Kenya has been told to speed up reforms of its financial markets and introduce more innovative products to make the destination more attractive to local and foreign investors according to the just-released Absa AFMI Report 2020.
This follows a deterioration in Kenya’s Absa Africa Financial Markets Index (AFMI) 2020 rankings, where it climbed down to the 7th position from 3rd position in 2019.
“Kenya took a few steps backwards due to a faster pace by other markets such as Uganda and Ghana whose steps in opening up their financial markets were bolder,” said Victor Nkiiri-Senior Capital Markets Specialist, FSD Africa.
He made these remarks during a webinar held at Absa Bank Kenya Head offices in Nairobi during the launch of the Kenyan component of the 4th AFMI 2020 report in Nairobi.
“What Kenya can achieve in the shortest time to improve its financial markets including building a primary dealership in government securities. This move will trigger the growth of the repo and derivatives market,” said George Asante-Head of Global Markets, Absa Regional Operations- ABSA.
Experts maintain that Kenya’s primary dealership market in government securities will not work without a properly functioning money market.
“The money market is a key component and a nurturing womb for any financial market that ensures cash is priced appropriately,” said Nkiiri during the webinar panel discussion.
While Nairobi Securities Exchange (NSE) was vibrant a few years back, attracting more listings and Initial Public Offers (IPO), the bourse has been struggling to attract new firms.
Experts attribute this drought to the cumbersome and high cost of listing and lack of a suitable legal and regulatory environment, including failure to review several laws, including the Insolvency Act.
“One of the reasons the corporate bonds market is dried up is the lack of a suitable insolvency Act. We are also working to review the laws touching on Public Offers as well as those touching on Collective Investment Schemes,” said David Kanyi, Head of Market Deepening at the Capital Markets Authority (CMA).
He cited the CMA Sandbox platform where firms with innovative products are encouraged to develop, including the recent one where the Central Depository and Settlement Corporation (CDSC) is piloting its Securities Lending and Borrowing (SLB) product.
While the various indexes at the NSE are down due to a general decline in prices across all counters at the bourse, experts see a silver lining for those with a long-term view of the market.
“We still have pockets of opportunity for the discerning investors, especially in the spot market, derivatives as well as the Absa NewGold ETF, products that have recorded growth in volume and turnover,” said Terrence Adembesa- Chief Officer, Derivatives Market at the NSE.
He added that discussions are ongoing between market intermediaries to ensure that retail investors have a seamless experience in the market, including fast onboarding processes as well as paperless transactions and intense investor education.
According to Nkiiri, Kenya needs to lower withholding tax on dividends and tax on private equity to encourage venture capitalists and the listing of small-sized firms.
“There is need for private equity and venture capitalists to exit once their investments have matured and the market must provide them with such an opportunity,” said Nkiiri.
According to Jeremy Awori, Absa Bank Kenya Managing Director, the index provides an opportunity to policymakers on the continent to discuss opportunities that exist on the continent.
“This forum comes at an opportune time for Africa whose economies is expected to pick up in the coming year as it grapples with the COVID-19 pandemic. Africa can no longer be ignored with its rising population and a huge labour force,” said Awori.