The onset of Covid-19 brought numerous economic challenges to the region. Significantly affected are the barometers of the economy which are mainly the securities markets as well as money markets. The manner in which these two react clearly depicts where the economy is headed. When Covid-19 descended on the region, the regional markets were the first ones to show, responding to the decline of global shares in known markets like New York Stock Exchange, London Stock Exchange and similar markets in Europe, Asia and Africa.
In East Africa, the main markets are Nairobi Securities Exchange (NSE), Dar es Salaam Stock Exchange (DSE), Uganda Stock Exchange (USE) and Rwanda Stock Exchange (RSE). The NSE and DSE are both automated while the USE and RSE are still manual using the open-outcry trading system. Unlike the other three Partner States, Uganda also has an over-the-counter-market (OTC) for government bonds though the same bonds are also listed on the USE.
In this period, major companies trading in these markets have shed huge margins of their wealth as investors either sell what they have or are shying away from investing in new shares. The bear run is expected to continue for some time now or at least when the economies of the region can hold off on the effects of Covid-19.
The money markets have also shown significant loss with regional currencies losing ground against the US dollar, Euro, and the British Pound. There has also been talk of including the Chinese currency in national reserves to shield traders who buy goods from China from losing valuable dollars. The most stable currency in the region has remained the Rwandese Franc while the Kenyan Shilling has suffered the most.
Kenya: The thunder of a falling Giant
An old adage goes that when a giant tree falls, the thunder can be felt from afar. The NSE is the largest in volume and activities in the region and easily compares to the other large markets in Africa including stock markets in South Africa, Northern Africa and some West African markets. With a slight fall in capitalization, the effects are felt wide. In fact, most of the other markets in the region act as subsidiaries to the Kenyan market.
The NSE has grown over the years to be among the leading securities exchange in Africa only bettered by the Johannesburg Stock Exchange in sub–Saharan Africa. NSE demutualized and self-listed in 2014.
At the beginning of 2020, the NSE20 Share Index (NSE20) a major stock market index which tracks the performance of 20 best performing companies listed on the exchange lost 5 points or 0.18% to stand at 2669. Since the beginning of the year, the NSE20 decreased 765 points or 28.59%, according to trading on a contract for difference (CFD) that tracks this benchmark index from Kenya.
The NSE20 companies are selected based on a weighted market performance for a 12-month period centred on market capitalization, number of shares traded, number of deals and turnover. In the period between January and June 2020, most of the market activity in the period was concentrated on the large blue-chip companies, including Safaricom, East African Breweries Limited (EABL), Equity Bank, KCB and Co-operative Bank.
The benchmark NSE-20 share index was down 27 percent in the six months to end June at 1,942 points, while the all-inclusive NSE All Share Index fell 17 percent to end the half-year at 137.7 points. Between January and June, the share price of Safaricom retreated by nine percent, EABL (18 percent) and Equity (35 percent). KCB and Co-operative Bank also saw their share prices fall by 33 and 26 percent respectively.
Together, these five stocks lost a combined KSh294 billion (US$2.7 billion) in market capitalization during the first half of the year, accounting for 68 percent of the total wealth erosion at the NSE in the period. The market has rallied up, picking up some of the losses but in overall terms, there has been a major decline.
There is hope yet with new faces on the NSE board. The board will now be headed by Kiprono Kittony, the immediate former head of Kenya Chamber of Commerce and Industry, replacing outgoing chairman Samuel Kimani, who was appointed by the NSE Board on March 21, 2012.
Kittony was credited with the revival of KNCCI through a series of transformative initiatives during his tenure.
The Kenyan shilling opened the year trading at 101 to the dollar. This was followed by a major decline and is now currently trading at 106-107 as quoted by commercial banks.
The shilling is however expected to be supported by the high levels of forex reserves, currently at US$ 9.7 billion above the statutory requirement of maintaining at least 4.0 months of import cover, and the EAC region’s convergence criteria of 4.5 months of import cover.
There is an improving diaspora remittance evidenced by the 24.0 percent increase to US$258.2 million in May 2020, from US$208.2 million seen the previous month, mainly due to the improvements in economic activities globally, as countries abroad eased their coronavirus restrictions.
The government has also come up with several measures to help the economy remain stable including rolling out a fiscal policy on Covid-19 as well an 8-point stimulus package. While the effects of these will not be felt immediately, there is hope that the boat will steady in a few months.
Tanzania: New tag as middle-income country comes with new burden
On July 1, 2020, the World Bank announced that the Tanzanian economy had been upgraded from low to lower-middle income status. Tanzania’s Gross National Income (GNI) per capita increased from $1,020 in 2018 to $1,080 in 2019, which exceeds the 2019 threshold of $1,036 for lower-middle income status. Thus, Tanzania is currently classified as a lower-middle income country. This brings the country in the same group as Kenya who got into the class in 2014.
With the rise in class, Tanzania finds itself in a tight corner as it will be challenged to retain this growth year in year out for the World Bank to retain it in this category. Equally, the challenges presented by Covid-19 will be a real test to see if Tanzania can maintain the growth.
As much as this new class does not mean the country loses out on World Bank concessional loans, there is real threat when it comes to qualifying for some programs. For example, most countries who receive debt forgiveness or relief are mainly in the low-Income band. Equally, there are some agreements and treaties that were signed when Tanzania was a low-income country and they will need to be reviewed in light of this new status.
On the equities market, Tanzania has not lost as much ground compared to Kenya. There has been a reduction of deals conducted at the DSE over time as well as major players losing considerable wealth during the Covid-19 period or further, between January and June. The DSEI decreased 265 points or 12.85% since the beginning of 2020, according to trading on a contract for difference (CFD) that tracks this benchmark index from Tanzania.
Historically, the Tanzania All Share Index DSEI reached an all-time high of 2850.15 in June of 2015.
More recently there have been a number of pre-arranged block trades in Tanzania Breweries Limited (TBL), the biggest blue-chip stock in Tanzania, at 5,000 Tanzanian shillings per share—less than half what the stock is quoted for on the DSE and down from an all-time high above 18,000.
Tanzania’s central bank the Bank of Tanzania (BoT) said the Tanzanian shilling is strong and has ‘remained resilient against the dollar.’ This means trade, particularly import and export was stable as the value of the shilling muscled up against the dollar.
As matters would have it, by the end of February, the Tanzanian shilling was rather impressive trading at an average rate of TSh2,300.9 for every dollar, a commendable standoff compared to the TSh2,300 that was the trading rate against the dollar just a month before in January of this year.
Further still, despite the slowed trading owing to the coronavirus threat, the indicative foreign exchange market report released by the BoT at the end of the quarter (March 31) shows that the Tanzanian shilling traded faithfully at TSh2,278 (buying) and was sold at fairly rewarding TSh2,301 to the dollar.
Uganda to boost its bourse through electronic registration
The Uganda Securities Exchange (USE) is targeting to double the number of investors opening Securities Central Depository accounts to 3,500 per year from the current range of between 1,500 and 1,700. The move will be enhanced, according to USE, by the launch of the Online Easy Portal, which enables investors to open accounts online.
There has also been a push to have telecos list at the USE before they are allowed to operate. For example, telecommunication giant MTN has been asked to float at least 20 percent of its shares within two years. The telco which connects subscribers in 22 countries in Africa and the Middle East is Uganda’s biggest rival operator, rivaling Airtel Uganda and Africell.
MTN is listed on the Johannesburg Stock Exchange, Nigerian Stock Exchange, and Ghana Stock Exchange, while it started mulling to go on the RSE back in 2019.
Commercial banks operating in Uganda announced they will lower their interest rates on loans to businesses and individuals in the coming days. The announcement comes after the governor of the Bank of Uganda (BOU), threatened to cap on the banks’ rates.
According to BOU Governor, despite the reduction by 200 basis points (to 7%) in the central bank’s rate between April and June 2020 to mitigate the effects of the COVID-19 pandemic on the economy, the banking industry’s weighted average lending rate fell from 17.7% in April to 18.8% in May. The bank has threatened to evoke section 39(1)(d) of the Bank of Uganda Act (2000) which allows the Central Bank of Uganda to set, in consultation with the Minister of Finance, the minimum and maximum interest rates applicable by financial institutions.
Rwanda: Steady ship despite Covid-19 effects
While Rwanda has one of the youngest bourses in the region, its growth has been phenomenal. In the period it has operated, the RSE has managed to attract major companies due to its effectiveness and recently, adapting to technology. During the Covid-19 period, the bourse has remained steady showing great levels of resilience.
The market has doubled in traded volumes in the first three months of 2020, compared with the same period last year. Between January 3 and March 18, it has garnered Rwf8.646 billion (US$9 million) in volumes, compared with Rwf4.031 billion (US$4.2 million) in volumes traded between January 3 and March 29, 2019, according to data from RSE.
Plans by the government have also ensured that companies remain stable. Last March, the National Bank of Rwanda (BNR) announced that it had set aside a Rwf50 billion (US$50 million) external lending facility for commercial banks to borrow from, as lenders brace themselves to deal with the market shocks caused by the Covid-19 pandemic. Banks with liquidity challenges will be able to borrow at the central bank rate, with the tenure extended from overnight to 3.6 and 12 months, available for the next six months.