How NSE can recover from loss to drive growth in Africa

Data Hub

How NSE can recover from loss to drive growth in Africa

Tuesday November 07 2023

Nairobi Securities Exchange (NSE) on the trading floor. FILE PHOTO | NMG

The Nairobi Securities Exchange (NSE) has a contrasting story to tell, and it starts with a glaring absence. In the past seven years, the exchange has seen no direct listings even though it is the largest exchange in East and Central Africa.

This void has denied the NSE the chance to play a pivotal role in mobilising capital and channelling it into productive ventures within the country. Unlocking the potential of the NSE isn’t just about financial growth; it’s a journey that will spark prosperity across the African continent.

This narrative is painted with the collective efforts of citizens, government leaders, and businesses, all working in harmony to script a story of economic empowerment. Imagine every citizen becoming a shareholder in the nation’s future.

Encouraging citizens to invest in the NSE by purchasing stocks and financial instruments isn’t just about creating wealth; it’s about sharing it. This endeavour not only fuels business growth but also turns wealth distribution into a democratic pursuit.

Read: 42 percent of foreign investors flee NSE in nine months

In the treasury of knowledge, financial literacy is the key to unlocking financial wisdom. By promoting financial literacy and education, we will equip our society with the tools to make informed investment decisions. It’s not just about personal gain; it’s about fostering a culture of long-term investment and responsible financial management.

Each local business is a pillar of our nation’s economy. Citizens should become their champions by investing in their stocks, a gesture that not only fuels their growth but also ignites job opportunities and contributes to economic development on a broader canvas.

The power of the people also shapes nations and financial markets alike. Citizens should become advocates for policies and regulations that nurture the growth of the NSE. By raising awareness about the stock exchange’s significance, we will create public pressure that paves the way for positive change.

In the world of stocks, patience is the ultimate virtue. Encouraging citizens to adopt a long-term investment perspective will also stabilise the market. The key message should be that stock markets, like life, are subject to ups and downs, and hasty decisions will lead to losses.

Small and Medium Enterprises (SMEs) are also the unsung heroes of an economy. Citizens should become their advocates, pushing for mechanisms that allow these enterprises to access the NSE, propelling them into rapid growth and contributing to job creation.

Transparency and accountability aren’t just ideals; they are the foundation of a thriving stock market. Citizens should become champions for better corporate governance practices among NSE-listed companies, fostering trust and attracting more investors.

In the age of technology, innovation isn’t just a luxury; it’s a necessity. Citizens should support technological advancements in the financial sector, making the NSE more efficient and accessible to a broader audience.

The government is the architect of a nation’s economic landscape. Collaborating with the government to promote the NSE is a crucial chapter in this narrative.

Government policies, tax incentives, and infrastructure development can have a profound impact on the exchange’s growth, like winds that propel a ship.

The government should re-introduce the tax benefits of listing on the exchange and reduce the capital gains tax on listed securities back to five percent so as to provide a tailwind for the exchange’s growth.

Initial Public Offerings (IPOs) are the seeds of future giants. Encouraging citizens to participate in IPOs not only gives them a stake in promising companies but also contributes to their growth like water nurturing a plant.

Values matter, even in finance, thus citizens should choose to invest in companies that align with their values, encouraging corporate social responsibility and ethical business practices, like planting seeds that grow into forests.

Unlocking the potential of the NSE isn’t a solo journey; it’s a collaborative effort where every character plays a crucial role. It’s a collective endeavour that calls upon the harmonious efforts of citizens, businesses, and the government.

By taking these steps, Kenya will orchestrate a thriving capital market, not only nurturing our own nation but also acting as a beacon of growth and development for the entire African continent.

It is a story of unity, ambition, and shared prosperity, where every chapter brings us closer to realising our nation’s boundless potential.

Financial inclusion is another critical theme in this narrative. Extending the NSE’s reach into rural areas through mobile trading platforms and investor education initiatives can bridge gaps and bring more people into the financial fold.

The informal economy should not be left behind by us; the public should ensure that the exchange’s applications are made accessible and appealing to this diverse market.

Collaboration is another essential aspect of our exchange’s growth story. We should encourage the NSE to partner with a diverse array of institutions, from universities and research organisations to NGOs.

By leveraging their data for research and case studies, the NSE can enrich the collective knowledge capital of the local economy.

Collaboration should stretch from corporate giants like Safaricom to small and medium enterprises, opening doors to capital markets and stimulating comprehensive income for all. It’s a ripple effect where best practices can spread like wildfire, transforming the entire business ecosystem.

It’s worth noting that technology, particularly blockchain and artificial intelligence, can play an integral role in this financial renaissance. Blockchain can enhance transparency and trust within the NSE, ensuring that transactions are secure and immutable.

Read: NSE listing drought: What ails Kenya’s capital markets

Artificial intelligence can provide invaluable insights into market trends, helping investors make more informed decisions.

The spot market settles transactions on a T+3 basis, while the derivatives market settles with a T+1 settlement period. The commission is also 2 percent on either side of the transaction. With these settlement times and commission structure, it is difficult to attract speculators and day traders.

Innovations such as blockchain technology can lower transaction costs and settlement time, thus allowing day traders to increase transaction volume and frequency of trades on the exchange. It’s not just about reducing transaction costs; it’s also about transforming the way trades are settled.

Ndolo is a derivatives trader on the NSE Next derivatives market.

Lefang is an experienced banker and founder of Kasi Insight.