The Exchange Magazine

2010 I Issue 4 I 1

I 2010 I Issue 42

2010 I Issue 4 I 3

Publisher

EXCHANGE TEAMChief EditorDiana [email protected]

Sub EditorSusan [email protected]

French TranslationEmma [email protected]

The Exchange Committee MembersJoseph Kitamirike (Chairman, CEO - USE)Peter Mwangi (Member, CEO - NSE) Donald Ouma (Member - NSE) Harriet Kiwanuka (Member - USE)Emanuel Nyalali (Member - DSE) Diana Gichaga (Secretary - NSE)Celestin Rwabukumba (Member - ROTC)

ContributorsDiana GichagaTom OduorAfrica Investment BankSammy NjarambaBerna NamataPeter OkoedJames MucheneFelix O. OkatchJohn GahamanyiSsuna KateeraHanderson Mwandembo

DesignKichimbi Brand [email protected]

PhotographyReuters, Image Library, Sebastian Karanja

Advertising Sales [email protected]@nse.co.ke

NSE [email protected]: 254 (020) 2831256/55

Distributed by Nation MediaPublishing in Uganda, Tanzania, Kenya and Rwanda. The Exchange Magazine is owned by Nairobi Stock Exchange, Uganda Securities Exchange, Rwanda OTC Market and Dar es Salaam Stock Exchange. All rights reserved. Reproduction in whole or in part without written permission of the editor is strictly

prohibited. The greatest care has been taken in compiling this magazine publication. However, no

responsibility can be accepted by the publishers or compilers for accuracy of the information presented.

I 2010 I Issue 44

All rights reserved. Reproduction in whole or in part without written permission of the editor is strictly prohibited. The greatest care has been taken in compiling this magazine publication. However, no responsibility can be accepted by the publishers or compilers for accuracy of the information presented.

Advertising: For advertising and our editorial calendar, email [email protected] or [email protected] to receive a rate card and more information.

10 Region Analysis

32 NSE Evaluation

31 Corporate Governance

A Nairobi Stock Exchange Evaluation with Reference to the PESTLE Analysis Framework

In management instructions generally flow from top to down. As some say the bosses give orders that flow downwards and employees respond upwards by obeying and fulfilling the instructions

14 Bulls & Bears 17 FiRe AwardHow the Markets and their Economics are doing.

Rwanda Still Top Global Reformer for Business World Bank

Trading results in the third quarter posted a decline in performance with the total turnover dropping to Ushs 3.9bn from the previous quarter’s Ushs 8,6bn while volume recorded a drop of approx.

35 Rwanda Focuses

43 Tullow Oil 45 Book Review

36 Doing Business

Tullow Oil, a British oil exploration and production company, sets up in Uganda

Ideas for the New Century, a Review of Nandan Nilekani’s Book “Imagining India”

The Winners, the Review of Performance

Rwanda Focuses on Innovative Financing for Private Sector Development

2010 I Issue 4 I 5

CONTENTS

Gabriel Kitua - Working History Telkom Kenya Ltd is the only communication and connectivity provider offering a converged service.

38 Bralirwa IPORwanda to Raise Over USD 29.5m in Bralirwa IPO

26 Rwanda Infrastructure Gap

28 EASEA 30 Telkom Kenya

Rwanda’s Huge Infrastructure Gap limiting Private Sector Growth

40 CIC InsuranceThe Road to the IPO: CIC Insurance Firmly on Course

41 Searching for Alpha Sovereign funds up their game in frontier markets

The Theme of this issue is “Africa Rising”. In 2009, Africa’s economic growth slowed down to 2.1 percent from 5.6 percent in 2008. In terms of economic and investment outturn, Overall world economic growth, was slow and moribund due to fallouts from the global financial crisis, which peaked in the third quarter of 2008. It had a lagged effect on Sub-Saharan Africa, manifesting itself in lower Foreign Direct Investment (FDIs), lower and deferred aid disbursed from Western donors as well as reduced remittances. In general, stock markets across the world experienced modest but respectable gains. The outturn in major equity markets were as follows: China (80%); South Africa (74%); Japan (19%); UK (17%) and USA (15%).

Chairmans Note

Letter from theChairman

Africa RisingChairmans NoteThe trend has been for the smaller, less liquid exchanges to catch up on the larger, more liquid exchanges which had a stellar performance in 2009.

The IMF goes on to say that the primary risk to the outlook for the region is a faltering global recovery. But different economies in the region have differing exposures. For the oil-exporting economies, spillovers from a global slowdown would be manifested primarily through its impact on oil prices. In contrast, middle- and low-income economies’ exposure comes from their exports to Europe, which amount to about one-third of total exports, nearly four times the share of their exports to the United States.

In addition to these trade linkages, continued weakness and measures to cut budget deficits in advanced economies may affect the low-income economies of Sub-Saharan Africa by reducing aid and private financial flows to the region. For example, remittances are an important source of foreign inflows to the region, amounting, for example, to almost 10 percent of GDP in Senegal. These may be susceptible to weaker conditions in economies employing migrant workers from Sub-Saharan Africa. Asset market spillovers resulting from increased global volatility or risk aversion are likely to be limited. Portfolio flows are a less critical component of overall capital flows in Sub-Saharan Africa than in the rest of the world, and most economies in the region have relatively underdeveloped financial markets. The IMF WEO also notes that South Africa is the notable exception: its equity and currency markets are often more sensitive to shifts in global sentiment than other emerging markets in Asia or Latin America, because nonresident transactions account for a relatively high share of turnover.

In a further confirmation of the emerging opportunity space in Africa, the June 2010 McKinsey Global Institute Report: Lions on the move: The progress and potential of African economies suggests that “Africa’s growth acceleration resulted from more than a resource boom. Arguably more important were government actions to end political conflicts, improve macroeconomic conditions, and create better business climates, which enabled growth to accelerate broadly across countries and sectors. Africa’s future growth will be supported by external trends such as the global race for commodities, increased access to international capital, and its ability to forge new types of economic partnerships with foreign investors. Long term growth also will be lifted by internal social and demographic trends, particularly Africa’s growing labor force, urbanization, and the related rise of middle class consumers. It is in this new emerging context that EASEA will be formulating a strategy to cover the next three to five years, to harness the opportunities and to pursue our Vision “To be a leading regional securities exchanges association in the World”.

JOSEPH S. KITAMIRIKECHAIRMANEAST AFRICAN SECURITIES EXCHANGES ASSOCIATION

Performance of African MarketsIn 2009, Stock Markets across Africa turned in a mixed performance with seven markets moving into positive territory, while eight registered negative returns. The Namibian (82%) and South African (73%) stock exchanges were the star performers in 2009 due to the influx of funds being channeled into infrastructural projects ahead of the 2010 FIFA World Cup. The Stock Exchange of Mauritius (49%) also recovered strongly on the back of reasonably stable macroeconomic indicators and performance of the banking industry. However, the Ghana Stock Exchange declined by 25% (36% in dollar terms). The decline was largely due to a market correction which centred on the financial stocks, after widespread gains recorded in 2008. Apart from Ghana, other markets which also experienced downturns during the period under review included Nigeria (-41%); Malawi (-17%); Tanzania (-6%); and Kenya (-5%).

The slowdown to 2.6 percent in 2009 was brief, limited by the rapid implementation of countercyclical policies made possible by the policy room that many economies had built prior to the downturn. In its October 2010, World Economic Outlook Report, the International Monetary Fund (IMF), says that Sub-Saharan Africa is rebounding from the slowdown in 2009, as strong macroeconomic fundamentals through much of the region leave it well positioned to benefit from the global recovery now under way. Following this initial recovery, output growth in the region is projected to accelerate to 5 percent in 2010 and 5.5 percent in 2011, supported by the rebound in exports and commodity prices and by robust domestic demand in a number of economies. Foreign inflows to the region, including official flows, FDI, and remittances, were less affected by the global downturn than had been feared. Although the outlook remains uncertain, African capital markets have rebounded:

African Stock Market Percentage Returns in $ (2009)Namibia 82South Africa 74Mauritius 49Tunisia 47Egypt 36Botswana 16Zambia 15Morocco -2Uganda -3Kenya -5Tanzania -6Malawi -17Cote D ’Ivore -24Ghana -36

-Nigeria

Table 1: Performance of African Stock Markets as at December 31st 2009

41Source: Databank Research: Ghana

Market Index YTD Performance (November 5 2010)Uganda 63.1Kenya 42.5Ghana 24.0Tunisia 20.2Bourse Régionale des ValeursMobilières de l’Afrique de l’Ouest (BRVM) 19.7Nigeria 19.2Morocco 16.9South Africa Mauritius Zambia MSCI EM ex South Africa S&P 500 Egypt FTSE Namibia Botswana Zimbabwe Tanzania Zimbabwe Malawi Nikkei

13.212.312.121.19.59.08.38.11.7-0.6-1.6-0.6-5.1-11.3

Source: African Alliance: Africa Weekly: November 5 2010

Performance of African Markets

I 2010 I Issue 48

Members East Africa

Nairobi Stock ExchangeMember Firms

Drummond Investment Bank Limited Hughes Building, 2nd floor,P.O. Box 45465, 00100Nairobi.Tel: 318690/318689Fax: 2223061E-mail: [email protected]: www.drummond.co.ke

Kingdom Securities Ltd Co-operative Bank House,5th Floor,P.O. Box 48231 00100 NairobiTel: 3276000Fax: 3276156 [email protected]

NIC Securities Limited Ground Floor, NIC House, Masaba Road P.O. Box 63046 – 00200, NairobiTel:2888 444 / 0711 041 444 Fax: 2888 544 E-mail: [email protected]

Discount Securities Ltd. (Under Statutory management)NHIF Building P.O. Box 42489-00100NairobiTel: 2219552/38, 2773000Fax: 2230987 E-mail: [email protected]: www.dsl.co.ke

Suntra Investment Bank Ltd Nation Centre, 7th floor,P. O. Box 74016-00200 NairobiTel: 2870000/247530/2223330/22118460724- 257024, 0733-222216Fax: 2224327 E-mail: [email protected]:www.suntra.co.ke

Genghis Capital Ltd. Prudential Building, 5th FloorP.O. Box 1670-00100NairobiTel: 2337535/36, 8008561,2373984/968/969 Fax: 246334 E-mail: [email protected]

Dyer & Blair Investment Bank Ltd Loita House, 10th floor, P.O. Box 45396 00100 NairobiTel: 3240000/2227803/4/5 Fax: 2218633E-mail: [email protected]: www.dyerandblair.com

Reliable Securities Ltd. IPS Building, 6th Floor P.O BOX 50338- 00200 NairobiTel: 2241350/4/79Fax: 2241392E-mail: [email protected]

Afrika Investment Bank Ltd. Finance House, 9th Floor.P. O. Box 11019-00100 NairobiTel: 2210178/2212989 Fax: 2210500 E-mail: [email protected]: www.afrikainvestmentbank.com

African Alliance (Kenya) Securities Ltd 1st Floor,Trans-national Plaza P.O. Box 27639 - 00506 NairobiTel: 2762000/2762557/0733333140 Fax: 2731162E-mail: [email protected] Web: www.africanalliance.com

ApexAfrica Capital LtdRehani House, 4th floorP.O. Box 43676- 00100 Tel: 311898/313492/310540Fax: 2215554 E-mail: [email protected]: www.www.apexafrica.com

Standard Investment Bank Ltd ICEA Building, 16th floorP.O. Box 13714- 00800 NairobiTel: 2228963/2228967/2228969 Fax: 240297E-mail: [email protected]

Ngenye Kariuki & Co. Ltd. ( Under Statutory Management)Corner House, 8th floor, P.O. Box 12185-00400 NairobiTel: 224333/2220052/2220141 Fax: 2217199/241825E-mail: [email protected]: www.ngenyestockbrokers.co.ke

MEM

BERS

2010 I Issue 4 I 9

CFC Stanbic Financial ServicesCFC Stanbic House,P O Box 47198 – 00100NairobiTel: 3638900 Fax: 3752950E-mail: [email protected] Web: www.csfs.co.ke

ABC Capital LtdIPS Building, 5th FloorP O Box 34137-00100 NairobiTel: 2246036/2245971 Fax: 2245971E-mail: [email protected]

Faida Investment Bank Ltd. Windsor House, 1st floor, P O Box 45236-00100NairobiTel: 2243811/2/3Fax: 2243814E-mail: [email protected]: www.faidastocks.com

Kestrel Capital (EA) Limited ICEA Building, 5th floor, P O Box 40005-00100 NairobiTel: 251758/2251893,2251815,2250082 Fax: 2243264E-mail: [email protected]: www.kestrelcapital.com

Renaissance Capital (Kenya) Ltd Purshottam Place, 6th floor, Westland , Chiromo RoadP O Box 40560-00100 NairobiTel: 3682000 Fax: 3632339 E-mail: [email protected]

Sterling Investment Bank Ltd Finance House, 11th floor, P O Box 45080- 00100 NairobiTel: 2213914/244077/ 0723153219/0734219146 Fax: 2218261E-mail:[email protected] : www.sterlingstocks.com

Uganda Securities Exchange

Baroda Capital Markets (U) Ltd. P.O.Box: 7197 Kampala Tel: +256-414 233680/3 Fax: +256-414 258263 Email: [email protected]

Crane Financial Services (U) Ltd. Plot 20/38 Kampala Road P.O.Box: 22572 Kampala Tel: +256-414 341414/ 345345 Fax: +256-414 231578

Equity Stock Brokers (U) Ltd. Orient Plaza Plot 6/6A Kampala RoadP.O.Box: 3072 Kampala Tel: +256-414 236012/3/4/5 Fax: +256-414 348039 Email: [email protected] Person: Mr. Edward Ruyonga

MBEA Brokerage Services (U) Ltd. Lumumba Avenue, Nakasero Fax: 256-414-342045P.O.Box: 24613 KampalaTel: +256-312-260011 / +256-414 341448/231960Email: [email protected]: www.mbea.netContact Person: Mr. Andrew Owiny Dyer & Blair (Uganda) Ltd Rwenzori House Ground FloorP.O.Box: 36620Tel: +256-414-233050Fax: +256 -414 231813Email: [email protected]

African Aliance (Uganda) Ltd Workers’ House, 6th FloorPlot 1 Pilkington Road Tel: +256 414 235 577Fax: +256- 414 235575E-mail: [email protected] Person: Mr. Kenneth Kitariko

Renaissance Capital LtdPlot 3 Kololo Hill LaneP.O Box: 893, KampalaTel: +256 312 264775/76.Fax: +256- 312 264755E-mail: [email protected] Person: Mr. PeterMushangwe

Crested Stocks and Securities Limited6th Floor Impala HousePlot 13-15, Kimathi AvenueP.O.Box 31736,Kampala, UgandaTel: +256 41 4 230900Fax: +256 41 4 230612Email: [email protected]: www.crestedsecurities.comContact Person Mr. Robert Baldwin

Dar-Es-salaam Stock ExchangeCORE securities LtdGround Floor, Twiga HouseSamora Avenue, DSMTel: +255 22 212 3103Fax: +255 22 218 [email protected]

Orbit Securities Co. Ltd3rd Floor, Twiga houseSamora Avenue, DSMTel: +255 22 211 1758Fax: +255 22 211 [email protected]

Rasilimali LtdFormer TACOSHILI OfficesSokoine Drive, DSMTel: +255 22 211 1708Fax: +255 22 212 [email protected]

Solomon Stock Brokers LtdGround Floor, PPF HouseSamora Avenue/ Morogoro Road, DSMTel: +255 22 211 2874Fax: +255 22 213 [email protected]

Tanzania Securities Ltd7th Floor, IPS BuildingSamora Avenue/ Azikiwe Str, DSMTel: +255 22 211 2807Fax: +255 22 211 [email protected]

Vertex International Securities LtdAnnex Building – ZambiaHigh CommissionSokoine Drive / Ohio Street, DSMTel: +255 22 211 0392Fax: +255 22 211 [email protected]

CMAC MEMBERSFAIDA Securities Rwanda LtdRue de I’AkageraTel:+254722522724E mail:[email protected] Box 6679KIGALI

African Alliance Rwanda Tel: +250 08493975E-Mail:[email protected] Box 6368KIGALI.

Continental Discount House5th Floor Ecobank [email protected]:+250-570785P.O Box 6237 KIGALI

DALLAS Securities BrokerageMrs. Immy KamaradeE-Mail :[email protected]:+250 08-302113P.O Box 1028, KIGALI

MBEA Brokerage Services Rwanda S.A & MBEA Financial Services [email protected]+0783 0203745P.O Box 92,KIGALI Avenue de la paix

Dyer and BlairSimon Kalenzi+250 08-308080Chadel Building, Avenue des milles collines,P.O Box 5292, KIGALITel: +250570390

I 2010 I Issue 410

Regional Analysis Market Movement

How the markets and their economies are doing, the quarterly trends on each market and their likely impact on other markets.

Uganda

Performance per Counter Stanbic Bank Uganda dominated trading, with the counter accounting for 55.9% of the turnover followed by National Insurance Corporation which scooped 14.75% of the turnover, DFCU settled in third position with 13.69% of turnover. Bank of Baroda, Uganda Clays Limited and the New Vision Printing and Publishing Company Limited accounted for 7.7%, 5.8% and 2.2% respectively, while British American Tobacco Uganda which realized 0.02% of the turnover saw a rise in share price of approximately 112% from Ushs 330 to Ushs 700 at the close of the quarter.

USE All Share IndexThe ALSI maintained a stable trend for the most part of the quarter; recording 1,022.05 Points in July and rising to 1,059.93 Points in August. Stock prices took an upward trend in the month of September which saw the Index soar to 1,105.6 Points before closing at 1,117.9, Points a position that was last recorded in 20008. The Index

An Outstanding 2010

performance was attributed to continued appreciation in equity prices as investors react to corporate actions.

Fixed Income Securities Market Activity (July – September 2010)

Government Bonds:Trading on the secondary market recorded a turnover of Ushs 468,675,000,000 up from Ushs 353,631,000,000 recorded in the pervious quarter.

Trading results in the third quarter posted a decline in performance with the total turnover dropping to Ushs 3.9 billion from the previous quarter’s Ushs 8,6 billion while volume recorded a drop of approximately 65% from 67.7 million shares in the second quarter to 23.1 million. Number of deals stood at 1,053 from 1,516. September registered the highest level of activity with a record of Ushs 1.7 billion, accounting for 44.2% of the quarter’s total turnover.

Volume Traded

Turnover (Ushs)

No. of Deals

Trading Days

Daily Avg.Turnover (Ushs)

Daily Avg. no. of trades

Market Capitalization (Ushs. bn)

USE All Share Index

July August September October

4,940,202 9,692,626 8,423,935 10,735,489

1,018,917,725 1,179,261,555 1,740,126,360 1,749,346,495

14 14 13 12

29 20 30 28

262 404 387 335

78,378,287 84,232,968 133,855,874 145,778,875

9,974.7 10, 744.2 11,311.8 12,842.33

1,022.05 1,059.93 1,117.90 1,194.88

TRADING VOLUMES AND ACTIVITY ON A QUARTERLY BASIS:July– October 2010

-

20

40

60

80

100

120

140

Jan’

09

Feb’

09

Mar

’09

Apr

’09

May

’09

Jun’

09

Jul’0

9

Aug’

09

Sep’

09

Oct

’09

Nov

’09

Dec

’ 09

Jan’

10

Feb’

10

Mar

’10

Apr

’10

May

’10

Jun’

10

Jul’1

0

Aug’

10

Sep’

10

Oct

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Shar

e Pr

ice

Ush

2010 I Issue 4 I 11

Regional Analysis

How the EAC markets and their economies are doing, the quarterly trends on each market and their likely impact on other markets.

Tanzania

Market Movement

Foreign investors’ participation in secondary trading activities at the Exchange continued to grow during the quarter. Out of total turnover of TZS 7.39 billion generated during the quarter, TZS 2.35 billion was realized from transactions originated from foreign investors. This accounted for 32% of total revenue. Cumulatively, for the duration of nine months to September 2010 foreign investors’ transactions contributed 27% to the total turnover of TZS 24.64 billion. For the past period ended 31st December 2009 contribution of foreign investors to total revenue was 3.52% (i.e. TZS 1.72 billion out of TZS 48.70 billion).

Market CapitalizationMarket capitalization improved from TZS 4,924.53 billion at the quarter ending in June, 2010 to TZS 4,938.75 billion or by 0.29% at the end of the quarter ending in September, 2010 due to changes in prices. Tanzania Cigarette Co Ltd (TCC) shares recorded the highest price increase; the stock appreciated from TZS 2,020 per share as on 30th June 2010 to TZS 2,200 as on 30th September 2010 recording a gain of TZS 180 per share. National Microfinance Bank (NMB) shares recorded the Largest price drop; NMB stock recorded a 13% drop from TZS 740 per share recorded during the end of previous quarter to TZS 680 per share in the current quarter ending 30th September 2010.

Increased Foreign Participation

40%

30%

20%

10%

0%

5.004.00

3.00

2.00

1.00

1.72

4.38

2.38

Growth of Foreign Investors’Participation in Secondary

Equity Market

Jan - Dec 09 Jan-Jun 10 Jul - Sep 10

Turnover - foreigners % to Total Turnover

Movement of Market capitalization5,300

5,2005,100

5,000

4,900

4,800

4,700

4,600

4,500Apr May Jun Jul Aug Sept

2009/10 2008/09

The DSE All Shares Index trend continued to rise during the quarter after falling to the lowest level in the previous quarter. The index recorded an increase of 0.29%, moving from 1,170.80 points at the end of the previous quarter to 1,174.18 points by the quarter ended 30th September 2010.

Turnover TrendDuring the quarter under review, equity turnover declined by 28% when compared with the previous quarter. A total turnover of TZS 7.39 billion was recorded during the quar-ter from 26.09 million shares in comparison to the previous quarter’s turnover of TZS 10.25 billion generated from 43.52 million shares.

Dse All Share Index For April toSeptember 2010

1,1581,1601,1621,1641,1661,1681,1701,1721,1741,176

1,178

6 - Apr 6 - May 6 -Jun 6 - Jul 6 - Aug 6 - Sept

20,000

18,00016,00014,00012,00010,000

8,0006,0004,0002,000

2009/10 2008/09

Monthly Turnover Generated atthe Exchange

TZS

Billi

on

TZS

billi

onTZ

S Bi

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TZS

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on

I 2010 I Issue 412

Regional Analysis

How the EAC markets and their economies are doing, the quarterly trends on each market and their likely impact on other markets.Rwanda

Market Movement

Trading operations commenced on 31st January 2008 on the Rwanda OTC market on the launch of the Capital market operations. From January 2010 to the end of October 2010, the Treasury bonds that were traded in the secondary market are worth 2,100,000 (two million and one hundred thousand francs) in 2 deals. The 10 year BCR bond that will mature in 2017 with periodic interest of 10.5% per annum has not traded during the period under review.The equity

Bonds: A total of Rwf 6.5 billion has been raised through government bonds. The total outstanding government bonds are Rwf 11.5 billion and the BCR bond of Rwf 1 billion which makes it a total of Rwf 12.5 billion outstanding in bonds.

The Equities marketIn the Rwandan equity market, Nation Media Group cross listed 157,118,572 shares at RWF 1,200

market also was activated in June 2009 with the cross listing of KCB shares. During the period under review, the ROTC recorded a total turnover of Rwf 6, 037,200 from 38,700 KCB shares traded on the ROTC market in 35 deals.

The shares hit a high of Rwf 182 and a low of Rwf 130. The average price on KCB counter was Rwf156 for the period.

on 2nd November 2010. The BRALIRWA IPO was launched on 22nd of November 2010 and the shares are expected to list on 31st January 2011.

The equity market in the period running from April 2010 to November 2010 has recorded a total turnover of RWF 12,699,060 from 73,000 KCB shares traded on the ROTC market 42 deals. NMG has traded 1,000 shares with a turnover of RWF 1,196,000.

Coming Of Age

Secondary Market Trading:

Primary Market Activity:

Volumes Traded 24,700 14,000 38,700

6,037,200

28,716

157

2,063,800

49,243

147

3,973,400

26,954

158

Jan 2010 - July 2010 Aug 2010 - October 2010 Total

Turnover (Rfw.)

Daily Avg.Turnover

Average SharePrice of KCB

2010 I Issue 4 I 13

Actively traded counters in November 2010 include Safaricom, Equity Bank and Kenol Kobil. There has been increased foreign participation in the market, accounting for 62% of total turnover in November 2010. October 2010 witnessed the highest foreign investor participation in terms of value traded of Kshs 6.6 billion- in NSE history.

Bond Market Activity

Also improved activity was recorded in the bonds market; with January-November 2010 total value standing at Kshs 460 billion, representing an increase of 286% over the 2009 annual tunrover of Kshs. 110 Billion and the highest ever recorded in NSE history. This has been possible due to the implementation of automated trading of Bonds in December 2009.

How the EAC markets and their economies are doing, the quarterly trends on each market and their likely impact on other markets.Kenya

Regional AnalysisMarket Movement

Equities market

The NSE 20 Share Index has posted an increase of 38% in the period running from November 2009 to November 2010. Within the same period under review, market capitalization recorded an increase of 42% to Kshs 1,169 billion.

Annual equity turnover year to date (November 2010) is Kshs. 104 Billion. This represents an increase of 171% from 2009 which recorded an equity turnover of Kshs. 38 Billion.

The market has been recording on average monthly equity turnover of Kshs 7.9 billion in the past 12 months, with lowest turnovers witnessed

in December 2009 (Kshs 2.6 billion) and the highest in August 2010 (Kshs 16.2 billion).

Full Steam AheadJa

n.09

Mar

.09

May

.09

Jul.0

9Se

p.09

Nov

.09

Jan.

10M

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0M

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0Ju

l.10

Sep.

10N

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0

4.002.000.00

6.008.00

10.0012.0014.0016.0018.00

Equity Turnover Trend (Kshs. Bn)

Ksh.

Bn

Capital Market Activity

Fixed Income ListingIFC - Kshs 3 BillionHFCK - Kshs 10 BillionKCB - Kshs 12 BillionStanChart - Kshs 2.5 BillionTPS - Kshs 1.1 Billion

NBK - Kshs 80 MillionJubilee - Kshs 4.5 MillionNMG - Kshs 14.5 MillionTPS - Kshs 17.7 MillionNIC Bank - Kshs 32.6 Million

Scangroup - Kshs 13.9 Million

Total - Kshs 2.05 Million

Equity Issues - Rights Issues

Equity Issues - Bonus Issues ( Number of Shares)

New Capitalization Issues

No. Amount/ Shares Raised

21

2

3

4

3

5

2

Capital Raising Activity ( Year to date 2010)

I 2010 I Issue 414

Stocks ReviewBull & Bears of the Region

INTRODUCTIONHistorically the NSE has trended in cycles of 5 years, typically characterised by peaks and troughs. The chart below clearly depicts this trend over the last fourteen years.

Currently, the market is witnessing another build up in momentum as all indicators point to a recovering economic environment and increasing business confidence. The market is at the early stages of another cycle, especially coming at the heels of business confidence resurgence, after the 2007/08 post election violence as well as the global credit crunch, two factors which adversely affected the market. There is increasing business confidence as we are recovering from a trough in terms of the business cycle.

BASIS FOR PERFOMANCE MEASUREMENTThe following analysis looks at the two best performing stocks and factors that contributed to their good performance. “Good” performance is a relative measure and various parameters yield varying results. “Good” performance in our context here is used to denote the highest attained value based on the performance measurement that we have preferred to use. In our market, the most commonly used parameters are:

Market price gain/(loss):This is mostly based on the price movement of stocks. It’s also called price appreciation. Sometimes price movements may be affected by market sentiments that are not driven by any fundamentals. However, compared to the other parameters, market price offers a better alternative, as it is not prone to the inherent weaknesses created by the subjective nature of parameters such as earnings per share or the dividends per share.

Through the Microscope: Gainers & Losers in 2010

Source: NSE

Historical NSE 20 Share Index Perfomance7,000

6,000

5,000

4,000

3,000 3,056

2,309

1,097

3,158

Approx. 5yrsApprox. 5yrs

3,972

5,774

3,175

2,474

4,580

2,000

1,000

0

Oct

-96

Apr

i-97

Oct

-97

Apr

i-98

Oct

-98

Apr

i-99

Oct

-99

Apr

i-00

Oct

-00

Apr

i-01

Oct

-01

Apr

i-02

Oct

-02

Apr

i-03

Oct

-03

Apr

i-04

Oct

-04

Apr

i-05

Oct

-05

Apr

i-06

Oct

-06

Apr

i-07

Oct

-07

Apr

i-08

Oct

-08

Apr

i-09

Oct

-09

Apr

i-10

Oct

-10

Inde

x Va

lue(

Poin

ts)

Source: NSE

0.00

1/4/2010

1/22/2010

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Earnings per share (EPS): EPS is computed as net income divided by the average weighted number of ordinary shares. EPS is more commonly used by institutional investors whose investment horizon is “long term”, rather than typical “short term” horizon which is common, especially among the retail investors in the Kenyan market. Most retail investors prefer tangible gains from their investments, usually dividends. EPS as a measure suffers some inherent weaknesses as there are a lot of estimations when arriving at the net income, which is used in the computation of the EPS, creating inconsistencies across companies.

Dividend per share (DPS)DPS is computed as total dividend declared divided by the average weighted number of ordinary shares issued. It is widely understood by investors in our local market. It is preferred by a significantly large number of retail investors.Dividend income as a measure of performance, in our view, is prone to comparison difficulties as various companies don’t have well established dividend policies, and dividend payout is often influenced by other considerations rather than actual performance, e.g. a poorly performing company may pay a dividend, so as to prevent negative publicity. Due to the inherent weaknesses of the EPS and DPS measures, we use market price appreciation as the measurement of the said “good” performance. It is, in our view, a better measure irrespective of investment strategy or investment objectives, unlike the other measures as highlighted.

BEST TWO STOCKS OF THE YEAR

1. Scangroup LimitedScangroup has been the star performer in 2010, having gained about 165 percent by mid November 2010. The stock is a cyclical stock, and with the economy coming out of a trough, as well as the Commercial & Services Economic Sector expected to pick up, the counter is positioned to continue doing well. The chart below indicates the stock’s performance against the NSE 20-Share Index.

2010 I Issue 4 I 15

Stocks Review Bull & Bears of the Region

Data from the Central Bank of Kenya indicates that the economy is on a recovery path, having registered a growth rate of 1.6% in 2008 and 2.6% in 2009, and 4.8% and 5.4% in the first and second quarters of 2010 respectively. We are of the view that the economy will achieve GDP growth rates of above 5 percent in 2010 and continuing with the same momentum into 2011.

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In addition, the impressive performance was boosted by the acquisitions the company made over the period. The company acquired a 51 percent stake in Ogilvy and Mather Africa and a 50 percent stake in Ogilvy East Africa Limited. The move has been widely viewed as a strategic positioning to capture the media and advertisement business in Africa.

2. Kakuzi LimitedThe company registered an impressive 163% growth in share price over the same period. This was attributed to good precipitation that started towards the end of 2009, relatively good tea prices in the global market and a weakening shilling resulting in favourable outcomes for the company. Tea production continued to out-perform all other agricultural cash crops in the better part of 2010 thereby increasing net gains even though global tea prices declined from US $2.4 per kilogram in July 2010 from US $2.9 per kilogram in July 2009.The chart above depicts this stellar performance.

WORST HIT STOCK We are of the view that Access Kenya Group Limited has been the worst performer 2010.The stock registered an 18 percent decline in price from the beginning of the year to mid November. The issues of strategy, and governance (e.g. the publicised board room wars) and stiff competition within the industry have had a negative impact on the stock’s price. Increasing mobile penetration and offering of data by telecom companies has continued to erode the profitability of the company. The chart above clearly depicts this poor performance against the index.

GOING FORWARDThe market is normally characterised with low activity towards the end of the year, with significant sell-offs by investors in readiness for the Christmas celebrations. Compared to 2009, 2010 will see increased consumption as it has been a relatively good year.As far as stock picking is concerned, we are informed by a premise based on the business cycle. The chart below depicts where the general economy stands from the business-cycle perspective, forming the basis upon which we do our stock picks for the immediate future..

This puts our current economic situation at the recovery phase of the business cycle. At this phase, cyclical stocks tend to perform relatively better than the general market. In this case, mostly in the Commercial & Services Sector will perform well. Whereas normally stocks in the Financial Sector tend to lead the resurgence, recent data indicates that the market has already factored this in the prevailing prices of the respective stocks. It is expected that there shouldn’t be significant price appreciation in this sector in the immediate future.We expect the following stocks to perform relatively well into 2011; Kenya Airways, Nation Media Group, Scangroup and TPSE in the Commercial & Services Sector, as well as CFC Stanbic, Diamond Trust Bank, Equity Bank, Centum Investment and Co-operative Bank of Kenya in the Financial.

STOCKS TO WATCH GOING FORWARDTo arrive at this, we are of the view that the three significant factors that will impact growth in the first quarter of 2011 will be increased consumption, arising from increased lending by the financial institutions, (e.g. translating into increased profitability in the banking sector and increased disposable incomes) and cheap credit for companies to increase production capacities; and finally the ongoing government led infrastructural development.

1. Scangroup Limited

We expect companies to go full throttle on their advertisement budget in a bid to impact the spending habits of consumers. Con-sidering that the previous season was characterized by low spend-ing, we may see households spend a little bit more this year, in view and hope of increased incomes in the future. Scangroup is well positioned to benefit from the expected increased advertisement.

2. Co-operative Bank of Kenya Limited

Focus is increasingly shifting towards the bottom of the pyra-mid, as the next source of growth. At this level, the SME sector is playing a critical role in contributing towards increasing ag-gregate demand in the country. The co-operative movement provides a critical client base that may provide the requisite boost to propel the Co-operative Bank of Kenya to higher heights.

However, of concern will be the problems of growth. How the management will deal with the increasing costs and arising inefficien-cies that come with growth will be a something to watch out for.

Two Stocks which may React Positively to the above Factors are;

I 2010 I Issue 416

Bull & Bears of the Region Stocks Review

The Uganda Clays counter on the other hand has faced further price depreciation having recorded negative earnings in the last 3 years, owing to debt, high set up and initial operational costs of their newly commissioned automated factory in Kamonkoli-Eastern Uganda. The counter has experienced a 62.5% price drop owing to negative investor sentiment.The factory that produces baked clay products has set up agency outlets within Uganda, Rwanda and also Southern Sudan. The entity has sought alternative funding to settle their liabilities and with a projection in the increase in sales owing to real estate development in the region, management has expressed optimism in the firm breaking even by the end of the second quarter next year.

Stocks to watchStanbic Bank and DFCU bank are counters to watch as we go into 2011 owing to an improvement in the performance of the banking sector which is likely to spur into 2011. The diversity of revenue streams through product innovation has been a strong driving force for Stanbic bank through agricultural support products like ware house receipting and infrastructural development products like vehicle & asset financing coupled with market penetration into the unbanked population as driving factors geared towards its profitability.DFCU’s mortgage lending and increasing branch expansion coupled with a strong asset base present positive future prospects for this counter. The bank is currently investing in up-grading its information technology platform.

With the discovery of oil deposits set to boost Uganda’s economic growth in 2011, this opportunity presents a range of business syner-gies mainly in the financial sector though the market is expected to experience low trading activity a we approach the festive season and general elections due February 2011.

With Uganda’s USE All Share index steadily growing strong in the year 2010, activity in the last quarter has seen the index close at 1,117.9 Points with a recorded turnover of 1,740,126,360 mainly been driven by blue chip counters like the Stanbic Bank accounting and DFCU BankStanbic Uganda Stanbic Bank the most capitalized bank opened the year at a price of 170 Ugx and closed at an average all time high of 265 Ugx by the third quarter representing a 55.8% price gain it recordedthe highest number of deals accounting for 31.5% of market turnover. Since inception of its IPO, the company has had a steady profitable performance coupled with a diverse product appeal to the market, factors that have stirred up investor appetite for this counter.

DFCU BankThe DFCU Bank counter portrayed a steady rise having opened the year at 620 Ugx and closing the third quarter at 820 Ugx, reflecting a 32.25% rise it moved 5,145,617 shares with a registered turnover over of 3,426,412,250 Ugshs over this period of time.Both banks have consistently maintained good performance with an increase in deposits, expansion of outreach coupled with product diversity. A healthy loan book position owing to the introduction of the Credit Reference Bureau has further boosted their net interest income.

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Counters that have had Good Performance in 2010

Counter that has Faced A Difficult 2010

Stanbic Uganda

DFCU Bank

ByPeter Okoed, Uganda

2010 I Issue 4 I 17

Fire Award

I 2010 I Issue 418

Fire Awards

BANKING SECTOR INSURANCE SECTOR

2010 FIRE AWARD:

ADJUDICATORS’

COMMENTS

Criteria Max Mean No.1 No.2 No.3

IFRS & Other Technical PronouncementsClarity of Statement of Accounting PoliciesClarity of notes to Financial StatementsSubtotal:Compliance with Cos ActBoard & Management ReportsPresentation of performance dataDesign, Layout & Visual AppearanceCorporate GovernanceCorporate Social & Environmental ReportingTotal Marks Awarded

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56997491174145124

811010101915452613173

7110109191085288157

8010101009845103139

ADOPTION OF IFRSSPROMOTED BY:

The Nairobi Stock exchange

The Capital Markets Authority

The Institute of Certi�ed Public

Accountants of Kenya

1st Jan 19981st Jan 19991st July 20041st Jan 2005

Perhaps?

Uganda Kenya Tanzania EU & Australia Canada 1st Jan 2011India & Korea 1st april 2011US 2015 or 2016

2010 I Issue 4 I 19

2010 FIRE AWARD:

ADJUDICATORS’

COMMENTS



90101011010151053020200

60997891044157127

851010105911542015169

7510109591575264161

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Criteria Max Ken Tan Ug


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INDUSTRIAL, COMMERCIAL & SERVICE COMPANIES

OVERAL WINNERS

Overall Winner

Winner Kenya

Winner Uganda

Winner Tanzania

Banks Category

Insurance Category

Industrial, Commercialand Services category

Category

CATEGORY WINNER

Standard Chartered Bank

Standard Chartered Bank

Standard Chartered Bank Kenya Ltd Barclays Bank of Kenya Ltd Kenya Commercial Bank Ltd

Jubilee Holdings Ltd

Kenya Airways

Pan africa Insurance Holding Ltd

Centum Investments

1st Runners upKASNEB RBS

2st Runners upInternational Livestock

UAP Insurance Company Ltd

Bamburi Cement Ltd

WINNERGertrude’s Children Hospital

Stanbic Uganda Limited

Swissport Tanzania

1st Runners up 2nd Runners up

The 2010 FiRe Award categories of Winners

Muramati SACCO Stima SACCO Ltdkenpipe Co-operative Savings and credit society LtdSACCOs Category

BANKING SECTOR INSURANCE SECTOR

2010 FIRE AWARD:

ADJUDICATORS’

COMMENTS



90101011010151053020200

62998091064176131

801010100914952616179

78101098911742111161

7810109891375208160



90101011010151053020200

56997491174145124

811010101915452613173

7110109191085288157

8010101009845103139

ADOPTION OF IFRSSPROMOTED BY:

The Nairobi Stock exchange

The Capital Markets Authority

The Institute of Certi�ed Public

Accountants of Kenya

1st Jan 19981st Jan 19991st July 20041st Jan 2005

Perhaps?

Uganda Kenya Tanzania EU & Australia Canada 1st Jan 2011India & Korea 1st april 2011US 2015 or 2016

I 2010 I Issue 420

Fire Award

2010 I Issue 4 I 21

I 2010 I Issue 422

Nairobi, November 25th, 2010: The Capital Markets Authority (CMA) and Nairobi Stock Exchange (NSE) have given approval for Kenya Power and Lighting Company’s Rights Issue, paving the way for the shareholders to participate in

the rights, that is expected to raise between Ksh9.5 billion.

At the same time, the company revealed that that the subscription price will be Ksh19.50 per share. The approval by market regulators comes after shareholders gave their unanimous approval for the Rights Issue at the company’s Annual General Meeting held on November 10th 2010, which also unanimously approved the company’s capital base restructuring. KPLC will issue 488,630,245 new ordinary shares at a rate of 20 new ordinary shares of each for every 51 ordinary shares held. The Board has also confirmed that the Register of Members of the Company will be closed at 5.00pm on 22nd December 2010 for the purpose of determining the Rights entitlement for each shareholder of the Company.

The company’s Managing Director & Chief Executive Officer Eng. Joseph Njoroge said: “We are delighted to have achieved the important milestone of regulatory approval for our capital restructuring and Rights Issue, paving the way for trading in shareholders’ Rights. We believe that the subscription price of Ksh19.50 per share represents good value for shareholders wishing to exercise their Rights, and we are confident that this offer will be well-received.”He continued, “The offer is not limited to the current shareholder. Since the Government has undertaken to renounce all its rights under the Rights Issue Offer in order to mitigate any short term dilutive impact of the redemption of the RPS on the holders of ordinary shares in KPLC these Government rights will be available to the public who wish to gain

the ownership of the company at the same offer price.” Eng. Njoroge noted that the company had strong fundamentals that would support its future growth adding that KPLC presented a solid investment options for investors. He said, “Investing in KPLC would be a great decision for investors. As a company the opportunities are enormous. We anticipate organic growth as the economic improves and as power demand increase.”

It is estimated that only 25 per cent of Kenyans are connected to the power grids leaving the national power utility company with close to 30 million Kenyans to supply power to. Funds raised from the Rights Issue will be invested in the refurbishment and further development of the power delivery system, in the endeavor to meet demands of an expanding economy. Targeted projects will help KPLC reduce losses in the system as well as enhance quality and reliability of power supply to all categories of customers throughout the country. The rights to subscribe for new ordinary shares are expected to commence on December 1 2010 and trading of the new ordinary shares paid in full at the Nairobi Stock Exchange on January 24, 2011

The professional advisors handling the Rights Issue include:

Dyer & Blair, transaction advisors and sponsoring stockbrokers•Hamilton & Harris Advocates, legal advisors•Equity Bank, Receiving Bank •rnest & Young, reporting•accountantsEquity Bank - Receiving Agents•Hill & Knowlton, Public Relations Consultants. •

Kenya Power & Lighting Company Managing Director and

Chief Executive Eng Joseph Njoroge (right) shares a light moment with

Dyer &Blair Chairman Jimnah Mbaru after the company unveiled the

subscription price for its Rights Issue set at Ksh19.50. The rights to subscribe

for new ordinary shares are expected to commence on December 1st 2010

and trading of the new ordinary shares paid in full at the Nairobi Stock

Exchange on January 24, 2011 and is expected to raise Ksh9.5 billion.

Fire Award

KPLC RIGHTS ISSUE PRICE SET AT KSH.19.50

2010 I Issue 4 I 23

This shows the bank’s commitment to transparency reporting to improve information flow on our economic performance, social

values and environment conservation. In

the Corporate Citizenship perspective, the companies are evaluated on such matters as corporate governance, social responsibilities and environmental reporting.

This has enabled the bank to be named

second runners up in the Best Bank Category in the Financial Reporting Awards 2010. This is an indication that KCB Group is improving its accountability and is more transparent having won this award in the Corporate Governance Category in 2006.

The regional award is given to promote excellence in Financial Reporting and corporate citizenship by organizations. It recognizes companies in the field of Insurance, Banks, Commercial and Services Sector; Small and medium Enterprises (SMEs) as well as Savings and Credit Co-operative Societies (Saccos). The ninth edition of the Excellence in Financial Reporting (FiRe) Awards had a record 90 institutions participating as was announced at the Kenyatta International Conference Centre (KICC) Gala Dinner on October 13, 2010. The FiRe Awards is a brainchild of the Institute of Certified Public Accountants of Kenya (ICPAK), the Nairobi Stock Exchange (NSE) and the Capital Markets Authority (CMA).

KCB Group is over 114 years old and is a strong regional brand with 215 branches in Kenya, Uganda, Tanzania, Rwanda and Southern Sudan. The bank has a vision to be the preferred financial solutions provider in Africa with global reach and targets to spread its footprint even further in the continent. The bank’s growth strategy leverage on Technology, Mortgage Products; YouthProductsaswellasSmalland Medium Enterprises (SME) and bottom-of-the-pyramid products.

Following the KCB Group’s third Rights Issue which raised kshs 12.5 billion, the bank has grown its assets (loans) potential from Kshs 163 billion to Kshs 251 billion while its liabilities (deposits) has grown from Kshs 246 billion to Kshs 380 billion. The bank has scooped several awards this year including the Banking Innovation Award of the year in 2009 for KCB Connect, Africa Investor SRI 30 CEO of the year 2010. At the Think Business Awards the bank scooped Best Bank in Product Marketing, Best bank in Technology use, Best Retail Bank, Best Bank in asset Finance and Best Bank in Mortgage Finance. The bank, through the KCB Foundation, supports needy community projects under five thematic areas namely Environment, Education, Health, Enterprise Development and Humanitarian Intervention.

KCB Group is incorporating international best practice in its financial reporting. The bank has widened the scope of its annual report and financial statements to include Sustainability Reporting, Corporate Social Responsibility, Shareholders value, good corporate governance, regional businesses and the operating environment.

KCB Incorporates Best Practice in Financial Reporting

I 2010 I Issue 424

Stanbic Uganda was the 2010 FiRe Award Winner Uganda

Stanbic Bank Finance Director Arthur Oginga

The Exchange Magazine interviewed Mr. Arthur Oginga, Finance Director Stanbic Uganda on this Achivement

Q What are some of the challenges that you face with regard to financial reporting being a bank with a regional presence?This is with regard to the various reporting frameworks and legislation that Stanbic Uganda must adhere to? Stanbic Bank Uganda Limited (SBU) is licensed as a bank in Uganda and listed on the Uganda Securities Exchange (USE). We are a subsidiary of Standard Bank of South Africa and have related banks trading in Kenya and Tanzania. In terms of reporting responsibilities, in Uganda we are primarily required to comply with the Financial Institutions Act (FIA), the Companies’ Act and regulations of the USE. We also have certain reporting requirements placed on our parent by their regulator, the South African Reserve Bank which we must comply with. In addition, the presence of licensed related subsidiaries in the US also places certain obligations

on SBU. With these myriad cross border reporting and compliance frameworks, the biggest challenges are around updating the skills of our people to remain current on frameworks for which training is not locally available and also ensuring that our systems are able to keep up with the ever increasing demands and changes. As an example the FIA prudential regulations in Uganda are framed around Basle 1 while South Africa on the other hand is on the Basle 2 framework meaning our prudential reporting is done twice albeit to different regulators. Thanks to the convergence process, we are however thankful that both Uganda and South Africa are both on IFRS which makes financial reporting straight forward.

Q Since the successful IPO on the USE, would you say that being a listed company has contributed to your success in FiRe? Listing on a public exchange comes with a host of benefits to the bank but also comes with heightened responsibility and accountability levels for our board and management as a whole new range of

stakeholders come into play directly and indirectly. As a listed company, the release of accurate and timely information is positively received and is one of the factors on which the company’s management is judged. It is also worth noting that Uganda was the first of the East African countries to adopt IFRS and the USE has been instrumental in the drive towards compliance. Our primary regulator, the Bank of Uganda also plays a big role in the financial reporting process of all banks and I want to believe that in addition to being the largest bank in Uganda, our listing on the USE, places us in the spotlight in that process. The listing therefore contributes to significant focus on the bank and therefore I am sure contributed significantly to the award.

Q This is the first time the FiRe Award has gone regional; is this a way in which regionalisation efforts can be enhanced with regard to standardised financial reporting? Will this assist the region?This is definitely a step in the right direction towards regionalisation. Positive peer reviews tend to lead to a raising of the bar across the board as everyone tries to improve

Fire Award

2010 I Issue 4 I 25

Stanbic Bank Uganda Finance Team

year on year. It is my hope that in future we shall see the professional bodies and regulators across the region joining hands to make this a truly East African award.

Q With regard to mobile banking, do you view the telecommunications sector as a possible competitor especially with regard to retail banking?We see the telecommunications sector as partners more than competitors. They have brought technology that allows the unit cost of delivery of certain banking services to be reduced significantly. This then allows the banks to access a market the traditional banking models were struggling to service profitably. The banks on the other hand together with the banking regulator bring to the partnership skills and resources that ensure a sound and stable financial market locally and intermediation to financial markets globally. It is a win-win partnership.Technology has over the years been changing the way banks do business and will continue to do so. The difference is

that significant changes are now coming through very fast. In order to remain relevant to our customers, it is important that banks are able to adopt the changes as quickly as they are emerging without lowering our risk management standards. I think that is our biggest challenge given the highly regulated environments within which we operate. Achieving financial inclusion is a key ambition of many retail banks and technology plays a big role in achieving those ambitions. I am therefore optimistic that banks will be able to find the right balance to secure their future.

Q How is Stanbic Uganda positioned to take advantage of the East African Common market protocol?Stanbic Bank Uganda is a universal bank offering a wide range of products and services to both retail and corporate customers. As mentioned before we are the largest bank in Uganda and are a subsidiary of the largest African bank. In East Africa we have representation through the presence of fellow subsidiaries, CfC Stanbic Bank in

Kenya and Stanbic Bank in Tanzania. Our customers are therefore able to receive a seamless service throughout Uganda, Kenya and Tanzania. Our successful presence in the region since 1923 means that we have a sound knowledge of the local markets while our parent and related subsidiaries provide us with a network that facilitates international cross border transactions smoothly.

Being the bank with the largest capital base in Uganda and given our ability to quickly draw on skilled and experienced staff from any of our related East African banks, and in the wider Standard Bank Group, we believe we are well positioned to service the needs of the residents of East Africa. In this regard, the presence of oil in Uganda places the country uniquely within East Africa and Stanbic Uganda is appropriately positioned to play its role in the process of transforming lives in Uganda and the region by extension.

Fire Award

I 2010 I Issue 426

2010 I Issue 4 I 27

1

Available for D

ownload on

ww

w.africansea.org

I 2010 I Issue 428

There are numerous sectors showing growth and promise - notably construction, agriculture, tourism, and Information Communication Technology (ICT).

The largest single investment in Rwanda to date is ContourGlobal’s $325 million Kivuwatt project, which will be the first large scale facility to extract methane gas from Lake Kivu.Once complete, the project will see at least 100MW of electricity which is expected to be channeled to the national power grid and also supplied to other countries in the region.But Rwanda’s current huge infrastructure gap particularly in areas of energy where access is currently at 6 percent and high transport costs continue to dampen private sector productivity and constraineconomic growth. Rwanda’s electricity cost, $0.24 per kilowatt

is the highest in the region, limiting industrial growth and investment.

Electricity costs make up 12 percent of the average monthly costs negatively affecting exports and manufacturing businesses to compete with manufactured imported products.“Youcanhavetheregulatoryframework,policy environment very attractive but the fact is that investors have many countries that they could choose to go to and they see many opportunities. What would make a particular economy extra ordinarily attractive would be much more than just the basics,” Obiageli Ezekwesili, Vice President for the World Bank’s Africa Region told The Exchange recently during a visit (November) to the country. She was in the country to help catalyze support for increased investments in Rwanda’s private sector. The Vice President underscored that

addressing these gaps is critical to raising the country’s potential to attract private investment that the country so badly needs to sustain economic growth and reduce poverty.

Development experts say Rwanda needs to sustain a growth rate of at least 8percent in order to lift millions out of poverty and achieve Millennium Development Goals (MGDs). Despite the impact of the global financial crisis, Rwanda maintained a positive economic growth of 5.5 percent last year, though growth this year is expected to rebound to 7.2 percent. Referring to creating an enabling business environment as a basic, Ezekwesili challenged government to focus on making the country more competitive for investors beyond what has been achieved so far, as highlighted by the World Bank’s Doing Business report. While Rwanda has demonstrated that it

Rwanda’s Huge Infrastructure Gap limiting Private Sector GrowthWith an average Gross Domestic Product (GDP) growth rate of 8 percent (1998-2008), ranked among the top global reformers (ranked 2nd 2011 World Bank “Doing Business” Report), recognized by Berlin based Transparency International global corruption watch dog as among most transparent countries in Africa, Rwanda has been a magnet to investors.

Rwanda Infrastructure Gap

By Berna Namata

2010 I Issue 4 I 29

is transforming itself to be the preferred investment destination through sustained commitment to reforms, the Vice President stressed that bridging the infrastructure gap will be critical to attracting investors.

“Investing in infrastructure to reduce the cost of doing business whether it is in energy, water, in roads, in basic systems that any private sector would like to have in order to do its work -is going to be a critical part of competitiveness,”Ezekwesili said. According to The World Bank, the estimated cost of bringing sub-Saharan Africa’s low-income countries’ infrastructure up to the level of other low-income countries and maintaining it ranges from 10-30 percent of current Gross Domestic Product (GDP).To bridge the infrastructure gap, in the financial year 2010/2011, government allocated Rwf 77 billion to infrastructure specifically for the energy sector programs including scaling -up access electricity programmes in both urban and rural areas. At least 65,000 households are planned to get access to electricity in the 2010/11 financial year.Rwf98billion was earmarked for the transport sector to facilitate among others the rehabilitation and extension of several roads including the Kigali-Ruhengeri Road, the Butare-Cyangugu Road and Kigali-Gatuna road. “We need to address issues related to lack of infrastructure, lack of skills and a growing balance of payment deficit not only to ensure prosperity for all but also to reduce our dependency on external aid,” John Rwangombwa, Rwanda’s Finance Minister told Parliament in June while presenting the budget for the financial year 2010/2011.

Rwanda’s infrastructure Minister, Vincent Karega, says his government is fast-tracking and fine tuning various infrastructural projects to address issues related to infrastructure to facilitate the business community.“Even people in America are still working on infrastructure- we have a bold plan in the next 7 years to generate electricity, do an additional 600km of tarmac road and aim at maintaining all existing murram roads to ensure more easy circulation of goods and people,” he says. Karega also points out that Rwanda will also continue to push for regional (East Africa) infrastructure projects such as railways and a petroleum pipeline to address its infrastructure gap. Citadel Capital, an Egyptian private equity company with 49 percent stake in Sheltam Railways Company (the largest single shareholder and lead investor in Rift Valley

Railways of Kenya and Uganda), earlier this year said that it is willing to connect Rwanda to the existing railway network from Kenya and Uganda, in a move that would greatly reduce the high transport costs incurred in trade.The 1,400 kilometer (870-mile) railway connects Uganda to the Indian Ocean Port of Mombasa in Kenya. With the development of rail and road infrastructure in the region, Rwanda would significantly reduce the current high costs incurred during trade as a landlocked country.

Currently, the Northern Corridor, which is the transportation route for 95 percent of Rwanda’s imports and exports, has dilapidated infrastructure.

Plans to build a new airport to be located south of Kigali City, in the sparsely populated Nyamata district, in Eastern Rwanda, is in advanced stages that conforms to international standards, Rwanda has the capacity to turn into an East and Central African gateway.Despite the infrastructure bottlenecks, the Infrastructure, Minister says private sector investment in by both local and international investors in the country has been steadily growing. Rwanda managed to attract USD$600m In 2009 worth of Foreign Direct Investment (FDI) while total registered investments, both local and foreign, had reached an all time high of more than US$ 1.1 billion.

However, the Minister underscores that more private sector investment is needed to reduce Rwanda’s dependency on external aid. “We believe this investment in infrastructure will boost private investment,” he says. While currently government has heavily invested infrastructure, the Minister underscores that his government is keen to involve the private sector through Public Private Partnerships (PPPs) for instance by the development of the new airport which is estimated to cost USD $ 635 million including equipment and installations .The government has already recruited PricewaterhouseCoopers as a transaction advisor to mobilize the

Rwanda Infrastructure Gapprivate capital to invest in the project.

A British engineering company, TPS Consult, is working on a detailed design. The airport is expected to be complete by 2015. “In the long run (7 years ) with the investment infrastructure we expect 50% of Rwandans to have access to electric energy, all industries and businesses being connected to reliable energy at a reasonable cost, 100 percent Rwandans accessing clean water and transport and the movement of goods and people to be much easier than it is today,” the Minister says. Recognizing the huge infrastructure gaps in sub-Saharan Africa, early this year, the International Monetary Fund (IMF) approved new programs for four African countries including Rwanda, Uganda, Tanzania and Mozambique under the Fund’s Policy Support Instrument (PSI). According to the Fund, all the four countries face critical infrastructure gaps, including in the energy and transportation areas.The Fund says addressing those gaps is a central objective of their recently-approved PSI-supported policy programs. Each aims at roughly maintaining higher levels of investment spending achieved in recent years, buttressed by fiscal and structural reforms and the maintenance of a stable macroeconomic environment. PSI focuses on macroeconomic and structural policies to facilitate a scaling up of infrastructure spending, critical for enhancing growth and maintaining momentum toward achieving the MDGs. “They are also an obstacle to getting out of poverty,” says McAuliffe Catherine, IMF Mission Chief for Rwanda. While the Rwandan government has also already embarked on bridging the infrastructure gap, the Mission Chief notes that the central objective of the recently approved IMF program for Rwanda -PSI, is to ensure that the higher levels of investment spending achieved in recent years are maintained.“The key is to ensure that the borrowing does not endanger fiscal and debt sustainability,” she says.

The Mission Chief points out that Rwanda, like many countries in the Sub - Saharan region has to explore alternative sources of finance to bridge the gap in infrastructure funding.“Many of these financing sources are new to countries like Rwanda and they need to consider all the benefits and risks of the financing options.” Under the PSI program, government is allowed to source non- concessional borrowing capped at USD $240 million tied to two specific projects; Kigali Convention Center and RwandAir, the national courier.

in Eastern Rwanda, in advanced stages that conforms to international standards, Rwanda has the capacity to turn into an East and Central African gateway.

I 2010 I Issue 430

the 2010 nse investment

challenge

What is the NSE Investment Challenge? Uon University of Nairobi - Main, Region Nairobi regionCash Prize Ksh. 10,000

The winning team is determined based on their portfolio value (50% of the marks allocated), their research and basis for investing (30%) and their participation in the discussion forums (30%). Speaking at the NSE Investment Challenge, the NSE Chief Executive noted that, “The NSE recognizes the potential of this simulated platform is an effective mechanism to initiate the youth into investing from an early age. The Investment Challenge is an innovative delivery channel with wide reach, as participants are able to access the game portal through their mobile phones.”In future, the NSE plans to broaden the competition to include investment groups as well as a bond trading simulation platform.

PROUD SPONSORS

The NSE Investment Challenge is an edutainment initiative, which through a simulated stock market environment, enables participants to gain practical experience in investing. In 2010, the number of institutions visited country wide numbered 62, including technical schools and universities in Kenya. The number of students who registered for the challenge this year numbered 1,126. NIC Securities sponsored the NSE Investment Challenge Award ceremony and cash prizes. The 2010 NSE Investment Challenge Award ceremony, which marked the culmination of the competition which had run for 3 months, from June 2010 to August 2010, was held on 6th October 2010. The winners in this year’s investment challenge are in order of ranking; 1) Brief & Smart Overal Winners Daystar University - Athi, Region East Of Nairobi Cash Prize Ksh. 40,000

2) Karanja H.K 1st runners up KEMU Kenya Methodist University - Athi, Region Nairobi Region Cash Prize Ksh. 30,000

3) Medal 2nd runners up

The NSE Investment Challenge is an edutainment initiative,

which through a simulated stock market environment, enables

participants to gain practical experience in investing.

Juliani NSE InvestmentChallenge Youth Brand

Ambassador

2010 I Issue 4 I 31

the 2010 nse investment

challenge

A word from Smart Youth Limited

Investing your money for the future has now become as important as getting an education. However when it comes to Investing, we do not learn it in the classroom. We do not learn to walk, to ride a bicycle, or to drive a car by talking about it. We learn about it by practice

and failure and more practice and failure until success is achieved. Likewise we learn about investing in the Nairobi Stock Exchange (NSE) by actually investing our incomes / savings. Research has shown that the least effective way of learning is by reading and lecture and that learning is best understood by doing or simulating the real experience. (Source: Code of Learning adapted from (Dale, 1969).Most of us shy away from investing in the NSE due to various beliefs such as lack of past experience in investing in NSE; fear of making losses; investing in

NSE needs a lot of money and so on.

The beauty of the NSE Investment Challenge is that young investors should get to learn about investing in the NSE through simulation of the workings of the real NSE. The lessons learnt will be a stepping stone for the youth to invest their savings in the NSE. This is the second time that we are running the competition having started in 2008. WeatSmartYouthInvestmentsLtdwillcontinueto create such opportunities for the youth to learn about investing. We are grateful to the Nairobi Stock Exchange for allowing us to be part of their investor education campaign. We are also grateful to NIC Securities for sponsoring the investment challenge. As the founder of the Investment Challenge, I am forever grateful to the young students in universities and colleges who took up the opportunity in 2008 & 2010 to learn investing in a practical way. It has been a learning experience for me as well and I wish I had gotten this kind of edutainment while I was in university, I would be much wealthier than I am today. I wish all the students a great and edutaining experience in future competitions and I would want to see all of you investing in the real NSE soon. This is a great opportunity for the youth in Kenya to take up such learning opportunities as There is nothing more POWERFUL than an IDEA whose TIME has come.SmartYouth.SmartInvestmentsCatherine Gitonga.

Comparing us before and after the challenge, we can confidently say that we have become

wiser and that we have learnt more about what happens in the stock market. Though we

still have a lot to learn, we consider ourselves better off than most of our peers whom only

hear about investing in the Stock markets. The challenge has given us insight and has been

of much help to us as future investors. We can now proudly say that we can make our future

investments decision wisely and make informed decision using information available.

The winning strategy

We used multiple strategies based on our previous experiences, these included analyzing

the companies we were targeting to buy shares from, learning more on the internet.

However, the most outstanding one we used was market timing, where we usually

sought to buy low and sell high. Worth noting also is the fact that your confidence,

own instinct and perceptions when making the decision is very critical. This worked for

us on some stocks and failed on others. It took commitment and effort of every team

member to win the challenge. Our team worked as a unit and the most instrumental

thing was the allocation of duties and responsibilities and effective communication.

We wish to encourage our colleges and peers, that in future take up the challenge

and you will learn a lot, however Brief and Smart is still on and our target is

to now remain as winners, but with even greater percentage return.

WethanktheNSEandSYIforthewonderfull

earningopportunityprovided,andto

our team leader Martin Wambua for the leadership he accorded the team, to the

rest of us Congratulations! We made it, however we should be focused to making

it big in the real market as we look forward to the next Investment Challenge.

Some Brief and Smart Facts

TheteamcomprisesofMARTINWAMBUAKIILU,MARTINMBAYAMUTHURI,

•ERICMUNDARAMUNANU,MICHAELMUATHANYAMASYO

They registered a portfolio value of Kshs. 1,897,218 over the initial capital of Kshs. 1 million

•This is an 89.4% three month period return on their investment.

•

The winners perspective“The NSE Investment Challenge was quite a great experience for

us; we first learnt about the challenge in 2008, when it was first

held. This was through radio and posters that were on our school

notice boards. The decision to take part in the challenge was on an

individual level as we were in different teams. However this time,

we considered pulling together our and forming one team. For the

sake of continuity, we choose to identify with the original name

Brief and Smart. The team of comprises two founder members

from the original Brief and Smart team; these are Martin Wambua

and Michael Muatha. We have had a great experience and actually

enjoyed participating in the two challenges. Not only has it been a

source of entertainment for us, but it has also offered key learning

experiences that we would not have gotten without participating

Allen Mbindyo, General Manager NIC Securities (Center)

Flanked by Juliani and winners Brief & Smart

Catherine Gitonga,SYILpresentsthewinners

plaque to the Brief & Smart

Last Pen

Current scenario Africa accounts for only 2% of listed firms as compared to other global markets. 75% of these listed firms , representing a total of more than 842 companies, are listed on the exchanges in Egypt, South Africa and Nigeria. These markets are amongst the biggest in Africa based on market capitalisation. Africa as a whole accounts for approximately 2% or over USD$ 1,144.23 billion of the entire global market capitalisation. The Americas has the largest market capitalisation at approximately USD$ 20,147 billion as at September 2010. Approximately USD$ 246 billion worth of bonds were traded in the bond markets in September 2010 in Africa as compared to USD$ 1,798 billion worth of bonds traded in Europe and the Middle East. The Americas region traded 51% total value of shares in the markets reviewed – Africa accounting for only 0.65% at approx USD$ 32.5 billion.

Challenges to integrationBased on a macro-perspective, the greatest hindrance is the differences in political and macroeconomic setups of the various African countries. Cultural barriers and pro-nationalistic sentiments tend to undermine integration efforts.There are also factors that are Africa specific. The most significant is the fact that many stock exchanges are relatively young, therefore are still grappling with the consequences of the need to demutualize. Further, with innovations in ICT, and the new demands regarding corporate governance, a number are still quite far from this stage. Another factor is there poses significant risks and uncertainty factors in the form of clearing risks within some exchange operations. Some exchanges have manual trading and settlement infrastructure that limit instant trading ability that modern markets demand.

Opportunities with integrationHowever, needless to say, there are opportunities abound with integration. From the onset, integration will enhance competitiveness through effective integration over national borders. Investors will enjoy high liquidity and efficient trading through common trading systems, harmonized trading rules, in the African markets.Integration will also facilitate the implementation of responsible investment strategies and increase the focus on environmental, social and governance (ESG) issues in Africa, which would boost the attractiveness of the region as a whole. Increased trading activity will definitely drive the revenues and operating incomes of the stock market as a whole, enabling deeper investment into capital expenditure in the trading and settlement mechanisms. Integration will enhance the ability to develop specialized products and markets for specific ‘sustainable investments’ such as carbon trading and clean technology. The realistic approachGiven the challenges, the likely route would be to start by integrating the regions, such as the East African Securities Exchanges Association (EASEA). The improved performance under an integrated structure at regional levels will serve to push the wider integration programme. Integration will generate even more opportunities to position Africain the global area and, accordingly, is also important for thedevelopment of the financial markets. It may provide an opportunityto restore some confidence, perhaps offer more transparency and a focal point for investment activity.It is easy to dismiss the African Market Integration as a pipe dream. But one need only look at the progress that has been made through various regional integration organisations such as EASEA (mentioned above) and others such as the Committee of SADAQ Stock Exchanges , COSSE. Integration is possible, we just have to take it one step at a time.

The Opportunities and Challenges in Integrating African Exchanges

By Peter Mwangi, Chief Executive, Nairobi Stock Exchange

2010 I Issue 4 I 33

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