Archive for the 'East Africa' Category

Dar es Salaam Stock Exchange IPO nearly 5x oversubscribed

Total bids for the initial public offer (IPO) of shares in the Dar es Salaam Stock Exchange PLC were TZS35.8 billion ($16.4 million). This is 4.8 times the offered amount of TZS7.5bn ($3.4m) in the IPO which ran from 16 May until 3 June. Next steps include the DSE to refund excess bids after exercising its “green shoe” option, which allows up to 10% extra, and then to self-list on 12 July on its own Main Investment Market Segment under the ticker “DSE”.
According to the DSE announcement: “The planned self-listing is in line with the global trend and practice for exchanges, and is aimed at achieving good corporate governance practices, efficiency and effectiveness of the DSE and further strengthen its strategic and operational practices.” The DSE said in its prospectus it planned to use IPO proceeds to enhance its core-operating system, introduce new products and services and for “strategic and operational purposes”.

Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Credit: London Stock Exchange

2014: Moremi Marwa of DSE and UK Secretary of State for International Development open trading on the London Stock Exchange. Photo: London Stock Exchange


DSE management are doing an excellent job and there is great potential for the exchange to keep serving the supply of long-term risk capital to one of Africa’s fastest-growing economies. It is sticking closely to its offer timetable and has announced results on time on 16 June. Next is to credit accounts with shares at the central securities depository (CSD) on 24 June and process the refund cheques on 30 June before the self-listing and trading of fully-paid DSE shares on 12 July.
The receiving bank for the DSE offer, as with many Tanzanian IPOs, was local leader CRDB. The lead transaction manager is Orbit Securities Company Limited which said interest was very strong. During the IPO the shares could also be bought using Tanzania’s MAXMALIPO payment gateway or by dialling *150*36# on a Tanzanian mobile phone.
According to an earlier statement by CEO Moremi Marwa: “Over the past few years the DSE has achieved significant milestones, notably:
• Compounded annual growth rate of 110% since 2010 for market capitalization to TZS21trn by 30 March 2016
• Compounded annual growth rate of 56% since 2010 for liquidity to an aggregate average turnover of over TZS800bn per annum
• Introduction of the Enterprise Growth Market (EGM) segment and the increase of listings of both equity and bonds
• Introduction of mobile trading on the DSE trading, depository and settlement platform
• Increased financial independence sustainability and profitability.
As at 30 March 2016 the Exchange had 23 listed equities and 3 outstanding corporate bonds. There are also Government bonds, worth about TZS 4.6trn listed on the exchange, making the DSE the second largest exchange in the East African region.”
According to the prospectus, 3% of shares were reserved for DSE employees and 15% for a capital markets development fund.
Previously DSE was a mutual company limited by guarantee with no shareholders and no capital. The 20 institutions that acted as guarantors – including 8 of the 11 stockbroking firms currently trading – agreed to be issued with 1 share each with nominal value TZS400 by 29 June 2015. It was part of the process as the bourse restructured and changed from Dar es Salaam Stock Exchange Ltd to the Dar es Salaam Stock Exchange Public Ltd Company (Plc).
Among recent changes at the dynamic exchange are
• Migration to the new efficient automated trading system and central depository system (2013), supplied by South Africa’s STT (Securities and Trading Technology system)
• Reduction of settlement cycle from 5 days to 3 days for equities and 3 days to 1 day for bonds in line with international standards (2013)
• The Capital Markets & Securities Authority (CMSA) put in place the enabling regulatory framework and licensed the NOMADs to create a framework for a new Enterprise Growth Market segment of the DSE which was launched in 2013. Since the five companies have listed on the EGM
• Interlinking the exchange’s central depository system to the national payment system (2014)
• Deployment of ATS on the wide area network and start of remote trading by brokers (2014)
• Introduction of the regulatory framework and subsequent use of mobile phone technology in IPOs (equity and debt) and secondary trading (August 2015)
• Limits on foreign investment were recently lifted. There is also increasingly close cooperation in the exciting East African region, including installation of an interconnectivity hub for routing trading order between the exchanges.
New products which the CMSA and DSE are developing include real-estate investment trust (REIT), futures and derivatives, exchange-traded funds (ETFs), closed end collective investment schemes and municipal bonds.
Your author was honoured to be team leader of the CAPMEX/Wiener Börse AG team that wrote the demutualization strategy.

Source Dar es Salaam Stock Exchange

Source Dar es Salaam Stock Exchange

East African securities exchange integration – what’s on in 2015

Securities exchanges in East Africa are working together on the infrastructure for tighter cooperation and links between the capital markets of Rwanda, Kenya, Uganda and Tanzania and potentially Burundi. The body for cooperation is the East African Securities Exchanges Association (EASEA). The key integration driver is the Technical Working Group (TWG), which has a member from each State. It was established by the East African Community (EAC) to review the best infrastructure and legal framework to facilitate seamless cross-border movement of capital.

Training and qualifications
Also important is the Securities Industry Training Institute (SITI) East Africa, which is improving skills and technical capacity to international standards and creating regional qualifications to enable skilled candidates to work across the region. For 2015 SITI East Africa aims to help more market players and regulators have SITI certification and examinations and is driving training to meet the growing demand for expertise. SITI was set up in 2009 to establish a common curriculum. See this post about the launch of SITI.

Infrastructure
A regional inter-depository transfer mechanism is in place to support movement of cross-listed securities and provide possibilities for investors seeking cross-border trading and investment opportunities. It is part of a capital market infrastructure project progressing under the EAC Financial Sector Development Regional Project (FSDRP I). Each country is leading publicity and workshops to raise awareness and boost cross-border trading.

Backbone – new directives
The TWG is developing Council Directives “which will be the backbone of the proposed integration of the regional capital markets”, according to the communiqué (“EASEA Press Release”) of the last EASEA meeting. The directives under public discussion are:
1. Council Directive of the EAC on Central Securities Depository
2. Council Directive of the EAC on Securities Exchanges
3. Council Directive of the EAC on Self-Regulatory Organizations
4. Council Directive of the EAC on Conduct of Business for Market Intermediaries
5. Council Directive of the EAC on Corporate Governance for Listing Companies.

The TWG has also drafted and completed directives on
1. Council Directive of the EAC on Investor Compensation Schemes
2. Council Directive of the EAC on Financial Education and Consumer Protection
3. Council Directive of the EAC on Disaster Recovery for Capital Market Infrastructure
4. Council Directive of the EAC on Regulated Activities
5. Council Directive of the EAC on Credit-Rating Agencies
6. Council Directive of the EAC on Regulatory Authorities
7. Council Directive of the EAC on Anti-Money Laundering and Combating of Financial Terrorism

The last meeting of EASEA was 26-27 November and Tanzania did not attend. The next is due in Uganda in the Q2 of 2015. EASEA is a member of the Capital Markets Development Committee (CMDC) of the East African Community (EAC) – a committee of the East African Community Secretariat, according to the Uganda Securities Exchange website. The CMDC objectives include

  • Establish cross-listing of stocks, a rating system of listed companies and an index of trading performance to facilitate the negotiation and sale of shares within and external to the Community
  • Ensure unimpeded flow of capital within the Community by facilitating the removal of controls on the transfer of capital among the Partner States
  • Prevent money-laundering activities through the capital markets
  • Ensure that the citizens of and persons resident in a Partner State are allowed to acquire stocks, shares and other securities or to invest in enterprises in the other Partner States

Encourage cross-border trade in financial instruments.

4 priorities from new head of African stock exchanges

Nairobi Securities Exchange (credit: Diana Ngila, Nation Media Group)

Nairobi Securities Exchange (credit: Diana Ngila, Nation Media Group)

The new President of the African Securities Exchanges Association (ASEA) put forward 4 strategic objectives for the member bourses. Oscar Onyema, CEO of the Nigerian Stock Exchange, was elected President after outstanding leadership by Sunil Benimadhu, Chief Executive of the Stock Exchange of Mauritius.
According to a news report in Nigeria’s This Day, Onyema said the vision is to support the effective mobilization of capital for economic development. The new executive committee to lead African securities exchanges will focus on
• Strengthen ASEA’s governance, financial and reporting framework
• Promote the sustainable development of African capital markets
• Facilitate an increase in market access at the regional level, and promote cross-listing among African exchanges
• Align the goals of African capital markets with those of the African Development Bank (AfDB).
Onyema said: “I am honoured to be elected president of ASEA which is the largest platform for Africa’s stock, futures and options exchanges. I would like to thank the outgoing Executive Committee led by Mr. Benimadhu for their stewardship of the Association over the last two years, and I look forward to working with ASEA members, our global counterparts and regulators to contribute to the association’s rich legacy, as well as to promoting our markets in a broad range of areas”.
He was elected this week at the Executive Committee meeting of ASEA after its 18th annual general meeting held in Diani, Kenya.

Exchanges and regional integration
According to this press release from Nairobi Securities Exchange, William Ruto Deputy President of Kenya opened the ASEA flagship conference: “Well-established capital markets can help African countries lessen vulnerability of their economies to external shocks, by locally marshalling funds through instruments such as bonds and reducing currency and duration mismatches.
“The exchanges have continued to foster regional integration by allowing cross-border capital raising initiatives such as public offers, bond issues and cross-listing of stocks”. He encouraged Kenyans to keep saving and to do this using the capital markets.
Benimadhu, the out-going ASEA president, welcomed the new president and committee members: “We look forward to ASEA’s continuing progress as it seeks to enhance the global competitiveness of member exchanges”.

Open up, urges investor
Allan Thomson, managing director of Dreadnought Capital, based in Johannesburg, South Africa, was reported in Kenya’s Daily Nation that opening up the markets to foreign investors would bring in much needed capital and training for the local markets: “I have respect for regulators in Africa and what they are trying to do. But it is worrying. African capital markets suffer from too much protectionism and stringent rules. The fact is that protected and inaccessible markets remain small.”
He added that membership at most capital markets was expensive, which kept away potential investors: “I once approached a securities exchange in Africa and was told to pay $1 million to become a member yet they were only five. I suggest a zero membership fee because investors bring in skills and capital,” he added.

Diani, Kenya (credit www.planetwindsurfholidays.com)

Diani, Kenya (credit www.planetwindsurfholidays.com)

Tanzania’s $10bn China-funded port will start in 2015

China is to build a huge new port and special economic zone in Tanzania worth at least $10 billion. Construction is due to start on 1 July 2015 as the country bids to rival Kenya’s Mombasa as transport hub for East Africa and is also investing in road, railways and major developments in commercial capital Dar es Salaam, 60 kilometres south.

Last Sunday, 26 Oct, the construction agreement for the port and associated 22,000 acres zone was signed in Shenzhen, southern China, with Tanzanian President as witness. According to a statement from the Office of the President, reported on Reuters: “The Tanzanian Government signed a memorandum of understanding with two major international institutions … to develop the Bagamoyo economic zone”.

It was signed with
• China Merchant Holding International (CMHI, based in Hong Kong) which claims to be “the largest public port operator in China and… leading… in the global port industry”. and
• State General Reserve Fund (SGRF) of Oman, the sultanate’s biggest sovereign wealth fund.

An earlier report on website Aid Data said the agreements also covered CMHI building railway infrastructure leading up to the port and the economic zone. Initial financing was $500m in 2013, supplied by Export-Import Bank of China.

Dar es Salaam harbour. Photo: Tom Minney

Dar es Salaam harbour. Photo: Tom Minney

A framework agreement between Tanzania and the Chinese port operator had been signed when Chinese President Xi Jinping visited Tanzania in March 2013, the first country on his African tour soon after his inauguration.

An official said it had taken time to set a start date for building work because of other negotiations about infrastructure to link the port to national transport networks. Li Jianhong, executive chairman of CMHI, asked Tanzania’s Government at the signing of the contract to remove obstacles that have delayed implementation. President Kikwete said in the statement: “We will do everything possible to ensure that this project takes off because it will bring enormous economic benefits to the entire country,” according to Reuters.

Separately, Tanzania and China on 24 Oct signed deals with Chinese firms worth more than $1.7 bn, including one to build a satellite city to ease congestion in Dar es Salaam, deepening Beijing’s ties with east Africa. China is financing a $1.2 bn natural-gas pipeline that will run 532 km and in 2011 China’s Sichuan Hongda Co Ltd signed a $3bn deal with Tanzania to mine coal and iron ore. The new port is expected to handle 20 times more cargo than the existing port at Dar es Salaam, according to Aid Data website. It will act as a hub for raw materials coming in and out neighbouring landlocked countries, as well as bringing Chinese manufactured goods into the region, according to this earlier investigative report.

The report also said there were questions after the new port was pushed through Parliament by the ruling party with little debate. Apparently Dar es Salaam port is underused and with enough capacity until 2016-2020 depending on traffic. Other ports such as Tanga in the North and Mtwara in the South are dormant. Bagamoyo is a historic town.

The Bagamoyo agreements include large container and vehicle facilities, combined with smaller scale dry bulk and multi-purpose terminals at Mwambani Bay. It plans to handle more than 20m containers per year and also includes construction of a standard-gauge railway link to the central corridor railway at Ruvu Station and an extended link with the TAZARA railway. A highway to link the port to the Uhuru Highway that goes to Zambia will also be built.

China will have control of the port for 40 years. It provides access to 8 countries as Tanzania borders Mozambique, Malawi, Zambia, DR Congo, Burundi, Rwanda, Uganda and Kenya, with cargo uptake as far as South Sudan, The Comoro islands, Madagascar and the Seychelles. Journalist Shermax Ngahemera writes: “For China, the leading exporter in the world, it is an ideal site… China is widely involved in extraction industry in central Africa, especially in Zambia, the DR Congo and Angola. Cargo to and from those countries can therefore easily be diverted to Bagamoyo. In 2013 trade between Africa and China reached more than $200bn.”

He dismisses claims that it could have military significance, quoting a senior retired Navy General pointing out that at 14metres it could not berth a submarine. He also quoted the African Development Bank which says transporting supplies in East Africa is more expensive than in any other region, due to inefficient operations at ports in the region, road checkpoints and border controls. Shipping to Tanzania is 25% more than shipping to the larger and more efficient ports in Southern Africa.

China built the TAZARA railway linking Tanzania and Zambia in the 1960s and 1970s.

There are more details on this blog.

Ethiopia lures manufacturing with cheap power and labour costs a tenth of China’s

Low-cost manufacturing is shifting from China to Ethiopia, lured by cheap electricity and labour costs that are a tenth of China’s. Ethiopia is building a name for producing clothes, shoes and other basic goods, while also tackling transport bottlenecks. Trade and Industry minister Tadesse Haile says he wants Ethiopia to export $1.5 billion of textiles a year in 5 years, from $100 million now.
Bureaucracy and slow and poor transport links means that costs are not as low as they should be, according to an excellent report by Reuters (see “Garment-making finds new low-cost home in Ethiopia”). Ongoing power cuts and sometimes poor telecommunications, both still state monopolies, could be added to the list.

Credit: Ethiopian Radio and Television Agency (ERTA)

Credit: Ethiopian Radio and Television Agency (ERTA)

Credit: China Daily

Credit: China Daily

Reuters journalist Aaron Maasho points to Government and foreign investors building factory zones. Companies from China, India, Turkey and the Gulf are setting up manufacturing. He quotes Nara Zhou, spokeswoman for Huajian Group, a Chinese company that makes over 300,000 pairs of boots and sandals a month for retailers such as Guess from a factory near the capital: “We have to move because of manufacturing’s development in China, due to the high increase in wages and in raw materials.. Ethiopia enjoys stability, the Government is eager to industrialize and there is also the low labour cost here – a tenth compared to China.”
Ethiopia is one of Africa’s – and the world’s – fastest-growing economies. Despite the government’s socialist roots, there is no minimum wage, letting firms such as Huajian pay salaries of $50-$70 a month – still higher than the average per capita income. Desta, one of 7,500 employees at Ayka Addis Textile and Investment Group, a Turkish-owned factory 20 kilometres west of Addis Abeba, told Maasho:”Almost every young person in this locality now works here…We all struggled to make ends meet beforehand. We can now afford proper healthcare or sending a child to school.”
Ethiopia’s electricity grid offers electricity at US$0.05 per kilowatt hour, compared with $0.24 cents in neighbouring Kenya and the country is investing heavily in hydropower generation. According to Minister Tadesse: “The availability of power and the cost is cheaper than any other country in the world. We are providing power, land and labour all very cheaply.” Kenya and Uganda are also chasing investment into textiles but cannot compete on input costs against Ethiopia, where wages are 60% lower than the regional average, according to Jaswinder Bedi, Kenya-based chairman of the 27-nation African Cotton and Textile Industries Federation: “Ethiopia is a new player…They are growing and they are growing rapidly.”
The Government projects gross domestic product (GDP) growth at 11% a year, and even the 8.5% forecast for the current year 2014/5 by the International Monetary Fund is impressive. The Government is keen to attract labour-intensive investment and jobs for the 90m Ethiopians – Africa’s second biggest population – with another 2-3m born every year and population growth forecast to continue over 2% a year until 2030.
The Government says it has introduced incentives such as tax holidays and subsidized loans to investors with interest rates as low as 8%. Cheap loans are attractive as inflation is often considerably higher (it has been up to 60%), and the currency has seen steady and managed devaluation, boosting exporters and manufacturers who substitute imports.
Transport remains a bottleneck, it takes on average 44 days to import or export a container, compared to 26 for Rwanda. Amare Teklemariam, chief executive of Ayka Addis, told Reuters: “Our logistics costs are second to inputs. It affects the competitiveness of the company”. Ethiopia is 141 on a 2013 World Bank trade logistics index.
The Government says it investing an amount equivalent to two thirds of GDP into new infrastructure every year, expanding the road network to 136,000 km by next year, from just 50,000 km in 2010 and it is already working on grand plans to build 5,000 km of railway lines by 2020 from less than 800 km at the moment.
For more background see the excellent Reuters report here.

Churchill Avenue, Addis Abeba (www.tourismethiopia.gov.et)

Churchill Avenue, Addis Abeba (www.tourismethiopia.gov.et)

Nairobi Securities Exchange IPO closes 12 Aug

Significant dates
24 July – IPO opens
12 Aug – IPO closes
4 Sept – Share allotment announcement
9 Sept – Self-listing ceremony
nairobisecuritiesexchange_NSE21

The Initial Public Offering (IPO) of the Nairobi Securities Exchange Limited (www.nse.co.ke) is open until 12 August. The NSE is seeking to raise KES 627 million ($7.14m) by selling up to 66,000,000 new shares (some 31% of the equity) at a price of KES 9.50 per share. The offer is open to domestic and international investors.
The IPO will culminate on 9 September with the self listing of the NSE on the Main Investment Market Segment (MIMS), making it Africa’s second security exchange after the Johannesburg Stock Exchange (www.jse.co.za) to demutualize and list itself.
Mr. Henry Rotich, Cabinet Secretary for the National Treasury, said during the IPO launch ceremony on 23 July (see press releases here): “One of the key objectives of the Capital Markets Master Plan is to build on recent market reforms to address regulatory and institutional constraints in order to strengthen market infrastructure, intermediation, oversight and governance standards. The demutualization and self-listing of the NSE form part of the government’s policies to enhance governance standards and facilitate access to our markets by a wider community of investors. “
Mr. Edward Njoroge, NSE Chairman, said: “The success of our country and the region will be mirrored both in our market and our company, the NSE. We urge all Kenyans, and other investors both far and wide, to embrace this offer with the confidence that Kenya’s growth and future success will, in many ways, be accelerated through the development of our capital markets.”
The minimum number of shares available for purchase is 500 at a cost of KES 4,750.00 (approximately $54). Thereafter purchases are in multiples of 100 shares.
The NSE is celebrating its 60th anniversary and the demutualization and share offer have taken 5 years until the Capital Markets Authority approved all in June.

Is the NSE IPO a bargain? Analysis by Ryan Hoover

Ryan Hoover of the excellent Investing in Africa blog (www.investinginafrica.net) has published his analysis of the NSE IPO here, it is well worth reading. He looks at the NSE income and expenses in the prospectus, and shows that transaction levies (fixed at 0.24% of total trade value, i.e. 0.12% on each side) are the main source of income, earning the NSE KES 405m in 2013. He breaks down the baseline earnings to come with an after-tax figure of KES 0.80 per share, giving the offer a price/ earnings (P/E) ratio of 11.8x.
Since Kenyan bonds currently yield around 11% he looks at future earnings, noting that trading volumes are up 37% in the first half of 2014. Using a forecast growth in earnings per share of 20% he believes the shares could be worth KES 19.90 in 2019 at a P/E ratio of 10x (the JSE is on P/E of 16x) and adding in dividends at KES 0.25 per year (the current level adjusted for the IPO) he sees the potential annual return at 17.4%.
Check out his excellent blog, also for the discussion following the article, which points out that the offer is likely to be over-subscribed.

Nairobi Securities Exchange plans to offer 38% of shares in June IPO

nairobisecuritiesexchange_NSE21

The Nairobi Securities Exchange (www.nse.co.ke) is pushing ahead fast with its demutualization plans and will sell up to a 38% stake in an initial public offering (IPO) in June. According to a report on Reuters, NSE chief executive Peter Mwangi said the NSE will offer up to 81 million shares, subject to regulatory approval.
The offer price will be set by the IPO advisors closer to the offer date. The bourse will use the funds for new products and enhance transparency.
Reuters quoted Mwangi saying: “We want to list through an IPO on the main market. We need to open this listing before 30 June. That conversion from a private to a public company will position us to be a very effective player.”
“We are playing in a sweet spot where the frontier funds think Africa is rising. East Africa is a hot spot on the African map and we are the gateway into that east African region.”

Soaring profits, new products
The NSE’s pretax profit more than doubled to KES 379m shillings last year from 2012. It has been lifted by a surge in trading turnover after the 4 Mar 2013 presidential election went peacefully. The dynamic Nairobi exchange is a mutual company owned by its stockbrokers, and demutualization is the process converting into a private for-profit company, as reported on this blog. The ordinary shares have a nominal (par) value of KES 4 shillings ($0.05) each.
Kenya’s Capital Markets Authority is reviewing the exchange’s advanced plans to offer currency and interest-rates futures and options. The NSE futures market will offer standardized contracts for currency futures that will be traded. Mwangi said: “We are seeing more and more international investors who might want to invest in Kenya and they might want to hedge the currency risk.” Local banks offer foreign-exchange forward contracts, which are negotiated directly with buyers, but they cannot be traded.
Mwangi added that part of the funds raised in the IPO will be used to bankroll new products such as derivatives, exchange-traded funds (ETFs) and Sharia-compliant indexes. The NSE has already led the way with a number of FTSE-branded index products and is working with the CMA and CDSC to introduce a real estate investment trust (REIT) market in Kenya and trading platform and a futures and commodities exchange.

Diversifying income
The 60-year-old Nairobi stock exchange has been diversifying through new sources of revenue including sales of publications, provision of services through the Broker Back Office (BBO) and data-vending. It bought a prime commercial property in Nairobi’s Westlands area to tap into rental income, according to a report in Standard Digital.
The region is enjoying many benefits from increasing regional integration under the East African Community (EAC). The Nairobi bourse is a key player in the East African Securities Exchange Association (EASEA), which aims to standardize regulations and operations within the region to make cross-border investing easier. Members are the Dar es Salaam Stock Exchange (DSE), the Rwanda Stock Exchange (RSE), the Uganda Securities Exchange (USE), and the Central Depository and Settlement Corporation (CDSC). It also has a memorandum of understanding with the Somalia Stock Exchange Investment Corporation (SSE) under which it will have primary responsibility for the technical development of the Somalia Stock Exchange including identifying the most suitable partners and expertise.
Regional integration has also boosted expansion among listed firms and investor confidence after the discovery large quantities of gas and oil across several east African countries. There are many cross listing between the exchanges.
Mwangi said they wanted to attract more listings on the NSE’s Growth Enterprise Market (GEMS) which is aimed at small firms wishing to list their shares. There is only one listing, property developer Home Afrika so far. The NSE hopes to attract more listings through easier listing terms such as allowing business owners to offer a minimum of 15% if the shares in the market. Mwangi told family business owners who may be reluctant to lose control: “With 85% you have effective control of your company but you enjoy all the advantages of being listed. We are in a sense offering the best of both worlds.”
The NSE is a key member of the African Securities Exchanges Association and an affiliate member of the World Federation of Exchanges (WFE) and intends to become a full member.

The Africa Report food for thought on the “great game” in East Africa

“East Africa is the most promising regional bloc. [It] has registered between 5 and 6% growth annually for the past decade. We estimate that regional gross domestic product will expand 18-fold by the middle of the century, from $185bn in 2010 to $3.5trn by 2050. This era is comparable to the period immediately after independence.” This is an intriguing article just published by The Africa Report, quoting Gabriel Negatu, regional director of the African Development Bank.
The article, by Parselelo Kantai in Nairobi and Juba, additional reporting by Patrick Smith in Addis Ababa, talks of the four leaders that dominate the East African “chessboard”. Here are a few sample quotes: “At international gatherings such as the African Union summit in Addis Ababa, the four gravitate towards each other: Ethiopia’s Hailemariam Desalegn, Kenya’s Uhuru Kenyatta, Rwanda’s Paul Kagame and Uganda’s Yoweri Museveni.
“Differing in age and political experience, they argue about many details but there is a critical point of consensus. If East Africa is to grasp the economic opportunities now available, there must be a determined effort to integrate its markets and economies, even if that means making concessions and compromises in the short term.
“All four run interventionist foreign policies – Ethiopia, Kenya and Uganda sent troops into Somalia, while Rwandan and Ugandan troops have been both invited to and expelled from the Democratic Republic of Congo.
“They all favour a statist hand on the economic tiller, but they are all building up business classes on whose political loyalty they can rely. All have supported Kenyatta in his attempts to avoid prosecution at the International Criminal Court.
“Economic growth and breaking away from dependence on Western markets are common imperatives. None of them enthuse about democracy, particularly in its Western, liberal variants.”
The article also gives insights on Uganda’s $8bn oil infrastructure deal of 5 February that will help reshape the region and its economies and 2 giant railway projects due for completion by 2020. It highlights the need for jobs and services to keep up with growth, and China’s giant role in reshaping the region.
It highlights regional diplomatic tensions too. The writers also point to joint pressure on Tanzania, sometimes seen as the laggard in the regionalization project, and give insightful perspective on the lessons from the South Sudan crisis, as well as letting key South Sudanese voices be heard. They write:
“For governments tempted to ignore the new underclass, South Sudan serves as a cautionary tale. An abiding weakness of governments in East Africa is their ethnocentrism: their tendency to favour crassly their ethnic support bases in the allocation of public sector jobs, appointments, commercial opportunities and government tenders.
“South Sudan’s crisis may have been exacerbated by its weak institutions, but the best illustration of this was the government’s failure to rein in cronyism, corruption and ethnic rivalries in the state sector.
“In South Sudan, these weaknesses caused a war. In other countries in the region, they produce bad elections and policy-making, and hold back burgeoning economies.”
The article speaks of the determination not to be proxies for foreign powers in any conflict and says the South Sudan crisis could give an opportunity to rebuild a state more suited to local realities.
For more, we recommend that you read the article in full here.

Nairobi Securities Exchange invites Ethiopian firms to list

Kenya has invited Ethiopian companies to list on the Nairobi Securities Exchange in a ground-breaking move that would let them raise capital and trade their shares. The Ethiopian Government has been slow to support development of its capital market, hampering investment and private-sector growth.

Churchill Avenue, Addis Abeba (www.tourismethiopia.gov.et)

Churchill Avenue, Addis Abeba (www.tourismethiopia.gov.et)


The invitation came earlier this month as Kenya’s President Uhuru Kenyatta visited Addis Ababa to strengthen trade and other ties. According to Reuters he told a joint meeting of executives from both nations: “Kenya stands ready to begin consultations for the regulations and guidelines that would allow Ethiopian companies to raise investment capital and trade at our Nairobi Securities Exchange.”
Ethiopia has one of Africa’s biggest economies, a fast-growing population of 85-90 million, and a booming economy which is forecast to grow at over 7% a year for each of the next five years, according to the International Monetary Fund (World Economic Outlook, Oct 2013).
Foreign multinational companies such as Unilever, Danish pharmaceutical company Novo Nordisk and many Chinese and Indian companies are opening a wide range of operations, including manufacturing. However, many Ethiopian companies have found it hard to raise the risk capital to seize the many opportunities, despite a strong human skills base, as outlined in this perceptive article in Financial Times.
The Government is 100% owner of the largest companies such as Ethio Telecom and Ethiopian Airlines and endowment companies linked to the key political parties are also major forces in the economy. There has been a programme of privatizing many state-owned companies in farming, manufacturing and others but Government retains key strategic industries and Reuters says they are resisting calls to liberalize the economy.
Kenyatta took Kenyan companies to look for opportunities in Ethiopia including executives of dairy company Brookside, Equity Bank and telecoms operator Safaricom. The 2 countries signed a special status agreement in 2012, detailing various areas of co-operation in trade, energy and infrastructure. A large transport corridor could link Ethiopia and South Sudan to a new Lamu port in Kenya. Ethiopia recently opened a grid to export electricity to Kenya with $1.5bn financing from the World Bank and the African Development Bank.
Analysts said Ethiopia would benefit if its firms take up the offer to tap Kenyan capital and Reuters quoted a analyst from Nairobi-based Standard Investment Bank in a note to clients: “The advantage for Ethiopia for this arrangement would be the ability to provide companies with an inflow of capital without necessarily running the risks of an open capital account economy which Kenya is already accustomed to.”
The Nairobi bourse is the powerhouse of Eastern Africa and there are already many dual-listings in the region and plans to create further links and harmonization with Dar Es Salaam, Uganda and Rwanda securities exchanges.
One Ethiopian lawyer told African Capital Markets News: “There is no law that prohibits Ethiopian companies to trade on another stock market. The President of Kenya has made his intention clear on the subject and there is no clear rejection or acceptance from its Ethiopian counterparty. The Ethiopian companies could benefit much. Principally they will be able to implement corporate governance policies and procedures that are lacking today and also be competitive over the world market.”
According to Million Kibret, managing partner of BDO Consulting Ethiopia, confirmed to African Capital Markets News that lawyers agreed “there is no law or directive or regulation that forbids interested Ethiopian companies to register at the Nairobi Securities Market. If their enrollment requires investment it will be up to the National Bank of Ethiopia to allow same.”
Kenyatta said that Kenya exported goods worth $53.2m to Ethiopia in 2012 and imported goods worth $4.1m in the same year.

Nigeria’s Abuja Commodity Exchange set for privatization

The Nigerian Government is planning to privatize the Abuja Securities and Commodities Exchange (www.abujacomex.com) by mid-2014, according to Arunma Oteh, Director General of Nigeria’s Securities and Exchange Commission (SEC). According to an interview on Bloomberg, the aim is to revive trading.
Oteh said: “The Government wants to privatize the only commodity exchange and it had committed to doing it by the end of last year. It didn’t meet that deadline, but it’s planning to do something by the middle of 2014.
“We have a number of both domestic players and international players who are very interested. They’d rather acquire the privatized exchange, so they’re trying to see how far the government is going with this initiative and if not they’re prepared to seek a registration for a new commodity exchange.”
One of the key investors interested is local firm Heirs Holdings Ltd, based in Lagos but with interests across Africa in banking, energy, real estate and agriculture. Chairman Tony Elumelu said in an interview in December the company wants to acquire the Abuja exchange when it is sold or else it will apply to the SEC to set one up.
Heirs Holdings is an investor with Berggruen Holdings and 50 Ventures in African Exchange Holdings Ltd (AFEX www.africaexchange.com). This facilitates an exchange using NASDAQ OMX technology which can be accessed anywhere in the world through the X-Stream electronic trading platform. Other key figures in AFEX include managing partner Jendayi Frazer, who was key in U.S.-Africa policy for nearly 10 years and U.S. Assistant Secretary of State for African Affairs (2005-2009) and Nicholas Berggruen whose charitable trust funds the investment arm to take “a long-term, patient capital value-oriented approach”.
AFEX has set up the East African Exchange (EAX www.ea-africaexchange.com) in Kigali, with the first node launched in Jan 2013 and the first regional auction – 50 metric tons of maize at $398 per metric ton – between a Ugandan seller and Rwandan buyer in November 2013. Expansion is planned for Kenya and Uganda to build a regional exchange.
AFEX also set up an electronic warehouse receipt system in Nigeria last November, working with the Nigerian Grain Reserve Agency and the Agriculture Ministry. This links farmers and traders as part of the groundwork to set up a commodities exchange, according to Bloomberg.
According to AFEX website: “Warehouse storage is critical complementary infrastructure to any commodity exchange. Properly managed warehouse facilities allow farmers to safely store their harvest without worrying about loss of value until market prices are favorable. An electronic warehouse receipt (e-WR) is issued by the warehouse and represents the stored commodity and is the security instrument that is traded on the exchange. It is only transferable through the electronic system, avoiding issues such as side selling, theft, forgery, etc.
“Berggruen Holdings signed a Memorandum of Understanding establishing a strategic partnership with the East African Community (EAC) Secretariat to support the goals of regional economic and financial integration. With this strategic partnership, AFEX will seek to share its strengths, expertise, experience, technologies, methodologies, and resources in order to advance the goal of regional integration of capital markets.”
“Our vision is to create lasting institutions that will capitalize on Africa’s agricultural potential, support African farmers, achieve food security, provide energy security, and improve Africa’s overall global trade competitiveness.”
Nigeria has a fast-growing population which is already 170 million people. It produced Africa’s third-biggest cocoa harvest in 2013 and produces cotton, sugar and other crops.
The ASCE website says it was originally set up as a stock exchange in 1998 and started electronic trading in 2001 and was converted into a commodity exchange 3 months later and brought under the supervision of the Federal Ministry of Commerce. The website does not appear to have been updated recently.