Kenya has always been one of the most attractive locations for capital markets in Africa. The development of a capital market in Kenya has been conditioned by the need for funds in the private sector and the structure of the economy, rather than by the government’s need to borrow locally. Public investment prior to Kenya’s independence late in 1963 was modest, and its financing was mainly through foreign borrowing and grants—hence, the minor role of the government in spearheading the growth of the capital market. After 1963, demand for capital grew considerably. The presence of European and Asian communities with their relatively higher incomes and familiarity with the intricacies of security transactions provided a stimulus for the establishment of capital markets. This is why, historically, Kenya has become one of the leading countries in Africa with efficient capital markets.
However, Kenya’s capital market has encountered a couple of difficulties lately. And this is because its stock market has been struggling since last year. The Kenyan bond market remains quite solid, but its stock market is making its capital market shaky. Indeed, foreign investments in Kenyan stocks have nosedived. In March, the Nairobi Securities Exchange (NSE), east Africa’s biggest bourse and Kenya’s only such institution, recorded a six-year low of 30.1% in foreign investment.
Last year, foreign investors pulled out $170 million from the Kenyan stock market, citing global risks. This worsened the plunged in share prices of NSE-listed firms, especially commercial banks. Telecom major Safaricom, NSE’s biggest scrip by average capitalization, lost 36.4% of its value, adding to foreign investors’ fears. Usual top performers like Equity Bank, Kenya Commercial Bank, and Co-operative Bank of Kenya, all recorded share price devaluation. Between January and September 2022, Kenyan investors lost $6.37 billion as NSE-listed firms’ share values plunged 28%. This was triggered by a reduced appetite for African capital markets, following a hike in interest rates in developed markets like the United States. As a result, central banks in African countries were forced to adjust interest rates upwards, amid weakening local currencies and rampant inflation.
While the Kenyan economy is fine overall, the Kenyan stock exchange has not yet fully recovered from its stock market crisis when droughts, food insecurity, and rising inflation struck. The Kenyan stock market right now does not look appealing to investors, but let us not forget that nothing last forever. Kenya remains one of the epicenters of capital markets in Africa and its stock market will rise again.