KA-INVESTOR

• Give Kenya parallel stock market

  Posted: March 12, 2008, 7:35 pm by ka-investor

  Written by James Shikwati in the Business Daily
  I joined Kenyans in celebrating our new found power of the ballot in December 30 2002; the surging crowds exhibited decades of energy that had been held hostage by the Moi regime. We put faith in individuals and were disappointed in 2007.
  In 2006, hundreds of Kenyans queued outside stock brokerage houses to partake of shares in the country’s biggest Initial Public Offering. Bottled investment thirst by Kenyans was exhibited with little time invested in evaluating the existing capital markets institutions. Again, investors are getting disappointed by the day.
  The Capital Markets Authority (CMA), the sector regulator, has joined the political elites in giving Kenyans a blank cheque. Reports that individuals at the Nairobi Stock Exchange (NSE) had sought to hush up the weak financial position of the Nyaga Stock Brokers, and that the NSE went ahead to advance Sh100 million only for the CMA to later declare the broker was under receivership must be condemned.
  The collapse of Francis Thuo and Partners was yet to clear the doubts on the suspicion that Kenya’s stock market is a preserve of 18 brokers who seem keen to stifle competition at all costs.
  According to the Kenyan Capital Markets Eligibility requirements, for a company to be listed at the NSE, it must, among other factors, have net assets immediately before public offer of not less than Sh20 million.
  The minimum authorised, issued and fully paid capital should be Sh20 million. These, of course, are regulations that were put in place to ensure that the bourse meets international standards while securing the investments of individual shareholders. The requirements seem to be silent on medium sized or small businesses.
  Studies show that the majority of Kenyan entrepreneurs are locked up in the micro and small enterprises partly due to the inability to mobilise financial capital.
  Can the policy makers reform the law to permit parallel stock markets that target such groups? It will be easier for the public to invest in such groups as long as they meet the other non-monetary requirements.
  Stock brokers could engage in over the counter trading, mobilise stocks for medium-sized businesses and assist entrepreneurs to clear cash-flow headache.
  Kenya should develop three levels of stock markets; the existing stock market, for big companies, medium level market, and low level market complete with graduation eligibility to the next level.
  The same can be said for the rest of Africa to allow majority to trade in stocks in whichever country. There are many positive side effects of such a venture. For instance, land grabbing, hurried buildings that do not meet architectural standards will reduce because many people will find other ways to invest their money.
  Businesses will be assured of capital and the resultant investment diversification will promote efficiency, competitiveness and sustainability of businesses.
  It is very clear, therefore, that to get ordinary Kenyans graduating into engaging in big business, the law must be reformed to fit into their pocket, that is, parallel stock markets must be allowed to thrive to enable all to enjoy the benefits of the stock market.
  By so doing, the ordinary citizens will also get economically empowered to enjoy the benefits of privatisation and to put in check the argument that privatisation will only benefit the politically connected.
  The CMA must save Kenyans from being held hostage by one investment club. We have seen the weakness of this approach in political leadership; we should be the last in the business sector to mirror politics in the financial markets. Let us liberalize the stock market and get capital for local entrepreneurs.

  James Shikwati is director, Inter Region Economic Network and was recently named one of the 245 2008 young Global leaders by the World Economic Forum

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