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State should sell down its stakes in key firms

By Kiprono Kittony | February 2nd 2021

A view of Westland's office buildings in Nairobi. [Wilberforce Okwiri, Standard]

Leading economists and experts around the world agree that the Covid-19 pandemic has disrupted economies and societies at a scale and pace not seen since World War II. Despite this challenging environment, Kenya’s resilience has shone through. The World Bank expects the Kenyan economy to rebound to 6.9 per cent growth in 2021, the highest in Africa, and new polls indicate that the country is still considered one of Africa’s top investment destinations.

The 2020 World Travel Awards named Nairobi as the continent’s leading business travel destination, putting it ahead of Cairo, Cape Town, Durban, Johannesburg, Pretoria, Accra and Lagos. Likewise, CEOs and business leaders polled in the Africa CEO Survey 2020 picked Kenya as one of the top five most attractive countries for investment on the continent. 

Kenya’s continued attractiveness to investors bodes well for our capital markets in a year when frontier and emerging markets are making a strong comeback due to the prospect of economic recovery, attractive equity valuations following massive sell-offs in 2020, and comparatively low yields in developed markets after central banks there reduced rates to near-zero and in some cases negative in order to inject liquidity into their markets in the wake of the pandemic.

To ensure that Kenya seizes a sizeable share of Africa-bound investment inflows this year, we need to take accelerated steps to make our capital markets more competitive and vibrant. This will require the dedicated support of the government. As the largest player in the bond market, and as a major shareholder in some of the largest listed firms, the government has an instrumental role to play in bolstering the attractiveness of our markets.

The government owns a 35 per cent stake in Safaricom, 60 per cent stake in Kenya Re, and 70 per cent stake in KenGen, among others, according to official filings. In view of this, the Nairobi Securities Exchange (NSE) and the Capital Markets Authority have renewed calls for the government to scale down its stakes in some of these listed firms.

Scaling down government ownership in listed firms will release more shares for trading and provide fresh impetus to our bid to make our capital markets more vibrant. This will assist in changing Kenya’s ranking in the Morgan Stanley Capital Index from frontier to emerging market, thus unlocking billions of shilling in new global investments from funds that give greater weighting to emerging markets than frontier markets. 

We are also pushing for the privatisation of State-owned enterprises that can be run more efficiently and profitably by the private sector. We are not telling the government to lose control of these entities, but rather, to create space for new investors while raising capital in the process. It is estimated that the government can raise up to Sh300 billion through privatisation of State-owned enterprises and selling down its stakes in listed firms.

A move by the government to stimulate markets will spur interest by owners of large private enterprises to list on the NSE. We have many mature privately held businesses in Kenya that are keen on taking the next step and going public. A vibrant and liquid capital market is key to making this possible.

In the meantime, listed firms need to be proactive about strengthening their investment case in order to attract fresh investments. One area where we see great opportunity is sustainability and green financing, underlining the need for firms to integrate environmental, social and governance considerations into how they do business and, importantly, how they measure and report performance.

With investors around the world increasingly committed to causes such as climate action, inequality and diversity, issues that take these factors into consideration and integrate them into their business operations are likely to see significant outperformance relative to their peers.

For examples, look no further than electric vehicle manufacturer Tesla, which is at the forefront of the green revolution in the global auto industry. The Elon Musk-led company’s market capitalisation or value in the stock market increased by $500 billion (Sh5.84 trillion) to around $800 billion (Sh8.78 trillion) in 2020 and the company is now worth as much as nine of the largest car companies globally, despite selling just about half a million units in 2020, a fraction of what rivals such as Toyota, Ford or General Motors sell.

The recent inauguration of President Joe Biden in the US and his early decision to re-join the Paris Climate Agreement lends further credence to the green revolution. Closer home, Acorn, a real estate developer focused on environmentally sustainable projects, in 2019 managed to raise Sh4.3 billion through Kenya’s inaugural green bond, underlining the growing investor appetite for financial instruments that contribute to a healthier planet.

Listed firms, therefore, need to explore how they can make their operations more sustainable and improve measurement and reporting standards. Firms such as Absa, Safaricom and KCB have taken a lead role in this regard and provide investors with integrated reports that not only capture their financial performance but also highlight how their businesses impact the environment and communities in which they operate. These steps will go a long way in strengthening our appeal as an investment destination.


Mr Kittony is a business leader and the Chairman of the Nairobi Securities Exchange. [email protected]


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