Unlocking Regional Liquidity: Emerging Opportunities in East Africa’s Public and Private Capital Markets

A REPORT about the potential of public and private markets to unlock regional liquidity in East Africa.

Abstract

This report examines the current state and prospects of public and private capital markets in East Africa. It highlights the historical development of the markets in Kenya, Uganda, Rwanda and Tanzania, analyses their performance and identifies key trends hampering their continued growth.

Despite the region's robust economic expansion, the development of capital markets remains constrained by low liquidity, limited access to capital and underdeveloped trading practices. However, there are emerging opportunities such as regional market integration and growing interest from international investors which may offer potential solutions.

The report further analyses the role of private equity and venture capital in fostering economic growth and the role played by technological advancements to drive market efficiency. By examining recent trends such as regional market integration and fintech solutions, the report provides insights into strategies that could bolster East Africa's capital markets in the coming years.

Introduction

East Africa's capital markets, both public and private currently suffer primarily as a consequence of illiquidity. Since the establishment of the Nairobi Stock Exchange (NSE) in 1954, the region has experienced significant political and economic shifts. These have influenced the structure and performance of East Africa’s capital markets. Though historically underdeveloped, public markets are evolving, with countries like Kenya, Tanzania, and Uganda progressively strengthening their exchanges. However, market expansion (determined by the number of listings on securities exchanges) has proven difficult because of low liquidity, a scarcity of initial public offerings (IPOs) and regulatory discrepancies.

Fintech innovations however, are increasing access to financial markets through platforms like M-Akiba, enabling Kenyans to buy government bonds. Increased access to capital markets has boosted market capitalisation and enhanced the overall efficiency of public capital in East Africa. This report mentions market integration as one of the most viable solutions to growing capital markets. With fragmented regulations and limited market depth, individual securities exchanges are likely not big or efficient enough to be effective channels to raise capital.

Meanwhile, private markets, including venture capital (VC) and private equity (PE), especially in sectors such as technology and renewable energy, are increasingly becoming vital sources of capital for start-ups and small and medium enterprises (SMEs) due to less strict terms in regards to accessing funding compared to public issuances. The growth of private capital markets has been essential in filling the funding gap left by limited access to public capital.

Methodology

In attempting to understand the future trajectory of East Africa’s public and private capital markets, the report focuses on the capital markets within Kenya, Tanzania, Uganda, Rwanda, and Ethiopia. It examines market trends over the past decade and projections for the next 5 to 10 years, considering both public markets (stocks and bonds) and private markets (private equity and venture capital).

A mixed-method approach was adopted for this study, integrating both quantitative and qualitative methods to provide a comprehensive understanding of East Africa’s capital markets. Quantitative data, such as market statistics, financial indicators, and investment flows, was analysed to track trends and performance. Qualitative insights were gathered through expert interviews and market reports to identify recurring patterns and insights regarding future opportunities. This approach offered a nuanced understanding of industry perspectives, regulatory developments, and emerging opportunities in both public and private markets. This allowed for a well-rounded analysis of current conditions and prospects.

The report also utilised a wide range of existing data to analyse the current and future state of the markets. These included government reports (covering macroeconomic trends, fiscal policies, and capital market developments), market surveys and reports (from organisations monitoring stock exchanges, bond markets, and private equity) and regional case studies. Additionally, a comparative analysis was conducted to benchmark East Africa’s capital market performance against other emerging markets.

Limitations of the report include the scarcity of comprehensive data on private market transactions and the rapidly changing political landscape, which may affect future market conditions. Moreover, the private capital market has less transparency when it comes to disclosing volume and value of deals that took place which affects the accuracy of historical, conventional and future analysis.

Continue reading the full report by clicking HERE.