In our view, the financial centre of the capital of Kenya is one of the most interesting on the African continent. Do you want to know why we like the equities market in Nairobi?
I agree, it is not the best time to praise the virtues of the Kenyan stock market. But nevertheless, Nairobi has one of the most interesting stock exchanges in Africa. The NSE All Share Index has been stagnating for the past three weeks. Nevertheless, stock prices have risen by 7% since the beginning of the year and by more than 9% since the outbreak of the Covid-19-pandemic in East Africa twelve months ago.
Do you remember? Twelve months ago, countless experts and economists warned of a collapse in the African economy. It did not happen. The Kenyan economy and even more the equities markets in Africa resisted quite well to the standstills, lockdowns and curfews due to the pandemic.
But it is not because this resilience of the Kenyan economy that we like the financial centre of the Kenyan capital. It is much deeper than that.
Equities trading at the hotel bar
First of all, Nairobi is one of the oldest stock exchanges in Africa. In 1922, equity traders and brokers started to meet for informal equity trading. It was not exactly an over-the-counter market. Market participants met at the Stanley Hotel down-town Nairobi at the Exchange Bar. So, it was rather an over-the-bar stock exchange. And I suspect they didn’t just drink water there.
Formal equity trading started in 1954 with the establishment of the Nairobi Stock Exchange which is called since 2011 Nairobi Securities Exchange, keeping the abbreviation NSE.
The first reason why we like Nairobi equities market is that it is home of tremendous African success stories. Few other places can offer stocks such as Safaricom, East African Breweries, Equity Bank or Nation Media. Lighthouse companies like these ones that shine far across the continent make the Kenyan equities markets so interesting.
Why we like the equities market in Nairobi
Safaricom is a telecommunication company providing mobile, fixed voice, data, SMS, Internet, music streaming, cloud computing and the mobile money service called M-PESA. It is one of the most profitable companies in East and Central Africa. Safaricom posted for the fiscal year 2021 a net income of 646 million USD on revenues of 2.4 billion USD.
However, Safaricom is opening a new chapter in their history as long-time CEO Bob Collymore died on 1 July 2019. The board appointed as his successor Peter Ndegwa who took office in April 2020. Nevertheless, the share price has risen 33% since 1stJuly 2019. Safaricom’s market valuation rose to 13.7 billion USD.
A great diversity
The second reason is the broad range that offers Nairobi equities market. You can find on the quote slip the classical sectors that so often characterize emerging markets stock markets. Banks are there with Equity Bank or Absa. The telecom industry is listed at Nairobi Stock Exchange as well as privatized companies such as KenGen, Kenya Power and Kenyan Airways.
But Nairobi has more to offer. Kenyan agriculture is strong in coffee and tea. You will find among the listed companies coffee maker Eaagads or the tea companies Limuru Tea and Williamson Tea Kenya. Supermarkets went public too, e.g., Uchumi. East African Breweries is a leading consumer brand in the beverage sector. You can also find more sophisticated sectors such as investment companies, represented by Olympia Capital and Trans-Century. Investors like the manufacturing sector as well, as Kenya is a manufacturing hub for East Africa. You will even find Real Estate Investment Trusts (REITs) and Exchange-Traded Funds (ETFs). Last but not least, Nairobi Securities Exchange is self-listed. At its IPO in September 2014, the investors oversubscribed the IPO by 764%.
The third reason why we like Nairobi is that the Kenyan capital offers a quite sophisticated financial centres with a great variety of market participants, investment banks, brokers, private equity firms, pension funds, insurance companies, smaller and bigger wealth and asset managers. Many stock traders offer online trading, some even from cell phones. Not many financial centres can show such diversity and professionalism – Johannesburg of course, Lagos, Cairo and Casablanca too.
Highly integrated in the region
And there is a fourth reason why we like Nairobi: The financial centre is highly integrated in East Africa. It is quite easy for a listed company to achieve a cross-listing with the stock exchanges in Uganda, Tanzania and Rwanda. The NSE management is working on expanding the range to include additional products: ETFs, REITs, bonds, derivates in particular.
From our point of view, the greatest challenge now is to convince more Kenyan and East African companies to go public. NSE should be a whole part of the funding of family business and start-ups. Nairobi has a vibrant ITC and start-up community. The funding of these companies relies too much on venture capital and private equity. It should be better connected to the regular equities market offering the first investors appealing exit opportunities. Even traditional family businesses need at a certain point of their development public capital from the stock exchange to finance their growth.
In sum, Nairobi has one of the most interesting stock exchanges in Africa. If you are interested in emerging markets, you should definitely take a look at Nairobi.