Nairobi Stock Exchange (NSE): There is room for improvement

Within the last two months the Nairobi Stock Exchange (NSE) index has dropped from 200 points to its current level of 5,180. This has wiped over Shs 20 billion of investors money, but Kenyans are not worried since most of these investors and shareholders are not aware that there are Shs 206 billion poorer!

This is a fairly huge fall in such a short time. Traditional investors like insurance companies, fund managers of pension trusts, banks and individuals have taken the drop gracefully sighting normal market correction. Some are saying that certain major players had purposely propped up the share prices in order to dampen their shares to unsuspecting new comers in the game.

Raila Odinga also added his concerns by saying that he saw the hands of unscrupulous players with bad money meddling in the stock exchange. Whatever all this means the Capital Market Authority has to come up with a researched explanation now and whenever such a thing happens.

The NSE is still a very small institution in comparison to the size of the Kenyan economy. This is why whatever happens at the stock exchange whether a rise or a fall is hardly felt by Kenyans. At the moment the country’s GDP, that is its wealth, is in excess of Shs 1.4 trillion. The capitalisation of all the companies listed in the NSE has been about Shs 88 billion two months ago but it is now Shs 69 billion. This is a mere six percent of the country’s GDP. This clearly reflects that the performance of companies listed in the NSE affecting the country is like the tail wagging of a dog.

The current government like the Moi regime has not encouraged the expansion of the NSE by selling most of the state-owned companies such as Kenya Pipeline, Nzoia Sugar, Sony Sugar, National bank etc. There are over 75 state owned companies and quasi-government institutions that can competently be run by the private sector through the larger share ownership in the NSE. By listing these non-strategic companies, the government would raise billions of shillings and use it to do what governments are supposed to do; that is improving the infrastructure and the welfare of its citizens.

At the moment the Nairobi Stock Exchange has no impact at all on the management of the economy. We are not therefore able to gauge the performance of the economy and prudent allocation of resources. When a government is managing over 70 parastatals, it is not clear if these institutions are efficient and benefit Kenyans.

For example we are not sure whether the East African Portland Cement or the National Bank of Kenya board of directors are giving their loyalty to prudent business ethics or to the masters that have appointed them as directors.

It is about time that we speed up the privatization of these companies and stop using them as a tool to buy loyalty of the appointees. It is becoming rather expensive for Kenyans to see state-owned companies having endless wars with ministers in the control of different aspects of their operations.

The Nairobi Stock Exchange should also reduce bureaucracy that makes it difficult for privately owned companies to be listed.

The Capital Market Authority must also put its house in order. What happened to Francis Thuo and partners Brokers is quite disturbing. Telling investors that their shares can be sold without their knowledge is sheer incompetence and against the rules and regulations governing the operations of brokers. For example when shares of an investor are sold: why should the cheque be written in the broker’s name? the cheque must be to the investor and posted to his known address. When CDSC statements are posted directly to the shareholder it makes it possible to compare the two statements; the brokers and the CDSC.

In this way one can detect any discrepancies. If the NSE were to pay the proceeds of any shares sold on behalf of the investor directly, it would reduce the temptation of fraud. The NSE has tried and I must say have done a commendable job but there is a lot of room for improvement.

Joe Donde.