By JAMES ANYANZWA

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American fund management firm BlackRock Inc is selling off its equity investments in emerging and frontier markets -- including Kenya and Nigeria -- citing liquidity challenges in these markets and difficulty in repatriating funds in dollars.

The announcement potentially deals a major blow to Nairobi’s efforts to cement its position as East Africa’s financial and investment hub.

Blackrock is shutting down its emerging and frontier markets-focused fund, iShares Frontier and Select EM ETF.

In a notice dated June 7, BlackRock said the “Fund will enter into an extended liquidation period,” during which it will not be managed in accordance with its investment objective and policies, “as the Fund will sell down its assets, as determined by BlackRock Fund Advisers, where possible and hold the proceeds of such sales in cash and cash equivalents.”

According to the notice, the fund will depart from its policy of holding at least 80 percent of the value of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of issuers economically tied to frontier markets during the liquidation period.

This news comes after it emerged in March that BlackRock, one of the world’s largest asset management companies — with a market capitalisation of over $114 billion as of June 13 and $9.1 trillion in assets — had made an investment in the NSE after a four-year break, marking a major win for the struggling exchange.

Central Bank Governor Kamau Thugge said in a meeting with bankers that he met with representatives of the company after they placed Kenya among the 10 economies they had selected to invest in, citing reforms in the foreign exchange market among the reasons for their interest.

Three months later, BlackRock is liquidating its investments in emerging and frontier markets, an exercise expected to be completed on August 12, with the last trading date being March 31, 2025.

Frontier markets are those emerging markets that are considered the smallest, least mature and least liquid, and may be more likely to experience inflation, political turmoil and rapid changes in economic conditions than more developed, traditional emerging markets. Investments in frontier markets may be subject to a greater risk of loss than investments in more developed and traditional emerging markets.

Read: Nairobi Securities Exchange wealth falls by $968m

In 2022, New York-based Morgan Stanley Capital International Inc. put Kenya alongside Nigeria, Mauritius, Egypt, Sri Lanka, Brazil, Qatar and Ukraine on a watchlist of troubled markets unfit for foreign investments, citing Kenya’s deteriorating macroeconomic conditions and unfavourable investment policies which had rendered the country unattractive for foreign investments.

In its review, the company highlighted difficult investment conditions, including a dollar shortage. It also raised concerns about foreign capital repatriation restrictions including a demand for a certificate of foreign currency inflow before allowing foreign investors to send home their investment earnings.

“There is no offshore currency market. In addition, liquidity on the onshore currency market has been relatively low in the recent past,” the company said.

Other unfavourable policies were difficulties in accessing short-term overdrafts of less than one year from local financial institutions which have made clearing and settlement of transactions an uphill task and the high cost of trading due to the limited level of competition among brokers in the market.