.6 -2.7 18.3 3.1 16.4 4 6 WAA MC Wafa Assurance Financials 1,127 225 0.2 3.2 -9.6 -30.9 12.1 2.5 16.2 3 4 MNG MC Managem Materials 550 74 0.0 5.7 -30.0 -40.1 na 1.6 8.7 5 1

HOL MC Holcim Materials 899 440 0.1 7.2 2.4 -28.5 16.4 2.3 25.3 4 - TMA MC Total Maroc Sa Energy 515 232 0.2 0.2 -0.4 5.9 na na 39.2 2 - CSR MC Cosumar Cons. Staples 827 231 0.2 8.9 13.4 4.0 10.1 2.2 18.7 5 - TQM MC Taqa Morocco Utilities 1,428 203 1.1 4.2 4.7 15.1 15.7 na 17.5 3 - BCI MC Banque Marocaine Financials 729 186 1.6 2.9 -10.9 -23.1 14.7 0.8 na 2 - LES MC Lesieur Cristal Cons. Staples 341 138 0.2 -0.4 10.6 12.7 15.1 2.3 13.2 5 - ATH MC Auto Hall Cons. Disc. 501 131 0.2 6.2 7.5 5.2 17.5 2.9 14.0 3 - LBV MC Label Vie Cons. Staples 282 123 1.3 -0.7 -1.6 -1.2 na 2.0 8.8 3 - CDM MC Credit Du Maroc Financials 452 114 0.4 1.1 -1.8 -28.0 na 1.0 na 2 -

Figure 18: 3M ADTV, $mn

Figure 19: 12M fwd PE, x

Note: all forward figures for valuations are taken from Bloomberg consensus estimates. Note: 3M ADTV is not representative due to high end-year turnover figures All data as of 25 February 2016

Source for all charts: Bloomberg

40

60

80

100

120

140

160

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

MSCI Morocco, $ MSCI FM, $

47%

34%

19%

Financials

Telecoms

Materials

0

10

20

30

40

50

60

70

80

Jan-

10

Jul-1

0

Jan-

11

Jul-1

1

Jan-

12

Jul-1

2

Jan-

13

Jul-1

3

Jan-

14

Jul-1

4

Jan-

15

Jul-1

5

Jan-

16

Morocco 3M ADTV ($mn) MSCI Morocco 3M ADTV ($mn)

0

2

4

6

8

10

12

14

16

18

20

Jan-

10

May

-10

Sep

-10

Jan-

11

May

-11

Sep

-11

Jan-

12

May

-12

Sep

-12

Jan-

13

May

-13

Sep

-13

Jan-

14

May

-14

Sep

-14

Jan-

15

May

-15

Sep

-15

Jan-

16

Morocco Frontier

Morocco

13

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Figure 20: Population, ’000

Source: UN

Figure 21: Export destinations, total $23bn

Source: IMF

Figure 22: CPI average %, CA % of GDP

Source: IMF

Figure 23: Morocco – dirham

Source: Bruegel, Bloomberg

Figure 24: Bank lending growth vs GDP

Source: IMF, Renaissance Capital

Figure 25: Real GDP % change, YoY

Source: IMF

0

5,000

10,000

15,000

20,000

25,000

30,000

1990

1995

2000

2005

2010

2015

2020

2025

2030

2035

2040

2045

2050

0-19 20-64 65+

0

2

4

6

8

10

12

14

16

0

0.1

0.2

0.3

0.4

0.5

0.6

0.7

EU

Eur

o A

rea

Spa

in

Fra

nce

Bra

zil

Italy

US

A

Indi

a

UK

Ger

man

y

% of total exports Value ($bn), 2014, RHS

-10

-8

-6

-4

-2

00.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E

2016

E

2017

E

2018

E

Current account balance (% of GDP) RHS CPI (average % YoY)

85

90

95

100

105

110

1150

2

4

6

8

10

12

14

Jan-

00

Dec

-00

Nov

-01

Oct

-02

Sep

-03

Aug

-04

Jul-0

5

Jun-

06

May

-07

Apr

-08

Mar

-09

Feb

-10

Jan-

11

Dec

-11

Nov

-12

Oct

-13

Sep

-14

Aug

-15

MAD vs $ MAD vs EUR Morocco REER (Dec 07 = 100)

Weaker

Stronger

0

2

4

6

8

10

12

14

16

18

20

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E

2016

E

Change in lending as % of GDP Real GDP (% YoY)

4.8

3.3

7.6

3.5

5.9

4.23.8

5.2

3.0

4.7

2.4

4.9

3.7

4.8 5.0

0

1

2

3

4

5

6

7

8

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

E

2016

E

2017

E

2018

E

Morocco

14

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Figure 26: Morocco key economic indicators Ratings (M/S&P/F) Ba1/BBB-/BBB- Year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015E 2016E 2017E

Activity

Real GDP (% YoY) 3.3 7.6 3.5 5.9 4.2 3.8 5.2 3.0 4.7 2.4 4.7 3.1 4.2

Investment (% GDP) 27.5 28.1 33.9 39.1 35.0 34.1 35.8 35.0 34.7 33.7 33.3 34.5 35.5

Unemployment rate year-end (%) 11.1 9.7 9.8 9.6 9.1 9.1 8.9 9.0 9.2 9.9 9.8 9.7 9.6

Nominal GDP (lcl bn) 553 604 648 717 748 785 820 848 901 925 1,003 1,048 1,104

Nominal GDP ($bn) 62.3 68.6 79.0 92.5 92.9 93.2 101.4 98.3 107.2 110.0 103.5 108.4 115.3

Population (mn) 30.2 30.5 30.8 31.2 31.5 31.9 32.2 32.6 33.0 33.3 33.7 34.0 34.4

GDP per capita ($) 2,066 2,250 2,563 2,967 2,948 2,927 3,149 3,014 3,250 3,304 3,071 3,188 3,352

Stock of bank credit (lcl, bn) 296 359 462 577 644 715 790 830 859 896 950 1,007 na

Lending/GDP (%) 53.5 59.4 71.4 80.5 86.1 91.2 96.3 97.9 95.3 96.9 90.2 89.8 90.4

Gross domestic saving (% of GDP) 27.3 26.6 31.4 31.9 29.7 29.7 27.9 25.5 26.8 28.2 31.1 32.6 33.6

Prices

CPI (average % YoY) 1.0 3.3 2.0 3.9 1.0 1.0 0.9 1.3 1.9 0.4 1.6 1.5 2.0

CPI (year-end, % YoY) 2.1 3.3 2.0 4.2 -1.6 2.2 0.9 2.6 0.4 1.6 1.6 1.3 2.0

Fiscal balance (% of GDP)

Consolidated government balance -5.9 -1.9 -0.1 0.7 -1.8 -4.3 -6.6 -7.3 -5.2 -4.9 -4.3 -3.5 -3.0

Total public debt (% of GDP) 61.6 56.8 52.0 45.4 46.1 49.0 52.5 58.3 61.5 63.4 63.6 64.4 64.0

External indicators

Exports ($bn) 10.8 12.3 14.5 18.9 13.5 16.6 20.8 17.0 18.3 20.0 18.5 19.9 21.9

Imports ($bn) 20.5 23.3 31.2 40.6 32.4 35.1 43.6 38.9 40.2 40.6 32.5 34.5 37.5

Trade balance ($bn) -9.6 -11.0 -16.8 -21.7 -18.9 -18.5 -22.8 -21.9 -21.9 -20.6 -14.0 -14.6 -15.6

Trade balance (% of GDP) -15.5 -16.0 -21.2 -23.5 -20.4 -19.9 -22.5 -22.3 -20.5 -18.7 -13.5 -13.5 -13.5

Current account balance ($bn) -0.1 -1.1 -2.0 -6.6 -4.9 -4.1 -8.0 -9.3 -8.5 -6.2 -1.6 -0.8 -1.1

Current account balance (% of GDP) -0.2 -1.5 -2.5 -7.1 -5.3 -4.4 -7.9 -9.5 -7.9 -5.7 -1.5 -0.7 -0.9

Net FDI ($bn) 1.6 2.0 2.2 2.2 1.5 0.7 2.4 2.3 3.0 3.1 2.7 3.0 3.2

Net FDI (% of GDP) 2.6 2.9 2.8 2.3 1.6 0.7 2.2 2.3 2.8 2.8 2.6 2.8 2.8

C/A balance plus FDI (% of GDP) 2.4 1.4 0.3 -4.8 -3.7 -3.7 -5.6 -7.2 -5.1 -2.9 1.1 2.1 1.9

Exports (% YoY, value) 9.4 13.3 17.7 30.8 -28.8 23.4 25.2 -18.2 7.6 9.3 -7.5 7.6 10.1

Imports (% YoY, value) 15.1 13.5 34.2 30.1 -20.3 8.5 24.2 -10.8 3.3 1.0 -20.0 6.2 8.7

FX reserves (ex gold, $bn) 16.2 20.3 24.1 22.1 22.8 22.6 20.6 17.5 19.3 20.4 23.5 28.8 32.2

Import cover (months of imports) 9.5 10.5 9.3 6.5 8.4 7.7 5.4 4.6 4.9 5.1 na na na

Gross external debt ($bn) 26.1 28.5 29.2 32.7 31.9 32.7 31.9

Currency and monetary policy

Key policy rate (% YE) 3.3 3.3 3.3 3.5 3.3 3.3 3.3 3.0 3.0 2.8 2.5 2.0 na

Broad money growth (%YoY) 14.1 18.1 17.5 13.3 7.0 4.2 6.4 4.5 3.1 6.2 5.5 6.5 na

Exchange rate (EUR) annual average 11.0 11.0 11.2 11.4 11.2 11.2 11.3 11.1 11.2 11.2 10.8 10.7 10.7

Exchange rate ($) annual average 8.9 8.8 8.2 7.8 8.1 8.4 8.1 8.6 8.4 8.4 9.8 9.6 9.5

Note: 2016-2017E exchange rate forecasts are the IMF implied exchange rates Source: IMF, UNCTAD, Bloomberg

15

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Analysts certification

This research report has been prepared by the research analyst(s), whose name(s) appear(s) on the front page of this document, to provide background information about the issuer or issuers (collectively, the “Issuer”) and the securities and markets that are the subject matter of this report. Each research analyst hereby certifies that with respect to the Issuer and such securities and markets, this document has been produced independently of the Issuer and all the views expressed in this document accurately reflect his or her personal views about the Issuer and any and all of such securities and markets. Each research analyst and/or persons connected with any research analyst may have interacted with sales and trading personnel, or similar, for the purpose of gathering, synthesizing and interpreting market information. If the date of this report is not current, the views and contents may not reflect the research analysts’ current thinking.

Each research analyst also certifies that no part of his or her compensation was, or will be, directly or indirectly related to the specific ratings, forecasts, estimates, opinions or views in this research report. Research analysts’ compensation is determined based upon activities and services intended to benefit the investor clients of Renaissance Securities (Cyprus) Limited and any of its affiliates (“Renaissance Capital”). Like all of Renaissance Capital’s employees, research analysts receive compensation that is impacted by overall Renaissance Capital profitability, which includes revenues from other business units within Renaissance Capital.

Important issuer disclosures

Important issuer disclosures outline currently known conflicts of interest that may unknowingly bias or affect the objectivity of the analyst(s) with respect to an issuer that is the subject matter of this report. Disclosure(s) apply to Renaissance Securities (Cyprus) Limited or any of its direct or indirect subsidiaries or affiliates (which are individually or collectively referred to as “Renaissance Capital”) with respect to any issuer or the issuer’s securities.

A complete set of disclosure statements associated with the issuers discussed in this Report is available using the ‘Stock Finder’ or ‘Bond Finder’ for individual issuers on the Renaissance Capital Research Portal at: http://research.rencap.com/eng/default.asp

RESIDENCES DAR SAADA S.A. Bloomberg: RDS:MC

Renaissance Capital was not aware of any actual, material conflict of interest with the issuer at the time of publication.

Investment ratings

Investment ratings may be determined by the following standard ranges: Buy (expected total return of 15% or more); Hold (expected total return of 0-15%); and Sell (expected negative total return). Standard ranges do not always apply to emerging markets securities and ratings may be assigned on the basis of the research analyst’s knowledge of the securities.

Investment ratings are a function of the research analyst’s expectation of total return on equity (forecast price appreciation and dividend yield within the next 12 months, unless stated otherwise in the report). Investment ratings are determined at the time of initiation of coverage of an issuer of equity securities or a change in target price of any of the issuer’s equity securities. At other times, the expected total returns may fall outside of the range used at the time of setting a rating because of price movement and/or volatility. Such interim deviations will be permitted but will be subject to review by Renaissance Capital’s Research Management.

Where the relevant issuer has a significant material event with further information pending or to be announced, it may be necessary to temporarily place the investment rating Under Review. This does not revise the previously published rating, but indicates that the analyst is actively reviewing the investment rating or waiting for sufficient information to re-evaluate the analyst’s expectation of total return on equity.

Where coverage of the relevant issuer is due to be maintained by a new analyst, on a temporary basis the relevant issuer will be rated as Coverage in Transition. Previously published investment ratings should not be relied upon as they may not reflect the new analysts’ current expectations of total return. While rated as Coverage in Transition, Renaissance Capital may not always be able to keep you informed of events or provide background information relating to the issuer.

If issuing of research is restricted due to legal, regulatory or contractual obligations publishing investment ratings will be Restricted. Previously published investment ratings should not be relied upon as they may no longer reflect the analysts’ current expectations of total return. While restricted, the analyst may not always be able to keep you informed of events or provide background information relating to the issuer.

Where Renaissance Capital has neither reviewed nor revised its investment ratings on the relevant issuer for a period of 180 calendar days, coverage shall be discontinued.

Where Renaissance Capital has not provided coverage of an issuer for a period of 365 calendar days, coverage shall be discontinued.

Where Renaissance Capital has not expressed a commitment to provide continuous coverage and/or an expectation of total return, to keep you informed, analysts may prepare reports covering significant events or background information without an investment rating (Not Covered).

Your decision to buy or sell a security should be based upon your personal investment objectives and should be made only after evaluating the security’s expected performance and risk.

Renaissance Capital reserves the right to update or amend its investment ratings in any way and at any time it determines.

Disclosures appendix

16

Renaissance Capital 29 February 2016

Thoughts from a Renaissance man

Renaissance Capital equity research distribution of ratings

Investment Rating Distribution Investment Banking Relationships*

Renaissance Capital Research Renaissance Capital Research

Buy 144 44% Buy 3 100%

Hold 115 35% Hold 0 0%

Sell 66 20% Sell 0 0%

Under Review 2 1% Under Review 0 0%

Restricted 0 0% Restricted 0 0%

Cov. in Trans. 1 0% Cov. in Trans. 0 0%

328 3

*Companies from which RenCap has received compensation within the past 12 months. NR – Not Rated UR – Under Review

Source: Bloomberg

0%

20%

40%

60%

80%

100%

0

50

100

150

200

250

Jan-

15

Feb

-15

Feb

-15

Mar

-15

Mar

-15

Apr

-15

Apr

-15

Apr

-15

May

-15

May

-15

Jun-

15

Jun-

15

Jul-1

5

Jul-1

5

Aug

-15

Aug

-15

Sep

-15

Sep

-15

Sep

-15

Oct

-15

Oct

-15

Nov

-15

Nov

-15

Dec

-15

Dec

-15

Jan-

16

Jan-

16

Feb

-16

Feb

-16

Residences Dar Saada share price, target price and rating history

Buy Hold Sell Not covered Cov. in Trans.

Under Review Restricted Suspended Target Price Last Price

Renaissance Capital research team

Head of Research & Turkish Product Michael Harris +44 (203) 379-7982 MHarris2@rencap.com

Deputy Head of Research David Ferguson +7 (495) 641-4189 DFerguson@rencap.com

Head of Nigerian Research Adesoji Solanke +234 (1) 448-5300 x5384 ASolanke@rencap.com

Head of South African Research Johann Pretorius +27 (11) 750-1450 JPretorius2@rencap.com

Name Telephone number Coverage Name Telephone number Coverage

Macro Oil and gas

Charles Robertson +44 (203) 379-7835 Global Ildar Davletshin +44 (203) 379-7954 EMEA

Yvonne Mhango +27 (11) 750-1488 Sub-Saharan Africa Temilade Aduroja +234 (1) 448-5300 x5363 Sub-Saharan Africa

Oleg Kouzmin +7 (495) 258-7770 x4506 Russia/CIS Evgeny Stroinov +7 (495) 258-7770 x4046 Russia/CIS

Equity strategy Metals and mining

Daniel Salter +44 (203) 379-7824 Global Johann Pretorius +27 (11) 750-1450 South Africa

Michael Harris +44 (203) 379-7982 Turkey Steven Friedman +27 (11) 750-1481 South Africa

Charles Robertson +44 (203) 379-7835 Global Kabelo Moshesha +27 (11) 750-1472 South Africa

Vikram Lopez +44 (203) 379-7974 x8974 Global Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS

Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS

Financials

Armen Gasparyan +7 (495) 783-5673 Russia, CEE Real estate

Ilan Stermer +27 (11) 750-1482 South Africa Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA

Francois Du Toit +27 (21) 855-2896 South Africa

Adesoji Solanke +234 (1) 448-5300 x5384 Sub-Saharan Africa Telecoms/Transportation

Olamipo Ogunsanya +234 (1) 448-5300 x5368 Sub-Saharan Africa Alexander Kazbegi +41 (78) 883-4527 Global

Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Artem Yamschikov +7 (495) 258-7770 x7511 Russia/CIS

Omair Ansari +234 (1) 448-5329 CEE Amine Wafy +971 (4) 409-2052 MENA

Consumer/Retail/Agriculture Media/Technology/

David Ferguson +7 (495) 641-4189 Russia/CIS, Africa David Ferguson +7 (495) 641-4189 Russia/CIS, Africa

Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa Kirill Panarin +7 (495) 258-7770 x4009 Russia/CIS, Africa

Zaheer Joosub +27 (11) 750-1427 South Africa Ahmed Motara +27 (11) 750-1458 South Africa

Omair Ansari +234 (1) 448-5329 Sub-Saharan Africa/CEE

Olaloye Oyawoye +234 (1) 448-5300 x5377 Sub-Saharan Africa/CEE Fertilisers

Robyn Collins +27 (11) 750-1480 South Africa Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS/MENA/Pakistan

Mohamed Zein +971 (4) 409-2032 MENA Anastasia Burkhanova +7 (495) 258-7770 x4594 Russia/CIS/MENA/Pakistan

Diversified/Industrials Utilities/Electric Equipment

Seki Mutukwa +44 (203) 379-7736 Sub-Saharan Africa/MENA Vladimir Sklyar +7 (495) 258-7770 x4624 Russia/CIS/SSA/Pakistan

Brent Madel +27 (11) 750-1160 South Africa Anastasia Tikhonova +7 (495) 258-7770 x4078 Russia/CIS/SSA/Pakistan

Renaissance Capital research is available via the following platforms: Renaissance research portal: research.rencap.com Bloomberg: RENA <GO> Capital IQ: www.capitaliq.com

Thomson Reuters: thomsonreuters.com/financial Factset: www.factset.com

Renaissance Capital Moscow T + 7 (495) 258 7777

Renaissance Capital Ltd. London T + 44 (203) 379 7777

Renaissance Capital Johannesburg T +27 (11) 750 1400

Renaissance Securities (Cyprus) Ltd. Nicosia T + 357 (22) 505 800

Renaissance Securities (Nigeria) Ltd. Lagos T +234 (1) 448 5300

Renaissance Capital Nairobi T +254 (20) 368 2000

Renaissance Capital Istanbul T +90 (212) 362 3500

Renaissance Capital Dubai T +971 (4) 409 2000

© 2016 Renaissance Securities (Cyprus) Limited, an indirect subsidiary of Renaissance Financial Holdings Limited ("Renaissance Capital"), which together with other subsidiaries operates outside of the USA under the brand name of Renaissance Capital, for contact details see Bloomberg page RENA, or contact the relevant office. All rights reserved. This document and/or information has been prepared by and, except as otherwise specified herein, is communicated by Renaissance Securities (Cyprus) Limited, regulated by the Cyprus Securities and Exchange Commission (License No: KEPEY 053/04). The RenCap-NES Leading GDP Indicator is a model that seeks to forecast GDP growth and was developed by and is the exclusive property of Renaissance Capital and the New Economic School (e-mail: nes@nes.ru).

This document is for information purposes only. The information presented herein does not comprise a prospectus of securities for the purposes of EU Directive 2003/71/EC or Federal Law No. 39-FZ of 22 April 1994 (as amended) of the Russian Federation "On the Securities Market". Any decision to purchase securities in any proposed offering should be made solely on the basis of the information to be contained in the final prospectus published in relation to such offering. This document does not form a fiduciary relationship or constitute advice and is not and should not be construed as an offer, or a solicitation of an offer, or an invitation or inducement to engage in investment activity, and cannot be relied upon as a representation that any particular transaction necessarily could have been or can be effected at the stated price. This document is not an advertisement of securities. Opinions expressed herein may differ or be contrary to opinions expressed by other business areas or groups of Renaissance Capital as a result of using different assumptions and criteria. All such information and opinions are subject to change without notice, and neither Renaissance Capital nor any of its subsidiaries or affiliates is under any obligation to update or keep current the information contained herein or in any other medium.

Descriptions of any company or companies or their securities or the markets or developments mentioned herein are not intended to be complete. This document and/or information should not be regarded by recipients as a substitute for the exercise of their own judgment as the information has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient. The application of taxation laws depends on an investor’s individual circumstances and, accordingly, each investor should seek independent professional advice on taxation implications before making any investment decision. The information and opinions herein have been compiled or arrived at based on information obtained from sources believed to be reliable and in good faith. Such information has not been independently verified, is provided on an ‘as is’ basis and no representation or warranty, either expressed or implied, is provided in relation to the accuracy, completeness, reliability, merchantability or fitness for a particular purpose of such information and opinions, except with respect to information concerning Renaissance Capital, its subsidiaries and affiliates. All statements of opinion and all projections, forecasts, or statements relating to expectations regarding future events or the possible future performance of investments represent Renaissance Capital’s own assessment and interpretation of information available to them currently.

The securities described herein may not be eligible for sale in all jurisdictions or to certain categories of investors. Options, derivative products and futures are not suitable for all investors and trading in these instruments is considered risky. Past performance is not necessarily indicative of future results. The value of investments may fall as well as rise and the investor may not get back the amount initially invested. Some investments may not be readily realisable since the market in the securities is illiquid or there is no secondary market for the investor’s interest and therefore valuing the investment and identifying the risk to which the investor is exposed may be difficult to quantify. Investments in illiquid securities involve a high degree of risk and are suitable only for sophisticated investors who can tolerate such risk and do not require an investment easily and quickly converted into cash. Foreign-currency-denominated securities are subject to fluctuations in exchange rates that could have an adverse effect on the value or the price of, or income derived from, the investment. Other risk factors affecting the price, value or income of an investment include but are not necessarily limited to political risks, economic risks, credit risks, and market risks. Investing in emerging markets such as Russia, other CIS, African or Asian countries and emerging markets securities involves a high degree of risk and investors should perform their own due diligence before investing.

Excluding significant beneficial ownership of securities where Renaissance Capital has expressed a commitment to provide continuous coverage in relation to an issuer or an issuer’s securities, Renaissance Capital and its affiliates, their directors, representatives, employees (excluding the US broker-dealer unless specifically disclosed), or clients may have or have had interests in the securities of issuers described in the Investment Research or long or short positions in any of the securities mentioned in the Investment Research or other related financial instruments at any time and may make a purchase and/or sale, or offer to make a purchase and/or sale, of any such securities or other financial instruments from time to time in the open market or otherwise, in each case as principals or as agents. Where Renaissance Capital has not expressed a commitment to provide continuous coverage in relation to an issuer or an issuer’s securities, Renaissance Capital and its affiliates (excluding the US broker-dealer unless specifically disclosed) may act or have acted as market maker in the securities or other financial instruments described in the Investment Research, or in securities underlying or related to such securities. Employees of Renaissance Capital or its affiliates may serve or have served as officers or directors of the relevant companies. Renaissance Capital and its affiliates may have or have had a relationship with or provide or have provided investment banking, capital markets, advisory, investment management, and/or other financial services to the relevant companies, and have established and maintain information barriers, such as ‘Chinese Walls’, to control the flow of information contained in one or more areas of Renaissance Capital, into other areas, units, groups or affiliates of the Firm.

The information herein is not intended for distribution to the public and may not be reproduced, redistributed

or published, in whole or in part, for any purpose without the written permission of Renaissance Capital, and neither Renaissance Capital nor any of its affiliates accepts any liability whatsoever for the actions of third parties in this respect. This information may not be used to create any financial instruments or products or any indices. Neither Renaissance Capital and its affiliates, nor their directors, representatives, or employees accept any liability for any direct or consequential loss or damage arising out of the use of all or any part of the information herein

Bermuda: Neither the Bermuda Monetary Authority nor the Registrar of Companies of Bermuda has

approved the contents of this document and any statement to the contrary, express or otherwise, would constitute a material misstatement and an offence.

EEA States: Distributed by Renaissance Securities (Cyprus) Limited, regulated by Cyprus Securities and Exchange Commission, or Renaissance Capital Limited, member of the London Stock Exchange and regulated in the UK by the Financial Conduct Authority (“FCA”) in relation to designated investment business (as detailed in the FCA rules).

Cyprus: Except as otherwise specified herein the information herein is not intended for, and should

not be relied upon by, retail clients of Renaissance Securities (Cyprus) Limited. The Cyprus Securities and Exchange Commission Investor Compensation Fund is available where Renaissance Securities (Cyprus) Limited is unable to meet its liabilities to its retail clients, as specified in the Customer Documents Pack.

UAE: Approved for distribution in the Dubai International Financial Centre by Renaissance Capital

(Dubai) Ltd which is regulated by the Dubai Financial Services Authority (“DFSA”). Material is intended only for persons who meet the criteria for Professional Clients under the Rules of the DFSA and no other person should act upon it.

United Kingdom: Approved and distributed by Renaissance Capital Limited only to persons who are eligible counterparties or professional clients (as detailed in the FCA Rules). The information herein does not apply to, and should not be relied upon by, retail clients; neither the FCA’s protection rules nor compensation scheme may be applied.

Kenya: Distributed by Renaissance Capital (Kenya) Limited, regulated by the Capital Markets

Authority.

Nigeria: Distributed by RenCap Securities (Nigeria) Limited, authorised dealing member of The

Nigerian Stock Exchange, or Renaissance Securities (Nigeria) Limited, entities regulated by the Securities and Exchange Commission.

Russia: Distributed by Renaissance Broker Limited or Renaissance Online Limited, entities regulated

by the Bank of Russia.

South Africa: Distributed by Rencap Securities (Proprietary) Limited, an authorised Financial

Services Provider and member of the JSE Limited. The information contained herein is intended for Institutional investors only.

Turkey: Distributed by Renaissance Capital Menkul Degerler A.S. - Warning Note Published Pursuant to the “Communiqué on Principles Regarding Investment Services, Activities and Ancillary Services” by the Capital Markets Board: “The investment information, comments and advices given herein are not part of investment advisory activity. Investment advisory services are provided by authorized institutions to persons and entities privately by considering their risk and return preferences. Whereas the comments and advices included herein are of general nature. Therefore, they may not fit to your financial situation and risk and return preferences. For this reason, making an investment decision only by relying on the information given herein may not give rise to results that fit your expectations.”

United States: Distributed in the United States by RenCap Securities, Inc., member of FINRA and

SIPC, or by a non-US subsidiary or affiliate of Renaissance Financial Holdings Limited that is not registered as a US broker-dealer (a "non-US affiliate"), to major US institutional investors only. RenCap Securities, Inc. accepts responsibility for the content of a research report prepared by another non-US affiliate when distributed to US persons by RenCap Securities, Inc. Although it has accepted responsibility for the content of this research report when distributed to US investors, RenCap Securities, Inc. did not contribute to the preparation of this report and the analysts authoring this are not employed by, and are not associated persons of, RenCap Securities, Inc. Among other things, this means that the entity issuing this report and the analysts authoring this report are not subject to all the disclosures and other US regulatory requirements to which RenCap Securities, Inc. and its employees and associated persons are subject. Any US person receiving this report who wishes to effect transactions in any securities referred to herein should contact RenCap Securities, Inc., not its non-US affiliate. RenCap Securities, Inc. is a subsidiary of Renaissance Financial Holdings Limited and forms a part of a group of companies operating outside of the United States as "Renaissance Capital." Contact: RenCap Securities, Inc., 780 Third Avenue, 20th Floor, New York, New York 10017, Telephone: +1 (212) 824-1099.

Other distribution: The distribution of this document in other jurisdictions may be restricted by law

and persons into whose possession this document comes should inform themselves about, and observe, any such restriction.

Additional information (including information about the RenCap-NES Leading GDP Indicator) and supporting documentation is available upon request.

Renaissance Capital equity research disclosures (SA stocks)