26 January 2016

East Africa: EAC Stock Markets Integration Delay Costing Region - Experts

Delays in the implementation of the East Africa Community (EAC) stock markets integration project are costing the region development capital and should be expedited.

Regional capital markets officials under the East Africa Stock Exchanges Association (EASEA) were in agreement that delaying the process was costing the region more foreign capital investments needed to finance the major infrastructure projects, and called for all effort to be made to complete the exercise.

The officials from all the five East Africa Community member states, who were attending the 26th consultative meeting of EASEA in Kigali last week agreed on a roadmap harmonisation of the stock markets "to create strong stock markets".

The process of integrating the region's stock exchange markets has been dragging on for about four years now.

Celestin Rwabukumba, the EASEA chairman and the chief executive of Rwanda Stock Exchange (RSE), said it was important that the project is implemented this year to "create sustainable markets that are relevant enough to support growth of the regional economy."

Rwabukumba said partner states have agreed to make more consultations on how to establish a strong legal framework that will guide the implementation of the regional stock markets integration process by the end of this year.

"The technical working group will report back within one month if we are to meet the deadline," Rwabukumba said after the consultative meeting on Friday.

The EASEA also agreed to draft a new strategic plan covering the next five-years by the end of this quarter.

Stock market experts say the integration of the EAC exchanges has the potential of attracting foreign direct investments into the region, which will translate into faster growth of East African economies.

"There is a challenge of finding long-term capital to finance the various infrastructure projects on the agenda.

This project is, therefore, important to help attract the needed capital to finance these projects," Geoffrey Odundo, the Nairobi Securities Exchange Chief executive officer, said.

He said the move is also instructive, noting: "We can't afford to compete among ourselves, but rather work together as a region to boost our stock markets." He argued that international investor's no longer look at individual countries, but rather the region when making investment decisions.

"This is one more reason why we need to integrate faster enough..."

Mary Mniwasa, the legal counsel at the Dar es Salaam Stock Exchange, said it is critical to accelerate the process, arguing that it will create a strong foundation "for us to negotiate strong partnerships with other global trade blocs."

Integrating EAC markets is expected to increase efficiency and the clearing and settlement process that now takes about two weeks, if one buys shares of cross-listed firms, and they need to go through brokers. This is one of the reasons cross-listed counters are largely inactive on the local bourse as the settlement process discourages potential investors. Four of the five EAC member countries - Rwanda, Uganda, Kenya and Tanzania - have stock markets. Burundi is yet to start one.

Work done so far

The capital markets infrastructure technical working group has already reviewed the work done on central securities depositories and trading platforms and identified gaps, as well as developed recommendations to ensure their implementation as per regionalisation of the capital markets infrastructure.

In Rwanda, the RSE is in the final stages of automation of its trading infrastructure which will automatically be linked to the Central Securities Depository and real time gross settlement system at the Central Bank of Rwanda, among others.

What was agreed on

Rwanda, Kenya, Uganda and Tanzania agreed to put in place strategic plans, speedup training programmes, and support the establishment of a harmonised legal framework. All these are expected to be completed within one month. Regional awareness campaign on electronic linkages for trading and depository infrastructures, and enhancing capacity through SITI training programmes remain high on agenda this year. Partner states agreed to harmonise broker back office standards, and inter-depository transfers procedures, among other things.

"We will also use this time to address any issues and reservations that may still be pending with some partner states before we can fully roll out the programme," they said.

Our target is to have all our markets interlinked by the end of 2016 to be able to facilitate and promote investments in the region, Rwabukumba added.

The objective, according to Rose Mambo, chief executive officer of the Central Depository and Settlement Corporation Kenya, is to link trading and depository systems in the region to achieve cross-border trading, clearing and settlement.

RSE, NSE sign deal

Meanwhile, Rwanda Stock Exchange and Nairobi Securities Exchange on Friday signed a memorandum of understanding to enhance trading of securities between the two exchanges.

According to Rwabukumba, the deal benefits Rwanda in terms of information, experience and expertise sharing, and opens more trading opportunities for Rwandan companies.

There is an imbalance with Kenyan companies benefiting more, he said, adding that the fact that they are many Kenyan-based firms operating in Rwanda, gives Rwanda an opportunity to attract more investors from Nairobi.

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