With Kenya keen to exploit institutional investors’ appetite for greater asset allocation in Africa (as the market shifts from speculation to sustainable, long-term, strategic investment), the Capital Markets Roundtable on 3 August formed part of a series of events held during the 2012 London Olympics (including the Kenya Investment Summit on 31 July) designed to focus global attention on the country’s investment potential.

Under Kenya’s wider Vision 2030 Development Plan – predicated on the country achieving sustained economic growth of at least 10% per annum from 2012 and beyond – long-term development is achievable, the government believe, through major infrastructure opportunities for domestic and international investors.  Credible and transparent capital markets will clearly be crucial to this, and establishing the country as an ‘International Financial Centre’ and ‘Deepening of capital markets’ constitute two flagship projects under the Kenya Vision 2030 strategy.

Outlining current and future opportunities for international investors, Peter Mwangi, Chief Executive, Nairobi Securities Exchange (NSE), came straight to the point: Why should investors be looking at Kenya now?  Primarily, he believes, because it offers excellent value, with many of the country’s Blue Chips trading at P/E ratios below those of their respective sectors, and many delivering dividends in excess of three per cent.  On-going market reforms, moreover (including automation of the trading system, stringent capitalisation and disclosure requirements, and the adoption of a standard stockbrokerage platform) are expected to result in the eventual demutualisation of the NSE.  The past 12 months, in particular, have seen the establishment of a mid-cap market based on the London Stock Exchange’s AIM model (the ‘Growth and Enterprise Market Segment’), and late 2012 is expected to see the launch of the FTSE NSE Treasury Bond Index – a major first in the region.

There are more tangible benefits for investors, as Paul Muthaura, Acting Chief Executive, Kenya Capital Markets Authority was quick to point out.  CGT is zero-rated, and interest income from infrastructure and social services bonds (three-year maturity) is tax exempt – as is interest on ABSs, investment income in pooled funds, and investment income in a venture company during its first 10 years.  Dividend income, moreover, is taxed at just 10% and interest income at 15% (withheld at source).

With Europe and the mature markets continuing to stall, investors are having to look further afield – even beyond the ‘emerging markets’ and the BRICs.  Kenya’s initiative is a clear attempt to create the transparency that investors demand, in a market that could, ultimately, deliver the long-term growth that investors are seeking.