East Africa's dream of a regional stock exchange that merges into one the stock markets of the five East Africa Community member states is likely to take off in a year or two, key players in the region have said.
"Definitely we want to have one stock exchange. Technically, I think we are almost there. Maybe it will happen in about a year or two," said Kenneth Kitariko, Chief Executive Officer of African Alliance, Uganda's leading brokerage firm. Mr Kitariko, who is also a member of the Governing Council of the Uganda Securities Exchange, was speaking to African journalists at an event organized by the Thomson Reuters Foundation in Kampala last week.
The regional stock exchange would involve the integration of capital markets of four Eastern African countries, including Kenya, Uganda, Tanzania, Rwanda. Burundi, currently does not have a stock market.
Kitariko said while it has taken a long time to integrate the stock exchanges, given that the EAC Common Market Protocol was signed in 2007, as long as countries have the political will, he was optimistic it would happen within the envisaged period. He added that the integration of the stock exchange will create a much bigger market for the region, and a larger pool of capital for investment.
The combined capitalization of the four Eastern African stock exchanges is equal to an average US$ 31 billion, more attractive to investors than that of individual national exchanges.
Dar es Salaam Stock Exchange (DSE) Chief Executive Director, Mr Gabriel Kitua, said the Dar bourse was ready for the regional exchange as it would be a magnet for investments into the region, especially for Uganda and Tanzania.
"The DSE and USE have long been dogged by lack of liquidity and outside investor interest as there are simply too few institutions and individuals who wish to invest in East Africa, but the regional market may change things," said Mr. Kitua.
Kitua said the two countries are currently designing an East African Depository Receipt that will allow direct trading of shares and make it easy for investors to move securities from the exchange where they were originally listed, deposit them with a custodian who re-issues them in the new market in the form of depository receipts, which will act like shares.
"The challenge right now is if you want to trade a share that is listed in Uganda, but of a Tanzanian company, you will actually have to demobilize, take your share certificate, go across the border, re-immobilize it in that exchange and then trade, which is not effective cross border trade," Mr. Kitua said.
Efforts towards the regional bourse are being coordinated by the East African Securities Exchange Association (EASEA), comprising the chief executives of the four exchanges - Dar, Nairobi, Uganda and Rwanda.
The original timetable had been set in 2008 when the association resolved that a single clearing and settlement infrastructure would be implemented 3-6 months after January 2009. One of the objectives of the single stock market is to integrate trading, clearing and settlement infrastructures within the EAC to facilitate a faster trading system. A key first step is improving inter-connectedness of the regional securities exchanges.
EASEA has adopted Kenya's automated broker back-office system as one way of developing an inter-depository transfer mechanism for cross-listed stocks.
Tanzania has previously barred non-citizens from participating in initial public offers, such as when a 21 percent stake in the National Microfinance Bank was floated last year, or in 2008, when it blocked its citizens from participating in the Safaricom IPO in Kenya.
The integration will make the EA stock exchange the continent's third such market, after the Western African regional stock market (BRVM) based in Abidjan, Ivory Coast, and the Central African stock exchange (BVMAC) based in Libreville, Gabon.
Kitariko said the countries, which all started with listing big corporate divestitures of large state-owned companies as part of privatization programmes, are also focusing on attracting small and medium companies, which constitute the largest and fastest growing sector of the regional economies.
But there are still challenges to overcome before small companies can sell shares on stock exchanges. Kitariko said a lot of local companies are owned by individuals or families and decisions made at home, hence there is no proper oversight and governance.
For many small and medium companies, there are no books of accounts, or there are multiple sets of books to avoid taxation, which makes it difficult for them to open to the transparency requirements involved with listing on the stock exchange. Such companies are also prone to worry that if they list their companies on stock exchanges, they will lose control to big investment companies.
Kitariko said there is need to create a culture of saving among the people and to further encourage them to invest in the stock markets.
Surmounting these challenges requires a concerted mobilization and sensitization of the local and regional business community to understand the benefits of opening their companies to public participation.
"We encourage companies to follow good governance. We can't just wake up and say we are together. This is a work in progress," he said.
James Ndahiro, the chairperson of the Rwanda Stock Exchange, has previously been quoted saying the growth of stock and capital markets would help East African countries liberate themselves from dependence on foreign aid.
It is envisaged that the use of a common currency in the region would pave the way for an integration of capital markets.
The idea of a regional stock exchange extends also to the Southern Africa region, where discussions are ongoing for the even more ambitious prospect of integrating regional stock exchanges into a single African stock exchange.
