How tech can revitalise bourse, end IPO drought

President William Ruto at a panel discussion during the launch of the Nairobi Securities Exchange (NSE) Marketplace on October 11, 2022. PHOTO | DIANA NGILA | NMG

President William Ruto has revealed plans to privatise up to 10 parastatals over the next one year as part of efforts to raise revenues through the capital markets.

When he spoke, the President looked back to the drought in initial public offerings (IPOs) at the Nairobi Securities Exchange (NSE) in the past few years and listed some policy interventions the State was going to take.

These included the establishment of a State department for investment promotion, the floating of a dollar-denominated bond and a review of privatisation legislation. These and other interventions will be deployed on the back of a digital investment whose aim the President said would be to empower and enable young people to access global markets.

On the one hand, the government has identified crucial factors that have hindered the churn of successful IPOs at the NSE since the government offloaded 25 percent of its stake in Safaricom 15 years ago.

This includes low level of retail investor participation at the bourse and general apathy by several institutions in both the private and public sectors to list despite checking all the boxes required.

These challenges have been central to the under-performance of the Nairobi bourse subject to other exchanges in comparator economies and have been a moving target for previous administrations.

The latest statistics from the Capital Markets Authority (CMA) indicate the top five companies account for more than 75 percent of the value on the NSE. Market concentration has consistently risen in the past two decades and has further alienated retail investors and other companies that seek to list.

This is despite repeated campaigns and efforts by the CMA and NSE such as the creation of the growth and enterprise segment (GEMs) 10 years ago.

The government's latest remedies for revitalising the NSE will, thus, require a more targeted and sustained approach to ensure the buy-in of both individual and institutional investors.

One of the quick wins is to ensure that the current digital platforms created to aid service delivery in the private sector are mobile-first. This will incentivise more Kenyans to opt-in and participate.

A good example is M-Akiba, the mobile investment platform launched by the National Treasury and Central Bank of Kenya (CBK) a few years ago.

M-Akiba could be optimised to serve a big part of the needs expressed by President Ruto last week, such as demystifying capital markets products and boosting retail investor participation.

Several key platforms and government websites are not optimised for mobile and this has put off investors who would have opted to participate.

Platforms like eCitizen and iTax have massively lessened the burden previously experienced by Kenyans in search of public documents.

One report estimated that the Kenyan government saved up to Sh30 billion in compliance cost savings through the digitisation of public services in four years.

However, these platforms are plagued by routine system crashes with some government websites having little or no optimisation for mobile users. This is despite the fact that the mobile phone is the principal device majority of Kenyans use to log onto the Internet.

Future interventions aimed at improving investor participation at the Capital Markets should primarily focus on easing the customer journey and removing as many bottlenecks as possible.

Developers can also gamify some of the features to appeal to an increasingly digitally-native audience. One of the reasons sports betting is so popular and addictive to some is the use of gamification by the many apps and websites that provide the service.

There are some lessons to be learnt from the success of investment apps such as Robinhood in the United States that have drawn out more retail investors to participate in the capital markets regardless of their level of financial knowledge.

Countries like Estonia, with which Kenya signed an MOU last year, have also demonstrated how direct and consistent efforts to digitise government services can be transformative if done well and with the buy-in of the citizenry.

The writer is the chief executive of Maudhui House. Email: [email protected]

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