The recent signing of the East African Community (EAC) Treaty by the presidents of Tanzania, Uganda ...
The recent signing of the East African Community (EAC) Treaty by the presidents of Tanzania, Uganda and Kenya could open up new investment opportunities for emerging market investors.
The aim of the treaty, signed at the end of last year, is to create a single currency and common trading market for the region, free movement of labour and a regional stock market.
Investment experts in the region believe that the move will prove positive, both for the countries' economies and their stock markets, as long as differences between the three are not allowed to cause its death.
This happened to the last EAC which collapsed in 1977 amid political fighting and economic and ideological differences after a 10-year life span.
This time around its chances of survival are expected to be more concrete as the respective presidents - Yoweri Museveni of Uganda, Kenya's Daniel Arap Moi and Benjamin Mpaka of Tanzania - all seek to reform their economies towards capitalist structures.
If it does succeed, locally-based companies will be able to carry out cross-border expansion, providing them with access to a population of nearly 100 million, while investors will be able to take advantage of one stock market catering for the companies of three separate countries, each pushing forward extensive privatisation programmes.
Nasrin Mohammed, investment manager at Genesis (Kenya), which is planning to launch an East African fund once Kenya's economy shows signs of a pick-up, believes the EAC will prove positive economically at the same time as boosting quoted companies.
She said: "Kenyan companies will be looking to expand regionally and some of these are quoted companies. These will definitely benefit, as we have already seen with East African Breweries. It will also help speed up the development of the Ugandan and Tanzanian markets as it is the only way they will be able to keep up."
The regional bourse is perhaps the key for foreign investors as it will provide a market with greater diversity, liquidity and capitalisation.
It will provide access to established Kenyan companies while providing a launch pad for new issues from Uganda and Tanzania.
Ahmed Ndope, general manager at AIG (East Africa), which moved into Kenya in the last 12 months to take advantage of investment opportunities in the region, said: "The EAC is generally positive and the regional stock market is definitely the way ahead. It will give people the opportunity to diversify and will provide small investors with no avenue other than savings accounts more opportunities."
At present the three countries fail to provide an inspired investment argument. Kenya is the most developed with a stock market, the Nairobi Stock Exchange (NSE), which was established in the 1960s and has 56 companies listed.
However, its economic performance has been dire in recent years, while both Uganda and Tanzania have only launched their markets during the last two years.
The former's first equity was only listed last November while the latter has three quoted companies, but capital controls prevent foreign trading. These are expected to be lifted within the next 18 months, and the process could be accelerated by the signing of the EAC.
Kenya also has investment restrictions. The aggregate of all foreign investors in any stock cannot exceed 40% and international investors are also prevented from investing in foreign-controlled companies. However, the country's Capital Markets Authority is hopeful of getting these removed early this year.
The chairman of the NSE, Jimmy Mbaru, who has been heavily involved in negotiating for the creation of a regional stock market, believes it can work and the markets can be opened up.
He said: "We are working towards a regional bourse and creating a joint central depository system that will allow local issues access to a wider market and the capital markets to become bigger. Foreign investors will no longer have to deal with three separate markets."
It is hoped the regional bourse would be in place by the end of 2000 and, as a precursor to its creation, cross-border listings between Uganda and Kenya are planned early this year.
Mbaru said: "The regulations are already unified, the listing rules are harmonised and the stockbrokers will get common trading. It is just a question of the technicalities such as payment, settlement and the common depository system. The more important point is what we are trying to do on a continental basis.
"We are going to open negotiations with Johannesburg next year to see if we can get a few cross-border listings, the way some of the JSE companies are listed in London.
"We are looking at some of the bigger Kenyan companies such as East African Breweries and South African groups such as Old Mutual coming here. We hope it will allow Kenyan companies to open up to a wider market on a regional and global basis."
From an economic point of view, the EAC could provide a much needed lift to the Kenyan economy. Economic growth has been below 2% in the last three years and is expected to produce 1.4% GDP for 2000, while the NSE has fallen to six-year lows.
John Odhiambo, senior fund manager at Barclay Trust Investment Services, the investment management arm of Barclays Kenya, said the low levels could signal buying opportunities.
He said: "The EAC should help the stock market, and if you look at the NSE it cannot go any lower. All it needs is some spark for the market to rise. This could be a full resumption of aid with the IMF or some good company results.
"By March or April this year we could see a small leap. The small players have an important role in the NSE and they might sell a bit early on which would have a slight negative impact, but overall the year should be positive. The key question with the EAC is the ideology of the three leaders as t
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