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Kenya's push for privatization could significantly boost its stock market

The government of Kenya recently engaged in a spree of privatization, privatizing nearly 35 state-owned enterprises. However, the privatization process of these state-owned enterprises was not submitted to the Kenyan parliament.

President Ruto bypassed the legislature to implement this privatization law through executive order. The government argued that the amended law, enacted in October 2023, will eliminate bureaucratic hurdles and expedite the privatization process.

Among these 35 state-owned enterprises to be privatized are the Kenya Pipeline Company and the Kenyatta International Conference Center (KICC). The latest successful privatization in Kenya was that of Safaricom in 2008. It is undeniable that privatization, no matter how small it could be, has always produced optimal results wherever it was tried. The Kenyan government argued that private ownership can lead to increased efficiency, reduced corruption, and improved profitability in state-owned enterprises (SOEs). This could boost tax revenue for the government and potentially lower prices for consumers. Moreover, privatization will reduce the fiscal burden. As Kenya’s debt has been rising, the government hopes privatization will generate income to help manage it.

One of the massive benefits that privatization exerts over SOEs which could eventually become publicly-traded companies is that private ownership leads to more efficient operations and improved profitability in SOEs. This translates to higher share prices and increased dividend payouts, attracting more investors and improving market liquidity. Thus, increased competition in privatized sectors can further enhance market efficiency, leading to more accurate pricing and fairer transactions.

One of the options that the amended law provides for privatizing state-owned enterprises is to list them on the stock market through IPOS. Privatized SOEs become publicly traded companies, adding new listings to the Nairobi Securities Exchange (NSE). This increases the variety of investment options available, attracting more investors and boosting overall trading activity. Privatization often involves breaking up large SOEs into smaller, more dynamic companies. This further expands the number of listed entities and creates opportunities for specialized investment strategies.

The Kenya Pipeline Company, which manages the country’s national oil and gas pipeline, is especially attractive to NSE investors. KPC posted a pre-tax of $40 million for the year ending June 2022 on total revenues of $170 million and total assets of $840 million, as per its most recent report. This makes it one of the most lucrative and valuable public enterprises in Kenya, hence the keen investor interest.

A diverse and growing stock market with strong underlying fundamentals becomes more attractive to foreign investors. This can bring in fresh capital, boost confidence in the Kenyan economy, and further drive up share prices. The planned privatization of the national airline could potentially attract strategic investors and improve efficiency, making it more competitive and potentially profitable.


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