Kenyans once shunned stock market over perception of ‘capitalist, gambling’

Trading on the floor of the Nairobi Securities Exchange. More African investors started buying shares at the exchange in early 1970s.

In the lead up to independence, the Kenyan stock market suffered its first free fall after the East African Trade Index wiped out almost half of its market value in two years’ time. The index had fallen to 56 points in May 1962 from 104.5 in January 1960.

This happened during the Lancaster Constitutional talks that culminated with a framework to independence in 1963. Investors were running away and there were even predictions that the economy would soon collapse.

However, the young vibrant Africans participating in the formation of government inspired investor confidence and after KANU took over power, market prices started rising steadily.

By September 1963, the index was up by 94.3 points. In the first week of ‘Uhuru’ it stood at 95 points and by August 1965 it had passed the 100 mark.

According to the East African Standard (Now The Standard), the “spectacular’ recovery of the stock market from the pre-Uhuru slump has been one of the major phenomena of the young nation’s life in the past few years.”

Government then started spirited campaigns calling on Kenyans, especially the emerging middle class, to invest at the bourse. During the colonial era Africans and Asians were not allowed to own more than a few shares in the stock market.

Dealings in shares had started out in the 1920s and were based on a ‘gentleman’s agreement’ with no physical trading floor and it was formally registered as the Nairobi Stock Exchange in 1954 (now Nairobi Securities Exchange).

Leading in the rallying call was former President Mwai Kibaki who was then Minister for Commerce and Industry and the Nairobi Stock Exchange chairman identified only as Mr Champion by the East African Standard.

This was in August 1967. The previous week, the East African Trade Index had closed at 169.51 points. Inspired by the steady rise the East African Standard reported that it was “a devastating reply to pessimists who a few years ago forecast that Kenyan Commerce would collapse.”

Though pointing out on the need for more Africans to buy shares, the paper said on August 21, 1967 that the Kenyan middle class had more pressing priorities such as owning homes. “Only comparatively few Kenyans, even now, are in a position to become investors.

Many of the growing middle class have more urgent priorities such as building their own houses.” It also turned out that the upcoming middle class thought that the idea of buying shares was “capitalism” and should be avoided at all costs. “But the idea that buying shares is ‘capitalism’, and therefore to be shunned, should not deter those who are able to invest,” wrote The East African Standard.

“The more Africans are able to do so, the more the country will benefit not only from the increased volume of money for development of business (and therefore the provision of more jobs) but because this is the way to full local control of Kenya’s commerce and industry and an end to complaints of ‘foreign domination.’”

Insurance companies

In the 1970s, the rallying call still continued. By this time Asians dominated the Nairobi Stock Exchange as the largest number of investors followed by Europeans while Africans trailed far behind.

Banks and insurance companies also invested heavily in the bourse. The membership of the exchange was restricted with only six partners handling it.

Nairobi Stock Exchange boss Francis Thuo moved to calm businessmen saying that handling such huge amounts of money required “high integrity, experience and good financial standing on part of the member.” Underscoring the role of the bourse in the upcoming nation he said: “The job of the exchange today is to see that wananchi get a fair deal in their financial transactions.”

He said there was a lot of money that could be channeled into the stock exchange since the government had stopped cash outflow for speculation in foreign bourses such as The Wall Street and London. “Over 75 per cent of local companies were trading,” he said. “More Africans were now buying shares at the exchange.”

In June 1972, Thuo said that out of a total of 14,642 shareholders in the East African Breweries, 9,600 were Africans. He also said that well over half of shareholders in British American Tobacco were Africans. “Africans realise and many have demonstrated the understanding and existence of the stock exchange ... purchase of the stocks and shares is not only a means of obtaining and investment but an extremely efficient way of saving money,” he said.

Then, about 70 companies incorporated in Kenya were quoted on the exchange.

Their total issued capital amounted to more than 50,000,000 British Pounds.

In May 1979, NSE Chairman Ngenye Kariuki said most Kenyans equated the stock exchange to a “gambling institution.” “It must be noted that over 70 companies’ shares are traded in, although 30 companies’ shares are more active and as a result enjoy a daily quotation hence a bigger turn over,” he said.

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