The Capital Markets Authority(CMA) plans to engage sector players in a detailed assessment of Kenya’s carbon market, its ecosystem, do a stakeholder mapping, and determine demand and supply conditions as well as its growth trajectory. This will subsequently inform the policy framework for oversight of sound and well-functioning voluntary and compliant carbon markets.
In an interview with Kenyan Wall Street, Mr Luke Ombara, Director, Regulatory Policy and Strategy at Capital Markets Authority(CMA) said the Nairobi Securities Exchange (NSE) will be supported to establish a carbon credits exchange. This follows their Memorandum of Understanding (MOU) with the Air Carbon Exchange Group and Nairobi International Financial Centre (NIFCA in July 2022 as part of spearheading processes to create this marketplace.
CMA’s strategic direction for the market
According to its action plan, CMA intends to establish a facilitative and innovative friendly oversight framework for Kenya’s carbon markets that will position Kenya as a global carbon credits trading hub in Africa.
The recent Q2 2023 Soundness Report also mentions that the NSE posted a reduction in liquidity in Q2 2023 to 0.8% compared to 2.47% in Q1 2023.
CMA said it plans to engage with key market stakeholders on measures to spur greater domestic and foreign investor participation.
Foreign investor participation hit a medium of 44.95% in Q2 2023 compared to 41.24% in Q1 2023.
“With a number of blue chip companies declaring dividends, foreign investors still see huge investment opportunities in listed firms,” said Luke Ombara, CMA Director, Policy and Market Development while presenting the report this Thursday 27th July 2023.
The CMA has also expressed concern over the concentration by investors on a few select listed firms which include Safaricom Plc, Equity Group Holdings Plc, East African Breweries Limited(EABL), KCB Group, and Co-operative Bank of Kenya Limited. Available figures indicate that these top 5 listed firms, comprised 67.80% of the entire NSE Market Capitalization in Q2 2023, compared to 71.97% in Q1 2023.
“Timely repatriation of income remains a challenge in the face of timely access to foreign exchange together with other structural market challenges,” said Ombara. Notably, June was the first instance since February 2022 when the NSE observed a net capital outflow of KSh 113 million.
CMA said it is having ongoing discussions with Morgan Stanley Capital International (MSCI), a firm that provides investment data and analytics services to investors, to address their perception of barriers to foreign investors at the NSE.
The CMA also raises concerns over the sustained increase in interest returns from investments in Government securities which continues to shift investments away from the NSE.” It further makes the corporate debt markets too expensive for potential debt issuers,” said Ombara.