EA Stock Exchange still a dream.

Expectations that the three East African countries, Kenya, Uganda and Tanzania would set up a single Stock Exchange before the end of the year have so far come to nothing. Barrack Otieno reports on the efforts going on to make this dream come true.

Hopes of a single East African stock exchange before the millennium have failed. Although the Kampala Securities Exchange was established in January 1998, its first initial public offering of an equity, Uganda Clays, only came to market in November 1999. Tanzania launched its stock exchange in April 1998 almost a year late, but it was hoped that the East African Stock Exchange could be established by June 1999.

But it has not happened and hopes of its establishment any time soon are fast disappearing. When representatives of the Nairobi, Uganda and Dar es Salaam Stock Exchanges met in Nairobi, at the end of March 1998 they resolved to make the establishment of the East African Stock Exchange a top priority. There followed excitement that the body would be in place before the end of 1999 at the latest.

Immense benefits

The meeting, attended by more than 100 delegates from Kenya, Uganda, Tanzania, Nigeria, Eritrea, the Democratic Republic of Congo, Ethiopia, South Africa and India, attempted to identify the capacity and potential of the East African Stock Exchange including the future challenges posed by an integrated stock exchange.

The argument went that when fully operational the three stock markets would be inter-linked through multiple listings and cross-border trading arrangements which would enable domestic firms gain access to a much larger pool of external funds by issuing securities in markets other than their own.

In spite of the immense benefits of an East African Stock Exchange, many challenges remain untackled. Clearing and settlement standards remain diverse and must be unified to ease cross-border trading. But the biggest challenges are the harmonisation of policies on foreign investment, taxation of capital transactions and an absence of political goodwill.

Currently Tanzania refuses to allow foreign ownership of listed companies, Uganda has not made a decision on foreign ownership rules and Kenya limits it to 40% of the listed company.

Exchanges too small

The chairman of the Nairobi Stock Exchange, Jimnah Mbaru, has been striving to develop stock markets throughout Africa under the auspices of the African Stock Exchanges Association (ASEA) since 1993. He maintains that there are several reasons for connecting exchanges. Those exchanges that exist are too small in capital, with low volumes of trade and a comparatively small number of listings, make them unviable. Integration would boost their business and cross-listings would increase liquidity and have a spin-off benefit of restraining national political overzealousness.

The Uganda Securities Exchange, up until the flotation of Uganda Clay, offered only one financial instrument for trading - a bond issued by the East African Development Bank. The Dar es Salaam Exchange had another single listing, the government-owned Tanzania Oxygen Limited (TOL), bringing the market's total capitalisation to about $10m, one of the world's smallest.

Even the Nairobi Exchange is not noted for its dynamism. Opened in 1957, one of the continents first exchanges, its current capitalisation hovers around $1.7bn for the 50 or so stock listed. In recent year's, as political and economic troubles have eaten away at Kenya's international reputation foreign investment in the market has shrunk and daily turnover is negligible.

All suffer from liquidity far below the average emerging market. Compare these exchanges with that of Thailand which has 397 listed companies and a market capitalisation of about $43.4bn. The Johannesburg Stock Exchange, the largest in Africa, has a market capitalisation of $240bn our of Africa's total of $270bn. The remaining $30bn is shared between 19 bourses scattered around the continent.

Nearly all them had been established in the last decade. The JSE is looking towards a regional South African Development Community (SADC) virtual exchange, grouping the bourses of the other 14 SADC members in an economic pact. In essence they would be grouped in a single African trading screen, making it easier for foreign investors to buy shares.

With this kind of scenario, the Uganda and Tanzanian markets are of little consequence and are under pressure to integrate.

Already there are such integrated markets. The Abidjan stock market was established in 1976 but shut its doors when a regional stock market, the BRVM, began operating in 1998. The Bourse des Valeurs Mobilieres (BRVM) serves Francophone West Africa and has eight members. Of course these states had already moved further along the road to economic union.

Similarly the six Central African states - Cameroon, Central AfricanRepublic, Chad, the Peoples Republic of Congo (Brazzaville) and Gabon - which had for a long time shared a common currency, the CFA franc, are gradually moving towards economic union. They are contemplating establishing a joint stock exchange but this has been hampered by where it should be sited.