VENTURES AFRICA – The Nairobi Stock Exchange (NSE) has emerged as one of the most forward thinking and ambitious exchanges in Africa, having introduced new technology and teamed with FTSE to launch a Kenya Index Series as it seeks to attract more foreign investors and position Kenya as a regional business hub. Deemed premature by some, given the lack of companies listed on the NSE, it also places Kenya in an ideal position to benefit from the continent’s economic growth.
The FTSE initiative is the first of its kind in East and Central Africa and only the third in Africa as a whole, following similar launches in South Africa and Morocco. The indices include the FTSE NSE Kenya 25 Index, which reflects the performance of the 25 most liquid stocks, and the FTSE NSE Kenya 15 Index, which ranks the largest 15 stocks in the market. They will be provided in real-time and end-of-day calculations.
The indices may seem a little premature to some, since there are only 58 companies listed with the NSE, but stands as evidence of a desire by the stock exchange to be ranked according to international standards as it seeks to attract foreign investment and establish Kenya as a major business hub within East Africa generally and the East African Community specifically. “The NSE endeavours to build on its existing suite of products and services in order to meet the evolving needs of our domestic and international investors,” says CEO Peter Mwangi. “Our partnership with FTSE International, illustrates our commitment to meeting this need.” The NSE’s vision is to become the leading securities agent in Africa.
The indices are to be developed in a partnership between the NSE and FTSE International, in consultation with local fund managers and asset owners, and are designed to satisfy a growing desire for market data both locally and internationally. They will represent the performance of companies listed on the exchange, providing investors with detailed data to measure the performance of major sectors of the Kenyan economy. They will provide transparency within the stock market, with data available across a number of different platforms, as well as evidence of tradability and strong governance.
The development of the indices, which are calculated in both Kenyan Shillings and US Dollars, demonstrates a willingness on the part of the NSE to be judged by international criteria, as they are calculated in accordance with the Industry Classification Benchmark (ICB), a global standard. It is hoped that by increasing transparency foreign investors will be further persuaded to forget concerns about corruption and poor management and invest their money in the NSE. “I am convinced that the indices shall attract additional capital flows into the domestic market and enhance liquidity and market capitalization,” says Mwangi. “It is a crucial part of the efforts of the Nairobi Securities Exchange to evolve into a full service securities exchange which supports trading, clearing and settlement of equities, debt, derivatives and other associated instruments.”
FTSE was founded in the UK in 1995 as a joint venture between the London Stock Exchange and the Financial Times newspaper, but has evolved to serve clients in 77 countries and partner with over 20 exchanges worldwide. It calculates over 150,000 indices daily covering all major asset classes. Its indices will run alongside existing NSE indices such as the NSE 20 Share and NSE All Share Indices, while it is anticipated that the partnership will be expanded to offering a treasury bond, which will allow portfolio managers to measure the performance of their bond portfolios.
FTSE is expanding its operations in Africa because it believes the continent is poised for growth, due to the size of the continent, the large amount of human capital, its resources and investment in infrastructure. They claim that there is increasing investor interest in diversifying outside of traditional markets. The change that Africa has seen in general is evident within Kenya. The International Monetary Fund (IMF) says Kenyan growth is based on improvements in infrastructure and an innovative business environment. A World Bank Economic Update in June noted that: “Kenya is at the threshold of a major demographic transition and rapid urbanisation. Each year, Kenya will continue to grow by more than one million people to reach 63 million in 2030, who will live longer, be better educated, and increasingly live in cities.”
Donald Keith, Deputy Chief Executive for the FTSE Group, echoed these opinions as to the potential for growth in Kenya and its attractiveness to foreign investors. “The private sector in Kenya is recognised as being one of the most dynamic in Africa,” he says. “There is certainly recognition of innovation taking place in finance and IT sectors, and indeed the potential to become the industrial base for the East African Community.” He said the presence of FTSE in Kenya was a positive step in attracting more overseas investment to Kenya.
“International investors want to gain access to more and more markets. The importance of familiarity with the index and the vehicles that they use and the governance that they have is critical to those international investors. It provides them with confidence and it provides them with familiarity. They recognise that. It also brings those same qualities to those domestic investors.”
These latest development form part of a larger context whereby the NSE has grown and modernised in order to meet international standards and attract investment. Having initially been inefficient and subject to manual processes, the NSE moved to spacious premises at the Nation Centre in 1994, in the process computerising its operations. The number of stockbroker members has increased to 19, while the NSE has won plaudits for its handling of several privatisations, including the 1996 Kenya Airways privatisation. The introduction of automated trading systems in September 2006 increased the transparency and efficiency of the operation, important factors in attracting investors. The indices developed with FTSE are the latest step on a long path to international recognition and sustained foreign investment.
“They reflect the growing interest in new domestic investment and diversification opportunities in Kenya,” says Mwangi. “The launch of these new indices is a milestone for the NSE.”