Dar, Nairobi to open up treasuries, firms to full foreign ownership

Saturday November 15 2014

The Nairobi Securities Exchange. Kenya and Tanzania are working on a master plan that will give foreign investors more stake in their respective stockmarkets. FILE PHOTO | NATION MEDIA GROUP

Kenya and Tanzania are working on a master plan that will give foreign investors more stake in their respective securities markets.

Uganda is way ahead of its East African peers, having no cap on the percentage allowable on ownership of local firms by foreigners.

Recently, Tanzania announced plans to allow foreign investors to participate in the purchase of government securities through Treasury and infrastructure bonds without restriction starting 2015, in a move that will help the government borrow cheaply.

READ: Dar relaxes rules to attract foreign investors

Bank of Tanzania associate director for domestic markets Paul Maganga said the move will open up the market for competition to the advantage of both the market and government.

“We are studying the outcome of the current set-up so that we see the extent of the demand for our government securities from within the EAC. Once we see the outcome, then we will open up to the rest of the world,” Mr Maganga said.


Tanzania only allows investors from within the East African Community to purchase up to 40 per cent of offered government securities while individual countries are not allowed to purchase more than two-thirds of the 40 per cent quota.

Kenya last week said that it was planning to allow foreign investors to increase their stake in local firms in order to raise the billions of shillings required to jump-start massive infrastructure development.

Kenya’s Capital Markets Authority said that a new master plan is being developed to allow foreign investors to increase their shareholding up to 100 per cent in certain local companies, up from 75 per cent.

The move, according to CMA, will boost foreign direct investment (FDI) by making the capital markets more attractive to foreigners.

The World Investment Report 2014 put Kenya’s 2013 FDI inflows at $514 million, up from $259 million in 2012 — a 98 per cent increase attributed to oil discovery.

The report noted that Kenyan companies had been active in investing beyond the country’s borders.

“Kenya is developing as a favoured business hub, not only for oil and gas exploration in the sub-region, but also for industrial production and transport. The country is set to develop further as a regional hub for energy, services and manufacturing over the next decade,” says the report.

Uganda has enjoyed higher FDI inflows. Its 2013 FDI inflows hit $1.146 billion, lower than Tanzania’s $1.872 billion but higher than Kenya’s $514 million. Rwanda and Burundi had FDI flows of $111 million and $7 million respectively.

READ: FDI into Uganda up 24pc

Under Ugandan law, foreigners are allowed to wholly own companies or co-own companies with Ugandans.

From Africa, only Morocco, South Africa and Egypt have their securities listed in the Morgan Stanley Capital International (MSCI) index, an indication that these countries allow 100 per cent ownership of local firms by foreign investors.

Luke Ombara, acting CMA director for regulatory policy and strategy, said during a stakeholders briefing that they have a proposal that will allow up to 100 per cent of the shareholding of certain listed companies to be held by foreigners.

Foreign ownership limits

“We have seen constraints within our market, especially where there are large non-traded blocks held by foreign strategic investors. This has been partly caused by the foreign ownership limits and as the market develops, we want to remove these bottlenecks so as to have a greater impact on the securities market,” Mr Ombara said.

Penetration of Kenya’s capital markets by foreigners is currently at 8 per cent, a significant rise from the less than 1 per cent recorded in 1998. The contributions by foreign companies to overall secondary equities trading have grown to between 50 per cent and 70 per cent over the past two years.

Data from the CMA shows that foreign investors hold 22.1 per cent of the total number of shares a the Nairobi Securities Exchange-listed companies and account for over 50 per cent of trading activity.

If the proposal, which will be considered in the 2015/16 budget becomes law, the NSE will be included in the MSCI index, which boasts a global following and respect. The MSCI only covers bourses that allow foreigners to hold up to 100 per cent of listed companies.

“Through this initiative, listed firms will enjoy greater visibility, especially to international investors through listing on the MSCI. Our current approach is geared towards implementing a risk-based financial regulatory regime, away from imposing minimum capital requirements for stockbrokers and investment banks,” said Mr Ombara.

CMA also plans to grow the NSE market capitalisation to $34 billion, up from the current $22 billion, by 2017. The Kenyan capital markets’ absorptive capacity has increased substantially since 2005, with over $40 billion raised from the primary equity and bond market in the past decade.

But some analysts say that removing the shareholding cap may expose the market to global financial uncertainties.

“Our capital controls have worked well for us. It is important for CMA to recognise this and not open up the shareholding to all sectors. They should still have a cap on those companies that have a national interest in order to protect the markets,” said Gerald Ngige, a trader at the NSE.