On March 28, 2008, barely months after the post-election violence and at a time when Kenya was going through peace and reconciliation, the best son of the NSE for the next ten years was born.
President Mwai Kibaki launched the Safaricom Initial Public Offering and placed a personal application for One Million shares worth Sh 5M.
Despite cries by the opposition that the government was selling its best company, the government of Kenya went on to sell 10B ordinary shares of Safaricom at a par value of 5 cents (Ksh 0.05). This comprised 25% of the issued ordinary Safaricom shares after dilution to make them accessible to as many shareholders as possible.
The Safaricom IPO set up the NSE for a bull run for the next decade.
Borrowing from a similar leaf, yesterday, president William Ruto revived the hopes of local investors when he visited the local bourse with some exciting news that may make the bourse vibrant in the coming days.
In what was a plan to revitalize the Nairobi Securities Exchange, the president presented a plan to make the bourse vibrant again.
In this article, we break down the plans he has to revitalize the NSE, their implications, and what he may have missed out on.
Ruto’s Plan to Revitalize the NSE
1. End The IPOs Drought
The Nairobi Securities Exchange has not registered a new listing to the bourse since October 2015, when the Stanlib Fahari RREIT was listed. Notably, there was no privatization of state-owned companies in Uhuru Kenyatta’s tenure. The last successful privatization was that of Safaricom in 2008. During President Kibaki’s regime, some privatized companies included Mumias Sugar, Safaricom, Kenya Reinsurance and Kengen.
As a result, the president promised to privatize 6 to 10 state-owned corporations in the next six months and asked the private sector to add five more listings.
This was well kicked off with Bio Yogurt and Credit Bank being cleared to list at the NSE.
2. Ease Of Trading Shares
The main message that was well received yesterday was the president saying that he looks forward to when Boda Boda riders and Mama Mboga will be able to trade stocks with their mobile phones as they continue their day-to-day business activities. This would require fractional ownership of shares to make them easily affordable by anyone and suitable technology to make it possible for Kenyans to access the stock market on their phones.
This would also require public education on investments so that investors can be equipped with the knowledge to help them succeed in the stock market.
3. Introduction of a Dollar Denominated Bond
If there is one thing that worries bond investors in the local market, it has to be the effect of the weakening shilling on their investments in the shilling-denominated bond. Introducing a dollar-denominated bond would appeal to investors as it assures them of returns on investment in a stronger currency.
The president also hinted at the possible return of M-Akiba, a digital platform that helped Kenyans to invest in the bond market with little capital through their phones.
What Did The President Miss Out On?
1. Investor Education
If you have been in the finance scene in Kenya, you will understand that mass education is the biggest threat to investing in Kenya. Every day, many Kenyans lose a lot of money to investment scams. Just recently, Tana River Senator, Danson Mungatana, made headlines as he was scammed by a witch doctor a few years back.
Yes, the president looks forward to seeing the Boda Boda guy or mama mboga trading stocks. But do they know what the stock market is?
Today, while on your Boda or buying veggies at your local, kindly ask them what the stock market is, and you will see how far behind we are in investor education.
And if professionals who have studied finance and are experienced in stock market analysis still do not beat the market average, how will our mama mboga and our Boda Boda riders fare?
Will it be worthwhile for them to invest in the stock market or their businesses?
2. Reduction of Investment Costs
Unfortunately, buying offshore stocks is cheaper than buying local stocks.
For example, buying stocks of the most valuable companies in the world via the Hisa app charges a 1% commission on the value of your trade. That means buying shares worth Ksh 5,000 would cost me only Sh 50.
At the same time, buying shares worth Sh 5,000 with arguably one of the most affordable brokers in Kenya will cost you Sh84.30.
This may go upto Sh125 with some high-cost brokers.
If you think that difference is small, think about someone buying many shares with more money.
Surprisingly, the president didn’t touch on that, and it may now take the competition of local brokers for local investors to lower the brokerage fees, account maintenance fees and trade commission fees.
3. Scrap Account Maintenance Fees
Unfortunately, CDSC is still pushing to introduce the Sh 100 monthly account maintenance fee. This would cost Sh1200 annually. Notably, some brokers also charge account maintenance fees. Like my broker charges me Sh100 per annum. That means I would have to incur a cost of Sh 1300 per annum to account for maintenance fees. This hugely affects my net returns as a small retail investor with very little money invested.
4. Introduction of Index Funds or ETFs in Kenya
Passive investing has become so popular in developed countries nowadays that more investors are putting their money in index funds and ETFs than in individual stocks. This is not only because most investors do not beat the market but also because it spares investors the headache of stock market analysis.
Notably, we only have a gold ETF in the country, and the introduction of ETFs or Index Funds is at the mercy of our local brokers, who may not find it an excellent money-making move.
The president visiting the NSE is good news to all retail investors. It gives us hope for a bull run in his tenure. New listings may bring excitement back to the NSE only if listed companies are list-worthy.
In what probably marks the beginning of a better run in the Capital Markets of Kenya, yesterday’s moves were steps in the right direction, but we still have a long way to go.