East African Trends: A year after Covid-19, where are the stocks?

For East Africa, this has been a tough outing with thousands sick, and millions affected economically. The countries in the region have also reacted differently, with Rwanda and Kenya being on the extreme cautious path, while Tanzania and Burundi have applied the L a issez- Faire approach.. There was, however, good news in the period with the announcement that the…

The month of March marked one year after most countries globally locked up their people, introduced tough restrictions on movement and introduced ways of containing the Novel Coronavirus (Covid-19). For East Africa, this has been a tough outing with thousands sick, and millions affected economically. The countries in the region have also reacted differently, with Rwanda and Kenya being on the extreme cautious path, while Tanzania and Burundi have applied the Laissez–Faire approach.

Stocks in the region have been hit hard with the regional bourses shrinking significantly, as well as a loss in interest by foreign investors. The Nairobi Securities Exchange (NSE) seems to have been hard hit with an unprecedented bear run. According to the Capital Markets Authority (CMA) end–of–year statistical bulletin, all indices at the Nairobi bourse performed poorly, with net foreign outflow hitting KSh28.63 billion ($260.9M) compared to a net foreign inflow of KSh1.38 billion ($12.6M) in 2019. 

There was, however, good news in the period with the announcement that the merger and consolidation of Rwanda (RSE), Tanzania (DSE), and Uganda (USE) would take place by the end of 2020. The stock markets in these three countries are worth an estimated $15 billion, in cumulative market capitalization in a deal supported by World Bank. Kenya was initially supposed to join but pulled out for strategic reasons.

The 54 companies listed across all three exchanges are set to benefit from a larger pool of capital and investors, along with an anticipated effect on each currency, the extent of which is yet to be discerned. The benefits are more given that some of the companies that will list in the merged bourse are also trading at the Nairobi Securities Exchange.

The only disadvantage of these three countries having a common bourse is the fact that they each operate on different currencies which are very easy to trade among themselves. While East Africa operates an economic bloc that eases cross–border trading for regional businesses thanks to certain regulatory instruments, each country still has a sovereign currency, unlike the CFA Franc in West Africa. 

The regional GDP of East Africa stands at $450bn. Although this was affected initially by restrictions brought about by Covid-19, when border rules were relaxed, Kenyan companies took advantage to move cargo. A report by the East Africa office of the UN Economic Commission for Africa (UNECA) at Brookings Institute showed that there was a rebound in intra–East African trade to pre-Covid-19 levels boosting the wealth of companies listed in the markets.

Kenya: Rebounding with purpose

Covid-19 was a hard hit for the Nairobi–based exchange. Not only did it shed points but also recorded the lowest trading point in a decade. The NSE 20 benchmark index dropped by 29.61 per cent, closing the year at 1,868.39 points compared to 2,654.39 in 2019. It hit a 10-year low in March 2020 moments after the country announced its first coronavirus case, shedding off 161.91 points (6.5per cent) to close the day at 2337.03 points. 

The Capital Markets Authority, the regulatory agency in Kenya noted that the rich index closed the year at 1,868.39 points, a 29.6 per cent drop from the 2,654.39 points recorded at the beginning of the year, as both local and foreign investors shifted their investments away from listed equity, to mitigate against the declining value of their portfolios.

The exchange currently has 66 listed companies, two of which are cross-listed from Rwanda and Uganda. 

Consequently, the Nairobi All Share Index (NASI) sunk to close the year at 152.11 points compared to 166.4 1 points in 2019, translating to a drop of 8.9 per cent. The volume of shares traded during the year dropped by 24.9 per cent to 969.6 million compared to 1.3 billion in 2019. 

However, when the Covid-19 protocols were relaxed later in July, the market capitalization rose by 8.8 percent to KSh2.3 trillion ($20.95B) in Q4’2020 from KSh.2.15 trillion ($19.58B) recorded in Q3’2020. This exhibited the resilience of East Africa’s largest bourse.

The rebound has continued over time with leading shares like Safaricom registering an all year-high and in the process increasing the market capitalization. In mid–February, the NSE value hit a year high of KSh2.5 trillion ($22.77B) as Safaricom shares traded at KSh38.50 ($0.35).

The growth seems to have changed the minds of new investors with four companies expected to list in the year. These include two from Ibuka, its incubator platform that prepares young firms for listing.

The Nairobi 20, a major stock market index which tracks the performance of 20 best performing companies listed on the Nairobi Securities Exchange, increased 55 points or 2.93 per cent since the beginning of 2021. Looking forward, (NSE20) is expected to trade at 1880.25 points by the end of this quarter, according to Trading Economics global macro models and analysts’ expectations. 

The derivatives market of the exchange recorded a marginal rise in activity in March 2021 trading, with two single stock future contracts valued at KSh79,000 million concluded, compared to the previous month valued at KShs37,650 million.

The rebound has also been orchestrated by the news of the Covid-19 vaccine arriving in Kenya. But the NSE All Share Index (NASI, NSE 20 Share Index and NSE 25 Share Index) gained a day before vaccine arrival with the prime index, NSE20 hitting an eight-week high of 1934.90 points.  The country was the only one in East Africa to start its immunization programme in March.

Tanzania: Calculated growth

 The Dar es Salaam Stock Exchange (DSE) was incorporated in September 1996 as a private company limited by guarantee and not having a share capital under the Companies Ordinance. The formation of the DSE followed the enactment of the Capital Markets and Securities Act, 1994 and the establishment of the Capital Markets and Securities Authority (CMSA), the industry regulatory body charged with the mandate of promoting conditions for the development of capital markets in Tanzania.

The Dar Es Salaam Stock Exchange Index (DSEI) a market capitalization weighted index with a base reference of 1000 increased 51 points or 2.78 per cent since the beginning of 2021. It is expected to trade at 1795.01 points by the end of this quarter, according to Trading Economics global macro models and analysts expectations.

In September 2020, the DSE market capitalization stood at TZS15,183.09 billion ($6.8 million), compared to TZS17,906 billion ($7.7 million) at the end of 2019, representing a decrease of 18 per cent.

However, there has been a rise driven by an increase in trade of minerals and specifically gold. According to data released by Bank of Tanzania, exports of gold increased by $666.9 million to $2,970.5 million on account of both volume and price effects.

Uganda: Minding the regulator’s needs

The Uganda Securities Exchange has fought a hard fight for the last one year. Despite not greatly affected by the global and regional recession, Covid-19 and political heat has reduced the vibrancy on this market. The country just returned from a tense election that saw the re-election of President Yoweri Museveni.

The announcement that the Uganda Capital Markets Authority is headed for a great harvest of Non-Tax Revenue from the listing of MTN Uganda on the Uganda Securities Exchange has raised investors’ worry. The authority has been struggling to foot its annual budget but with the listing of the giant telco, the regulator will balance its books.

Following protracted negotiations that dragged on for nearly two years, MTN Uganda finally reached an agreement for a long-term renewal of its operating license in Uganda with Uganda Communications Commission to pay US$ 100 million for a 12-year operating license valid from July 1, 2020.

An initial public offering was one of the conditions for the renewal of the license with listing of at least 20 per cent of its shares.

The USE All Share Index, the benchmark index for the Ugandan equity market which tracks the performance of 16 listed security equities, of which half are local companies and the other half are cross-listed Kenyan companies, increased 86 points or 6.58% since the beginning of 2021. The Uganda Stock Market is expected to trade at 1359.07 points by the end of this quarter, according to Trading Economics global macro models and analysts expectations. 

The bourse is also looking to involve more manufacturers to list promising great returns. The manufacturing sector contributes about eight per cent to the GDP currently compared with 15 per cent in pre-pandemic times, according to CMA.

Uganda’s manufacturing sector has an investment gap of more than $300 million per year and this offers strong growth opportunities for the capital markets industry.

Rwanda: Seeking external help to build trust

The Rwanda Stock Exchange (RSE) has selected a Moroccan firm, SCL Advisory Limited, to help it expand its database and develop its activities around the world. The company will support the stock exchange’s efforts to provide financial professionals and issuers with market data, analysis, and services in a reliable and timely manner. This is expected to help investors make more informed investment and business decisions in the Rwandan market according to Kigali Financial Center.

Rwanda has been working on positioning the country and specifically its financial market as a lead in Africa. It has sought top advisors including UK’s CDC to help position itself an attractive market.

In February, Rwanda unveiled a new investment code, a new set of laws that brings about a set of new investment incentives mainly geared at enhancing Rwanda’s competitiveness, attract cross-border investments, new businesses and financial institutions to operate across the African continent.

Under the new laws, there is an introduction of a preferential corporate income tax rate of 3 per cent applicable to pure holding companies, investment SPVs, collective investment schemes, on foreign sourced income of an investor operating as a global trading or paper trading. Also this applies to foreign sourced royalties of intellectual property companies meeting the conditions set out under the New Investment Code.

All these are geared at making the RSE more attractive and offering services not available in other regional markets.

RSE has also launched a business guidebook that will facilitate small and medium enterprises to address challenges and opportunities in the business sector in Rwanda. The guidebook will not only elaborate how business is done but how it can be implemented in a sustainable manner according to RSE officials.

In partnership with International Finance Corporation (IFC), which supports Rwanda’s efforts to develop and strengthen its securities exchange platform, Rwanda capital markets is expected to disseminate content in the booklet through training business owners on how to implement some of the guidelines therein.

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