I spent some time this month speaking to Ondieki, a kiosk owner, about what he was hearing from his customers and translating our chat into capital markets insights and potential opportunities.
We started with the pain point for most Kenyan households; a packet of maize meal flour (unga), which has shot up from about Sh180 to a high of Sh240 this year.
Grinding their maize at the posho mill instead of buying factory-processed unga is working out to be cheaper.
Ondieki says customers are not buying established brands of unga, instead going for cheaper, unknown names that have come into the market this year due to the drought.
“Hakuna pesa (there is no money)”, Ondieki notes his customers say. “Hii economy ni mbaya (this economy is bad.”
They also take longer - up to two weeks from seven days previously - to pay for the goods they took on credit.
The interest rate globally – the price of money - has been on the rise- a response to the rising prices of fertiliser, energy, and wheat caused by the Russian-Ukrainian war.
Businesses are also spending more dollars to import these commodities.
Central Bank of Kenya raised the rate at which banks can borrow from it – the Central Bank Rate - by 0.5 per cent to 8.75 per cent.
Lending institutions will pass this cost to customers, and the dollar demand has been good business for banks.
Most listed commercial banks are reporting increased earnings from foreign exchange trading.
Unlike Ondieki, many commercial banks have noted increases in repayments and recoveries, made provisions for non-performing loans, and have seen credit demand increase as the economy recovered from the General Elections lull.
Even though commercial banks have seen their profits increase and resumed dividend payments, they are still trading at attractive discounts on the Nairobi Securities Exchange.
Foreign investors have exited frontier and emerging markets due to a flight to the relative safety of the US dollar, driving the share prices lower.
Ondieki’s bank - Equity Bank – introduced payment from the M-Pesa till to the bank account. Customers key in Ondieki's phone number and then make the payment.
The kiosk owner has displayed this number all over his shop. This month Equity Bank Group reported a 15 per cent growth in customer deposits of Sh1,007.3 billion to surpass Sh1 trillion for the first time in the history of the group.
Ondieki owned shares in Equity Bank but sold them during Covid – when economic activity came to a standstill.
He is mulling returning to the stock market when things get better. There is hope that the price of unga will come down in 2023.
As supply constraints are addressed fertiliser prices will come down, and the current short rains will bring some relief.
The negotiations President William Ruto is deploying with our neighbours – Uganda, Tanzania, and Ethiopia should allow food imports to come into the country.
And as government emphasis moves to local food distribution and production, some of the biggest beneficiaries will be companies in the industrial and commercial sectors of the NSE.
Carbacid Investments, the NSE-listed carbon dioxide manufacturer – stated that it is looking to go big in the food business.
It already produces carbon dioxide used in carbonated soft drink production. As food distribution and storage across the country and Eastern Africa region increases – one of its products – dry ice – key in keeping food refrigerated in transit will grow in demand.
Ondieki has noticed at least the uptick in carbonated drinks.
Next year might be when retail investors such as Ondieki start warming up to the NSE again. In October, President William Ruto committed to privatising six to 10 companies in the next year through the stock market and urged the private sector to list at least five firms.
Geoffrey Odundo, the CEO of the NSE, has said that Credit Bank received board approval to list its shares on the exchange without raising capital, a process called listing by introduction.
He also said BioFoods – the manufacturer of milk, butter, cheese, cream, and yoghurt, is exploring a listing.
As we enter the festive season, reminisce about the year and ponder investment opportunities in the next, consider equities listed on the NSE - accessible investment assets for high inflation, high-interest environment.
With as little as Sh100, one can open an account with a stockbroker and trade. For those looking for a bargain, the current discounted prices mean some counters provide dividend yields of up to 13 per cent and capital gains when their prices eventually recover.
The writer is the managing director and head of equities at EFG Hermes Kenya.
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