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the FTSE All-World Index series. With only 60 listed firms boasting a total market capitalisation of about $15bn, the Nairobi Securities Exchange is small relative to global markets. It is dwarfed even by its main rival in Sub-Saharan Africa (excluding South Africa), the Nigerian bourse, which has 198 listed firms with a total market capitalisation of nearly $60bn. But unlike Nigeria, and many other Sub-Sahara African economies such as Zimbabwe, Botswana and Ghana that are mineral-rich, Kenya’s GDP is dominated by agriculture and services industries. Many of the East Africa’s listed firms posted double-digit profit growth in 2012, but at least 10 of them issued profit warnings, an indication that they expected their performance to be at least 25 per cent worse than in 2011. The Nairobi stock market was helped to a large extent by a sharp drop in Kenya’s inflation rate and a stabilisation of the local currency, the shilling, which had in October 2011 dropped to an alltime low of 107 units to the dollar. With Kenya being a net importing country, the collapse of the currency, and a surge in oil prices driven by the Arab Spring, had fuelled inflation, which peaked at 19.72 per cent in November 2011, but dropped consistently last year to December’s level of 3.20 per cent. Interest rates which had risen sharply as the Central Bank of Kenya increased its policy rate to 18 per cent to tame the inflation rate, also tumbled, rendering stocks more attractive than government securities. Foreign investors, especially those based in Europe, appear to be betting big on the Nairobi bourse. In 2012, the international investors were net buyers of shares worth $232.5 million, having made purchases of about $558 million against sales of $339 million. With Kenya facing a presidential election on March 4, analysts have predicted a looming correction of the stock market, which has so far showed remarkable resilience amid the rising political noise. Some have drawn parallels with a 2007 trend that saw investors turn bullish on the stock market only to burn their fingers when a stalemate over presidential poll results triggered violence that inflicted heavy damage on the economy. The economic growth rate plummeted from a decade high of 7.1 per cent in 2007 to a paltry 1.7 per cent in the following year as businesses

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reported huge losses attributed to the post-election conflict. The intervention of the global community led to the charging of two prominent politicians (who are currently aspiring presidential candidates) with crimes against humanity at the International Criminal Court for their alleged role in the postelection chaos. The political instability in Kenya largely mirrors that in Nigeria, where conflict between religious extremists and moderates has led to hundreds of deaths of both Christians and Muslims. Yet foreign investors appear unfazed by the uncertainties in Africa’s most populous economy. Nigeria’s 160 million consumers’ demand for consumer goods and financial products were the main drivers for its economy in 2012, a welcome sign of continued diversification away from petroleum. Nigeria remains Africa’s top oil producer and a member of the Organisation of Petroleum Exporting Countries (OPEC). Inflows of foreign currency and tight monetary policy helped Nigeria’s naira currency gain 1.8 per cent in 2012 to close the year at 156.20 to the dollar. Another emerging investor favourite is Ghana, which has emerged from a closely fought but peaceful presidential poll with an enhanced reputation as the “Switzerland of Africa,” though uncertainties linger about its currency and a growing budget deficit.

Besides solidifying its credentials as an emerging democracy, Ghana, whose traditional exports are gold and cocoa, has also joined the club of oil producing countries to the tune of 90,000bpd. This is set to grow to 120,000bpd next year, although this may not be enough to prevent a halving of growth rate to 7.8 per cent from 2012’s strong 14.5 per cent. Despite its stability, major disincentives to investment in Ghana remain. Chief among these are the size of its stock market (just 34 listed companies) and the illiquidity of its capital market, with the longest treasury bond tenure being only five years.

Gateway to Africa February 2013  

GatewayToAfrica.com is a multi-platform title for businesses looking to take part in expansion opportunities in Sub-Saharan Africa.

Gateway to Africa February 2013  

GatewayToAfrica.com is a multi-platform title for businesses looking to take part in expansion opportunities in Sub-Saharan Africa.

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