Status Report on Regional Integration of African Markets East Africa Session 3: African Capital Markets

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Status Report on Regional Integration of African
MarketsEast AfricaSession 3 African Capital
Markets The Next Decade1430 1530 11th
ASEA Conference Accra Ghana30 October 2007

• Chris Mwebesa
• Chief Executive

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An Overview of Capital Markets Integration in the
East African Community
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Recent Efforts at EAC Financial Markets
Integration
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Capital Markets Integration Journey

• Nairobi Stock Exchange was established in 1954.
• During the first East African Community was
  considered the bourse for all East African
  companies.
• In 1977 Collapse of East African Community
• Non- Kenyan companies de-listed
• Capital Markets Authority (K) -1990
• Capital Markets and Securities Authority (T)
  -1994
• Capital Markets Authority (U) 1996
• Dar es Salaam Stock Exchange was established
  in1996. NSE was involved in a consulting
  capacity.
• Uganda Securities Exchange was established in
  1997. NSE involved in a consulting capacity.
• Rwanda is currently considering the establishment
  of a stock exchange possibly as a satellite of
  the Nairobi Stock Exchange.

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EAC Treaty and Capital Markets Integration

• Articles 85, 86, 87 of the Treaty for the
  Establishment of the East African Community (EAC)
  provide the main framework for integration of the
  regional capital markets. The provisions of the
  Articles call for
• Capital market development programs and a
  conducive environment for the movement of capital
  within the EAC
• Harmonized capital markets policies on cross
  border listing, foreign portfolio investors,
  taxation of capital market transactions,
  accounting, auditing and financial reporting
  standards, commissions and other charges
• The establishment of a regional stock exchange
  within the EAC with trading floors in each of the
  Partner States
• Adherence by the appropriate national authorities
  to harmonized stock trading systems, and
  permitting residents of the Partner States to
  freely acquire and negotiate monetary instruments
  within the EAC
• The unimpeded flow of capital within the EAC.

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Current Areas of Co-operation

• Policy Formulation
• Capital Markets Development Committee (CMDC) of
  the East African Community established -2001
• Securities Markets Regulators
• Ministries of Finance/Treasuries
• Stock Exchanges
• Insurance Sector Regulators
• Pension Sector Regulators
• Market Infrastructure
• - Common market structure (3-tier)
• - Cross border listings (3 companies)
• East African Breweries
• Kenya Airways and
• Jubilee Holdings.
• The three securities exchanges CDS and ATS
  software have been supplied by Millennium
  Information Technologies (MIT). So a single East
  African securities exchange based on the
  integration of trading, clearing and settlement
  systems is now possible.

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Infrastructure and Regulation

• Vision
• A fully integrated capital market with one
  regional stock exchange (by Dec. 2009)
• Embodies the new thinking and agreed way forward
• between the regulators and the stock exchanges.

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Infrastructure and Regulation

• Action Steps
• Infrastructure
• ATS/CDS in Uganda by June 2008
• Single access point for issuers and investors
  through a common trading platform by December
  2008
• Explore integration of the trading platforms
  either through an interface or through an order
  routing system
• CDS connected to Payment Systems for Real
  Delivery versus Payment (DvP) by December 2009.
• Corporate Structure of the Securities Exchanges
• Demutualization of each Exchange by December
  2008
• Merger of the Securities Exchanges and subsequent
  listing of a regional securities exchange by June
  2009.

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Challenges to Integration
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Challenges to Integration

• Differentials in key macro economic indicators
  (interest rates, inflation, currencies)
• The capital account of Tanzania is only partially
  open
• Lack of depth and liquidity pension sectors in
  Uganda and Tanzania are dominated by public
  pension schemes
• Multiplicity of regional blocks-
• Kenya is a member of Common Market of Eastern and
  Southern Africa (COMESA) and the East African
  Community (EAC)
• Uganda is a member of COMESA and the EAC
• Tanzania is a member of EAC and Southern African
  Development Community (SADC).

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Benefits of Integration
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Benefits of Integration

• Increased regionalization of capital markets has
  the potential to address the thinness and
  illiquidity of the regional capital markets.
• Offer East African Residents single access to all
  securities listed in the region.
• Bring Rwanda and Burundi on stream without them
  having to re-invent the wheel.

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End