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FinalCall.com News
Business & Money
Stock exchanges in East Africa consider integration
By Charles Wachira
Updated Dec 27, 2008 - 5:27:00 PM
NAIROBI, Kenya (IPS/GIN) - Plans are going ahead to integrate the three major exchanges within the East Africa region, namely the Dar es Salaam stock exchange, the Nairobi stock exchange and the Uganda securities exchange, plus the stock exchange in Burundi.
The actions are being taken despite Tanzania’s resistance to cross-border investment, a position that contradicts the East African Community Customs Management Act.
The act stipulates that residents of the original East African Community states—Kenya, Tanzania and Uganda—should treat each other’s nationals as locals when it comes to investment opportunities in their respective countries.
Contrary to the act, the Tanzanian government barred non-citizens from participating in the initial public offer when it sold its 21 percent stake in the National Microfinance Bank last August. When Safaricom, a Kenyan mobile telephone provider and east Africa’s most profitable company, issued its IPO this March, Tanzania blocked its citizens from participating in the investment.
However, when Stanbic Uganda, a subsidiary of South Africa’s Standard Bank Group, offered its IPO in January 2007, Tanzanian and Kenyan nationals, including non-East Africans, took part.
“When you are small, you need to keep all the wealth in the country. That must be why Tanzania decided to lock out foreigners in IPOs taking place in their country,” said James Murigu, a director of Suntra Investment Bank, a leading Kenyan firm. Chris Mwebesa, outgoing CEO of the Nairobi stock exchange, thinks the new initiative will not be hindered by the foreign exchange regimes in individual countries. His counterpart in Tanzania, Jonathan Njau, tends to agree. “The restrictions put forth by the Tanzanian government are political.”
But, reveals Mr. Njau, the Tanzanian government is considering “liberalizing its market so that Tanzanians could freely invest in other countries in the near future.”
According to Simon Rutega, chief executive officer of the Uganda Securities Exchange, Uganda fully supports the proposed integration of stock markets in east Africa. According to the privately owned Monitor newspaper of Uganda, the initiative should be backed by all three east African countries.
Early last September honchos from east Africa’s capital market authorities held a consultative meeting here in Nairobi that was attended by chief executives of the Burundi, Tanzanian, Kenyan and Ugandan stock exchanges.
The meeting proposed integration of the trading platforms of the four exchanges and agreed to adopt software that will link all stock brokers across the region. Under the new initiative, whose implementation deadline has been set for December, securities will be traded anywhere in the region, using the local currency.
Mr. Rutega thinks the initiative will “demystify” cross-border investment across the region, encourage more cooperation and investment and expedite the economic integration agenda of the east African region.
According to Mwebesa, who also doubles as the head of the East African Stock Exchange Association (EASE), the project implementation will take less than six months.
Consultancy firm Ernst and Young in a recent study proposed that integration of the regional stock exchanges will be effective if there is a fair degree of regional economic integration. This includes the harmonization of financial rules and regulations among the countries.
According to Ernst and Young, the exchanges would need a common business language, culture and legal systems and excellent communications and technology solutions to integrate. An obstacle would be the fact that Uganda and Kenya have different operational methods. The latter relies on an electronic central depository system while the former relies on physical share certificates to carry out transactions.
The exchanges also need to have internationally acceptable rules and regulations regarding capital adequacy, listing standards, insider trading and sound trading infrastructure. Another key requirement would be that individual stock exchanges be restructured and converted from mutual entities to profit companies.
