Establishing an SME’s Securities Exchange in Kenya

To spur growth in our Kenyan economy, we need to economically empower the small and medium sized companies. Unfortunately, SMEs have no access to the capital markets due to the stiff regulations that they have to abide with before listing there.

It therefore elicits a somehow illogic question: why not have a securities exchange that is purely meant for SMEs with customized rules and regulations that favor them?

The benefits of a securities exchange can never be over-emphasized. A senior investment analyst in Kenya once said that to give the economy the vibrancy it requires, money has to be shifted from the banking sector to the capital markets. The exchange creates an avenue through which companies can raise money needed for growth and expansion as and when they want to.

A shilling invested at the securities market is a shilling going to fund the operations of a given company listed at the exchange. This creates a better avenue to utilize investors’ savings in facilitating production in the economy and thereby boosting the country’s overall economic growth and development.

Through thorough screening before listing and the subsequent financial reporting and ethical requirements for listed companies, transparency and performance is enhanced on these firms. The securities market also has a way of allocating funds to better performing companies, thus ensuring capital invested in the country is being utilized optimally for maximum benefits to the investors and the economy at large.

It is on this background that a proposition is being put forward for the establishment of an SME’s securities exchange in Kenya to be run independently from the NSE. Sounds crazy, but if the capital gap being experienced by SME’s in Kenya today is anything to go by, then we need to be looking for alternative ways of raising capital for the budding enterprises mushrooming daily.

The securities exchange for SMEs comes in to fill that gap. Like it is explained above, this will foster corporate governance and improve performance from the listed SMEs due to the thorough screening before listing. The existing financial reporting rules governing public companies and the ethical requirements will also go a long way in streamlining operations in our SMEs as we give them a chance to compete both regionally and globally.

In a bid to grow and expand our economy through increasing production, we should seriously consider how to financially empower our largest agents of production in Kenya: the SMEs. A securities exchange for them could just be the first big stride in that direction.

The Nairobi Securities Exchange (NSE) IPO

The process of self-listing for the Nairobi Securities Exchange will kick off on July 24 2014 and close on August 12 2014. This will give investors a three weeks window to subscribe to the NSE IPO that is the culmination of its long demutualization journey. The IPO share price is set at ksh.9.5, with a minimum purchase of 500 shares. Hence one only needs ksh.4750 to get a slice of the just baked NSE cake.

With 66 million shares on sale to the public, NSE expects to raise ksh.625 million from the debut which they have given a subscription target success rate of 68.8%. Analysts view the NSE as a low risk-low return investment that may not elicit excitement form the aggressive investors. However, due to its low pricing, risk averse and risk neutral retail investors are expected to rake into it.

Self-listing of the NSE will convert it to a public limited company, a process referred to as demutualization. Previously, the exchange was co-owned and managed by the stock brokers who trade on the floor of the house.

The process of demutualization has been long coming with tussles between the current stoke brokers at the exchange, the former founder stoke brokers and the government having derailed the process. After the demutualization, transparency and accountability is expected to improve at the exchange and unlock its potential to offer more product lines within the capital markets.

In the recent years NSE has seen a lot of improvements in its operations with the introduction of the electronic trading platform. The exchange also moved to its new offices in Westlands and has plans to venture into other countries and establish securities exchanges there. Among the countries identified are Somalia and South Sudan.

BRICS’ Launch their New Development Bank (NDB)

The world’s top emerging economies namely Brazil, Russia, India, China and South Africa (BRICS) launched their joint development bank named New Development Bank (NDB) on 15th July 2014. The signing of the agreement in Fortaleza Brazil by the heads of the five countries brought to culmination the process initiated in March 2013 in the BRICS’ 5TH Summit in Durban South Africa.

Seen as a move to stamp their economic significance in the globe, the five member countries will each contribute $10 billion to the initial capital of the bank. This will constitute a total of $50 billion as initial capital and give the five member countries equal voting powers. The capital shall however be raised to $100 billion with time. The money shall be used to finance development projects in the emerging economies, with infrastructure and sustainable development being the major focus areas.

Beside the core capital, the bank shall also have a Contingent Reserve Arrangement (CRA). With $100 billion put in the reserve, the aim is to cushion the member states against liquidity shocks in tough economic times. China shall contribute 41% of the total amount to the reserve, Brazil, India and Russia each shall contribute 18% while South Africa shall contribute the remaining 5%.

With no member country being allowed to raise its capital investment in the bank without the consent of the other four countries, the bank is set to start lending from 2016. It shall also open its doors to other countries then but the total shareholding of the five founding countries shall not be allowed to go below 55%.

China managed to win the bid to be the host country for the NDB’s headquarters which shall be located in Shanghai. The African Regional Centre for the bank shall be located in Johannesburg South Africa. India shall provide the president for the bank for the first 6 years while the chairman for the Board of Governors shall come from Russia and the chairman for the Board of Directors come from Brazil.

The opening of the New Development Bank is seen by analysts as a game changer to the international finance dynamics. The Breton Woods institutions namely the World Bank and the IMF are also on the spot as the bank comes as a competitor in development lending and as a comparative on matters efficiency and effectiveness. However, after all is said and done, the success of the NDB will be based on the execution of their plan not on the signing of the agreement.

Why Saba-Saba Rally is Over-rated

It’s all just like shares trading at the stock market. Sometimes speculators like driving the prices so high using their buying powers or leveraging on some irrelevant piece of news in order to serve their interests. But no matter how high the price goes, the fundamentals ultimately will correct the share price in the long-term; to align it with its qualitative and the quantitative characteristics.

And so is the CORD rally on Monday at Uhuru Park. The speculators are having their good time now, until the reality dawns on them as the fundamentals shape in on Monday.

With only two days to go, the most hyped Saba-Saba rally by the CORD coalition at Uhuru Park attracts more attention than the previous days. Both the mainstream and social media have dedicated a good portion of their space and time to discuss this rally more than Christians are spending time discussing the second coming of Christ.

But in my own personal opinion, the whole thing is overrated; and this is why..

First I consider the location where and the day when the event will be held. Being a one location event only in Nairobi, I guess not as many people would attend it and voice as much criticism to the government as CORD would wish to do; had it been in several locations simultaneously country wide. Again it shall be on a Monday which is a working day; and many Kenyans being as hard working as they are, they shall be up and about pursuing their economic interests rather than political agenda from their leaders. That by itself kills the numbers and calms down the “storm” predicted by the CORD politicians.

Precedence can be used to better predict future trends. CORD promised to hold country-wide rallies where citizens would raise their concerns to the government and speak out their hearts with passion. But as we speak today, the rallies that were held did not have any significant difference from the usual political rallies. Though addressing specific agenda, the rallies were not as steamed–up as one would expect going by the stern declaration by CORD at Uhuru Park when “baba” came back. I would expect nothing different on Monday either; just the common euphoric speeches then people will go back to their homes in the evening.

Finally, the best CORD can do on Monday is lament at Uhuru Park and go back to their beautiful houses in the evening. Until the government agrees to sit down with CORD, nothing significant will emerge from Monday’s rally. I am not a political strategist and my view of political maneuvers may be myopic, but from where I stand I see a day like any other on Monday. To me Monday will be just a normal rally like we had in other towns country wide, with the difference being the venue.

And to my brothers and sisters who are scared of violence on Monday, you need to understand we have a running government. 2007/2008 PEV occurred during a transition of power not when the government was solidly in place. As such, we expect full government protection for its citizens as it is their constitutional mandate, thereby blowing away any imagined chaos on Monday.

Cheers and be peaceful..#WeAreOne