Why East African’s financial sector linkage could be stillborn

Tuesday August 09 2022

The World Bank has been funding the region's stock market linkage project through a $26.5 million grant, but projects appear to have stalled. PHOTO | SHUTTERSTOCK


A plan to harmonise the financial sector in the region risks stalling as East Africa’s partner states grapple with economic and political crises. These problems have seen the World Bank-funded stockmarket reforms fall behind schedule by more than six years.

The World Bank has been funding the region’s stock market linkage project through a $26.5 million grant. But it now says partner states face financial constraints and could not sustain the operations of an interlinked stock market.

The Bank says in its Implementation Completion Report that some partner states are even finding it difficult to finance the implementation of the financial education strategy/financial literacy within their respective countries

“Inadequate budgets remain an important constraint to pursuing the financial integration agenda of the community forward, including the goal of achieving a single market in financial services and implementation of the Monetary Union Protocol,” the bank says, referring to the EAC’s third pillar of integration.

The EAC is reeling from global crises like the war in Ukraine and post-Covid losses. But it also has unending conflict in South Sudan and DR Congo and an election in Kenya.

The Capital Markets Infrastructure (CMI) project is a technology platform designed to link the capital markets of the partner states seeking to simplify the process of trading company shares across borders. Interoperability of the CMI was established through the purchase and installation of an information technology system.


The project entails connecting regional stockmarkets electronically so as to operate as a single market with a view to reducing the cost and time of trading in shares of companies listed on markets across the borders.

CMI is part of a nine-year project referred to as the ‘‘Financial Sector Development and Regionalisation Project’’, which came to an end on June 2021 after the EAC Secretariat requested for extension of the programme by six more months to complete activities whose implementation was disrupted by Covid-19.

Pakistan-based InfoTech Private Ltd was contracted to provide the software connecting the trading platforms of the Uganda Securities Exchange, Dar es Salaam Securities Exchange and Rwanda Stock Exchange to enable them to run as a single market in real-time.

Kenya, which runs the largest stock market in the region in terms of market capitalization and the number of listed companies pulled out of the project in 2015 argues that the procurement process was flawed. Burundi, on its part, is expected to join the network once it sets up its own exchange.

The interlinked stock market will see investors in the three countries buy and sell shares of companies listed in any of the countries without going through different stockbrokers.

The project was financed by two IDA grants totalling $26.5 million comprising an original grant of $16 million, and an additional grant of $10.5 million.

Approved on January 31, 2011, it became effective on June 20, 2011, with an initial closing date of March 30, 2014. However, according to the WB, the project closed six years and nine months behind schedule on December 31, 2020.

Read: World Bank launches $1m EAC finance project for public sector

The CMI was expected to go live in the first week of December 2020, and support was provided to Burundi in establishing its capital market. EAC negotiated for an additional six months extension to complete the remaining activities including on-site capacity training on User Acceptance Testing which faced challenges following the advent of Covid-19.

“Overall the project quality at entry is rated Moderately Satisfactory. The project was grounded on the realities in the partner states and their problems. And because of inadequate preparation, implementation readiness lacked and delayed the launch,” according to the Bank.