World Bank’s private sector arm, the International Finance Corporation (IFC), has urged East African firms to list on the capital markets.
IFC senior securities market specialist, Evans Osano, on Thursday told Xinhua in Nairobi that the capital markets can play an instrumental role in improving the governance of firms due to the strict disclosure requirements.
“This is generally because investors need to find out a company’s performance and this keeps the management on toes to ensure that they perform better,” Osano said during the meeting of Kenya’s capital markets master plan joint implementation committee and working group.
Osano said that, for the capital markets to be attractive to firms, governments need to reduce the cost, time and complexities required to access the markets.
He said East Africa’s investor base, consisting of pension schemes, collective investment vehicles and insurance funds, has been growing rapidly in the recent past.
“It is now close to 25 billion U.S. dollars and it is actively looking for places to invest,” he said, adding that companies can diversify their source of funds using the capital markets.
East African firms have traditionally relied on savings and commercial banks to expand their operations.
“Capital markets are a viable source of funds as they offer competitive interest rates on loans,” Osano said.
According to the him, capital markets offer an opportunity for local firms to raise long-term capital in local currency.
The IFC official noted that Kenya has a small but growing relatively corporate bond market.
“This is because most of the bonds in Kenya are issued by the government,” he said.
He said that Treasury bonds, which carry very little risk, are very crucial in any economy as they set a benchmark for price of corporate bonds.
Paul Muthaura, Kenya’s Capital Market Authority Acting CEO, said the capital markets are an ideal source of long terms funds.
He said that the Nairobi Security Exchange (NSE) is currently the third largest in Africa, after South Africa and Nigeria, but the number of companies listed in the NSE stock market is still very little compared to the size of Kenyan economy.
The CEO also added that international investors are increasing their interest in Kenya’s capital market due to its high returns. Enditem