Foreign investors trickling back into EAC stock markets

Foreign investors are weighing their options about investing in East Africa’s stock markets as the regional governments, faced with dwindling foreign direct investment flows, have started implementing programmes to attract foreign investors to certain sectors.

Stock exchanges are barometers of economic performance and data indicates that activity on the Kenyan and Uganda securities exchanges picked up during the first two months of 2018. Tanzania’s and Rwanda’s faltered, largely due to the nature of their political and economic environments.

Kenya recorded a slight increase in activity on blue-chip counters following successful conclusion of the general elections, with foreign investors renewing interest in telco Safaricom and banking stocks.

In Uganda, increased public spending on infrastructural projects and particularly the planned expenditure on oil-related investments has given additional impetus to the economy and triggered more activity on the stock market, according to the Bank of Uganda.

In additional the country’s inflation has continued to stabilise at single digit levels settling at 2.1 per cent last month.

Aside from the dampening effect of a prolonged electioneering last year, banking stocks in Kenya were also impacted by the capping of the interest rates, which forced the lenders to channel their money into government securities rather than to the private sector.

The interest rate control law, which was introduced in September 2016, put a ceiling on lending rates at four percentage points above the Central Bank Rate that currently stands at 10 per cent.

In Tanzania, the percentage of foreigners who sold their shares in companies listed on the Dar es Salaam Stock Exchange (DSE) between January and the first week of March, stood at 81.17 per cent, compared with locals at 18.83 per cent.

The NSE All Share Index increased 2.8 per cent to 181.02 as at March 6, from 176.07 recorded on January 8, while the Uganda Securities Exchange (USE) All Share Index more than quadrupled to 8,684.53 from 2,017.92 in the same period.

The DSE and Rwanda Stock Exchange (RSE) All Share Indices fell 1.36 per cent and 0.01 per cent to 2,357.02 and 133.03 from 2,389.59 and 135.05 respectively during the same period.

Dar es Salaam

Last year, Tanzania introduced a law requiring that telcos and mining companies to surrender 25 per cent of their shareholding to locals through initial public offerings. However, the progress has been slow.

The government tried to encourage locals to buy the shares by extending credit facilities to civil servants but the uptake was not wholly successful. Of the 60 per cent shares taken by locals, 94 per cent were bought by institutional investors with only 6 per cent by individual buyers.

Other telcos Tigo and Airtel Tanzania are also expected to offload a 25 per cent stake each to comply with the listing law.

Tanzania has also passed a law that provides for mandatory listing of mining companies on the DSE to enhance transparency and sharing of wealth from the country’s natural resources.

But the firms are negotiating with the government and potential foreign investors on deals that would see some exit the market or even attract partners to pool investments.

Kampala

In Kampala, the Uganda Capital Markets Authority has developed a 10-year (2017-2027) blueprint that seeks to position the USE within the frontier market category of the Morgan Stanley Capital International for equities in order to attract more international capital to meet financing needs for both the government and private sectors.

Kigali

In Rwanda, the RSE which has eight listed companies, has partnered with the country’s Private Sector Federation over the past two months to educate the public and hold campaigns to attract small and medium enterprises (SMEs) to list and boost activity on the exchange.

The initiative dubbed Access and Grow is meant to help SMEs to fully understand what capital market value addition would mean for their businesses, namely fundraising, corporate governance, accountability and management best practice.

“This is a campaign to educate the public on how capital markets and their value addition mechanisms can be used by SMEs and other organisations to raise funds to grow their businesses” said Celestine Rwabukumba, the RSE chief executive.