Bubbling Africa’s only hope

Published on 1st November 2005

Although Africa’s political stability still stands a big test due to its warring states, corruption, bribery, donor aid over dependence and increased malaria and AIDS cases, the financial market is in the least sense shaken.  Performance of the stock market has increased tremendously in the past decade.  In fact, fifty percent of the global ten best performers in 2004 came from Africa with Egypt, Ghana, Uganda, Malawi and Zambia being among them. 

Egypt that has two stock markets had Economist beating the global leaders to fall second while Capital Market Authority (CMA), still in the same country falling at number 13. For Kenya, the story is even more appealing.  Though ranked at 55 last year (2004) out of the 60 global indices, the prospects are getting better.  With the heated constitutional vote being only twenty days away, one would expect a standstill on most businesses.  This is however not the case and as the weeklies would have it:

“Weekly turnover at the Stock market (Nairobi Stock Exchange) increased from Kshs. 863.2 million the previous week to Kshs. 993.9, while the volume of shares traded improved to 12.9 million from 11.4 million…” (The East African, October 31st- November 6th 2005).

The positive trend is a clear sign that the market grows because businesses and business people need and want them and not because politicians say that they should happen.  Kenya will in the next months witness the Initial Public Offering (IPO) of Sarova Group, Equity Bank, Sadolin Paints and Kengen.  Of much interest to brokers and dealmakers is the much-awaited Kengen.  Kengen’s listing is a part of a government’s 30 percent divestiture from the largest power supplier in the country.  The deal, valued at Kshs. 10 billion is said to be the largest ever in the market, and as if that’s not enough, Investec, a South African investment group, is set to list in the coming months at the Nairobi Stock Exchange.  This entire move is a big boost, and an indication that the stock market is yet to see its better days.

A company listing at the stock market gains access to the stock funds hence enabling it to reach its bottom line.  At the same time, it ensures stability and the going concern.  Besides that, it offers a more secure way of accessing funds, instead of the banks whose interest rates have been quite unstable for sometime. 

An individual buying stocks benefits from dividend yield, bonuses and income from buying low and selling high.  Due to the speculative nature of the market and increased activity, prices have been on an upward trend and this has had investors smiling all the way to their investment bankers.

There are concerns about our stagnated market.  The problem is however, not about the stagnation.  This is because success in the stock market is not just about the numbers, after all, even Zambia and Uganda, who performed so well last year, only have a few companies listed.  Uganda for example only has seven listings compared to Kenya’s forty-eight.  The problem we are experiencing is the poor saving habits of our population.  While Financial Sector Deepening (FSD) puts our saving rate at 18 per cent, the stock market involvement is still below 5 per cent, far worse than saving.  In financial terms, this trend should be in the reverse, but with greater numbers because unlike saving, investing assures a Return on Investment (ROI).  Saving also has many attached charges.

I have heard people ask, how do I save with only a disposable income of less than US$. 100?  One thing with investment is that its premier rule is discipline. With increased education, people have come up with many investment strategies; forget about the merry go-rounds for heavens sake. You now have the option of being part of mutual fund or trusts with a monthly deposit of say Kshs. 5,000.  The newest investment hype comes in with the Investment clubs that will probably change the way brokers approach their clients.  One advantage one has by investing with a group of colleagues is the underlying opportunity to learn- brainstorming, invite speakers and critiquing among others.

We should spread investor knowledge in Africa as a whole for we will have more active markets, meaning that the price drivers will only be geared for growth instead of stagnation.  Also, people will not be driven by emotion but fundamentals.  Africans and the world at large need to realize that African markets are not entirely determined by yapping politicians but moreso attached to the visionary CEO’s.  Indeed as one Nigerian investment banker reiterates, “Investors eyeing Africa should not look at the forest as a whole, but the trees that bear good fruit.”

 


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