NSE for Dummies: Listing your Company at the GEMS

NSEGEMS is the Growth Enterprises Market Segment at the Nairobi Securities Exchange Ltd. It is the latest segment to be introduced at the NSE to cater for high growth SMEs who would like tap into the large capital source through the stock market in Kenya. Currently there are three companies listed at the GEMS including: Continue reading “NSE for Dummies: Listing your Company at the GEMS”

Fueling sustainable development in Africa through Impact Investing

CapetownThe impact investing space is growing in Africa and could be the trigger this developing continent needs for faster sustainable development. As the MDGs are being replaced by the SDGs in 2015, new development concepts and policies are being floated for Africa to adopt. Impact investing could be one of the best strategies if embraced and well implemented across the continent.

Most African economies have poor basic public services in terms of healthcare, education, infrastructure, water, energy, housing and technology[i]. Efforts by the governments to improve the conditions in the past have been met with budget constraints and lagging implementation marred by corruption.

Nevertheless, many African countries have in the recent past adopted the Public Private Partnerships strategy as a way of bringing on board the private sector into the national development agenda. There is also increased democratization of governments as well as concerted efforts to tackle the security scare in most African countries. Both these initiatives have led to an increase in Foreign Direct Investments to the continent and especially in Sub Saharan Africa[ii]. This has eventually contributed a great deal to improving the situation on the ground, but still left some social gaps unattended to.

NGOs and other donors on the other hand have been doing a lot of work in Africa in trying to alleviate the poor economic status and fill the social gaps left. Major areas covered by donors and NGOs usually are in healthcare, education and sanitation[iii]. However, these interventions have been coming in terms of short-term projects that die out after a while, thus leaving the people drawing back slowly to their former poor economic state.

Based on the shortcomings from the donor dependency and the short-term effect of NGO projects, Africa therefore needs an alternative strategy to boost its economic development sustainably. It is on this background that impact investing is being advocated for; due to its focus on both financial returns and social good for the communities involved and the economy as a whole[iv].

Gaining momentum from 2007, the impact investing concept has made major milestones both in terms of funds mobilized an invested as well as the geographical coverage. South Asia and Sub Saharan Africa are the current major target regions by the asset managers and investors in the impact investing space. The focus is on improving livelihoods, conserve the environment and help mitigate some of the chronic social problems in those regions.

That combined focus on social benefits and financial returns fits well to the challenges facing Africa as a continent. The capitalistic economies in most countries in SSA have resulted in a few individuals growing wealthier each day at the expense of social welfare of the masses. With the requirement under impact investing to specifically measure the social impact from investments; investors will then be obliged to factor in environmental and social benefits to their investment plans. This will ultimately help to sustainably deal with the social challenges Africa faces, even as the investors grow their wealth through financial returns.

Africa is a frontier market and the opportunities it presents can best be capitalized on when the social welfare of its population is at the core of the development agenda. Impact investing presents such a strategy that is all inclusive in terms of social benefits and financial returns. As we focus on having sustainable economic development, it will be a great idea to have governments in Africa embrace the idea and formulate legislation that supports impact investing.

Article originally published on www.economywatch.com 

[i] Liz Patterson (2014), ‘Building the impact investing market in sub-Saharan Africa and south Asia’  http://www.trust.org/item/20140408111517-zqns7/?source=spotlight

[ii] Ernst & Young (2014), ‘Foreign direct investment in Sub Saharan Africa on the rise’ http://www.ey.com/GL/en/Newsroom/News-releases/News-foreign-direct-investment-in-sub-saharan-africa-on-the-rise

[iii] Sarah Ooko (2014), ‘NGOs and development in Africa: Lessons for donors’   http://www.trust.org/item/20140303151017-208vf/

[iv] Global Impact Investing Network (2014), ‘WHAT IS IMPACT INVESTING?’  http://www.thegiin.org/cgi-bin/iowa/investing/index.html

Kenya Banks’ Reference Rate (KBRR) Explained

ratesOn 8th July 2014, the Central Bank of Kenya set the first KBRR at 9.13% and it became effective from that very same day. As a move to foster transparency in Kenyan financial sector, the reference rate is both timely and effective. Continue reading “Kenya Banks’ Reference Rate (KBRR) Explained”

The Economics Of Equity vs. Safaricom

safequityThe battle between Equity Bank and Safaricom seem to just have started. Even after the CAK approved the issuing of the slim SIM cards by Equity Bank for a trial period of one year, the parliamentary committee on Energy, Information and Communication on Wednesday differed with them and requested for a technical audit to be done first before the commercialization of the project.

It appears that Equity Bank has the regulator’s backing whereas Safaricom is lobbying through parliament. Whoever wins this battle is yet to be determined as the tag-of-war continues to take new shape everyday. However, the economic implications of the same can easily be forecasted.

In the event that Equity Bank gets its wishes granted and the roll out of the slim SIM cards is successful, the bank will see its top line (read revenues) increase. With efficient management of its costs, the bank will also experience a growing bottom line (read profits). As investor sit and watch the top and bottom line expand, their appetite for Equity Bank shares will be aroused and as they demand more of it, its share price will shove up.

Things will not be bright for Safaricom in this case as it loses its customers to Equity Bank on the money transfer business line (Mpesa). Both its top line and bottom lines will shrink significantly bearing in mind that Mpesa contributes about 36% of its total revenues. The investors watching this stock will opt to shift their money to other investment vehicles or better still to other growing stocks in the market. The obvious outcome of this shift will be a decline in Safaricom’s share price and this goes down together with its shareholders’ wealth.

In my opinion, the one year trial period is too long and Equity Bank will do all it can to make sure that it registers as many clients as possible to the new slim SIM card within the given time frame. Once numbers are large enough, the project will be too big to terminate for any “minor” errors that might be noticed during the trial period. Simply put, once Equity Bank launches the slim SIM card registration, the project will be as good as sealed into perpetuity and Safaricom will have to look for other innovative ways of combating the threat and maintain its revenue growth trajectory.

However, the two companies are not the only players in their industries. The threat will be felt by other banking sector and telecommunication sector players who will in return come up with counter measures to secure their market shares and profitability. It therefore means the battle is wider than it appears with only the two leading players representing their various sectors in the just began corporate war.

For investors, its time to go back to your financial planner and take a strategic position before its too late. Remember, you make money when buying and not when selling!

 

The Economic Week – (Sept 14th – 20th)

econ indThe week saw a lot of activity at the Nairobi Securities Exchange with the NSE share index going up further and closing at an all time high of 5307.52 points on Friday. The NSE share also continued with its upward rally to close at Ksh. 25.

Some shares listed at the exchange also had a vibrant week with Equity, Britam and Jubilee insurance leading the pack in hitting their all time highs too within the week and closing on Friday at Ksh. 57.00, 34.00 and 425.00 respectively. Centum also continued with its upward rally and closed the week at Ksh. 70.50.

At the Forex market, the shilling stabilized after the Central Bank of Kenya intervened and sold the dollars for two days. The shilling closed the week exchanging at the rate of Ksh. 88.94 against the dollar, Ksh. 146.59 against the sterling pound and Ksh. 114.87 against the euro.

In the same week, CBK reported that it had bought the bulk of the Eurobonds from Treasury, thus pushing its foreign currency reserves to an all time high of $ 7.4 billion (Ksh. 653 billion); an equivalent of 4.85 moths of import cover.

Key Rates:

The inflation rate and the Central Bank rate remained unchanged at 8.36% and 8.5% respectively. The 91 days treasury bill rate stood at 8.63% while the REPO and interbank lending rates stood at 8.32% and 7.80% respectively.

CBK Discount Window lending rate stood at 14.5% while the KBBR remained unchanged at 9.13%. The average savings and deposit rates stood at 1.33% and 6.91% respectively while the lending rate for commercial banks stood at an average of 16.91%.

In the international front, Alibaba listed at the NYSE on Thursday at $68 per share but it saw a price surge to $92.70. More than 100 million shares were sold within minutes after the debut signifying the high appetite investors have for the stock which is in China’s e-commerce sector.

Hope you had a nice week and you made money at the capital markets, Forex markets, real estate and any other place where you have put your money. Have an enterprising week ahead.

Economic Briefs – Kenya

econ indInflation rate for the month of August jumped up to 8.36% from 7.67%. Inflation has been on an upward trajectory in the past 6 months a trend that could get the monetary policy makers worried. The next move could be formulation and execution of a counters strategy to curb the inflation rate from going beyond the set economically accommodative limits.

The Monetary Policy Committee (MPC) in its last sitting maintained the central bank rate (CBR) at 8.5%. This happened despite the rise in inflation figures in the month of August.

The shilling is exchanging against the dollar at levels above ksh. 88 per dollar and has maintained above that level in the past weeks. Analysts believe that due to the end month demand for the dollar to make payments for imports and the long-term infrastructure projects in the country; the shilling will remain in the ksh. 88 – ksh. 90 range within the next few weeks or months.

The NSE 20 share index has maintained above the 5000 point in the past weeks and it hit its all-time high of 5163 points on Tuesday this week. This is being buoyed by the aggressive participation of foreign investors on the blue chip counters and their increasing interest in other less vibrant stocks.

The Kenya Bankers Reference Rate (KBRR) maintained at 9.13% with most banks adding a premium of between 3% – 6% to it in arriving at their final lending rates in the past month. A discussion on reducing the cost of credit is ongoing within the banking sector and we hope to get good feedback ultimately.

Establishing an SME’s Securities Exchange in Kenya

sme stock exchangeTo 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.