Faster State firms sale will boost the capital market and economy

Nairobi Securities Exchange Chairman Kiprono Kittony (left) and NSE chief executive officer Geoffrey Odundo on December 20, 2022. FILE PHOTO | FRANCIS NDERITU | NMG

The National Treasury’s proposal to shorten the time it takes to privatise State-owned enterprises by excluding parliament from the approval process is welcome news for the capital markets and a reason for renewed optimism in Kenya’s economic prospects.

The aim of this proposed law change is to give the government the legal and regulatory space it needs to expeditiously execute its plan of floating the shares of parastatals in the capital markets, including on the Nairobi Securities Exchange (NSE).

President William Ruto in October 2022 called for the privatisation of between six to 10 parastatals in 12 months.

It’s encouraging to see that the wheels have already been set in motion and we hope to see some interesting results in the coming months.

Shortening the privatisation process of parastatals will boost investor confidence and make our capital markets more vibrant in an increasingly uncertain and competitive global financial market.

Investors globally are looking for certainty and efficiency amid challenges such as rising interest rates, depreciation of local currencies (including the Kenya Shilling) against the dollar, slower economic growth, and recession.

Read: What you need to know about Kenya’s Privatisation Bill

Having a vibrant capital market with a steady flow of new IPOs, as the proposed law change envisages, will be key to remaining competitive in this global market environment.

No State-owned firm has been sold on the NSE since the Safaricom IPO in 2008. Curing this drought by shortening the privatisation process will not only revitalise the capital markets but also bring a host of economic benefits.

The government will raise revenues by selling its stake in targeted parastatals. It will further save on expenditures that were historically allocated to the operations of the sold firms.

This will help reduce overall government expenditures, limiting the need for increased public borrowing or aggressive taxes while freeing up the budget for development projects.

Privatisation allows firms to compete fairly, resulting in fair pricing of goods and services.

When the government is too involved in business, there are conflicts of interest between its commercial interests and regulatory mandate.

The competition that comes with privatisation also fuels innovation. This is good for the public because it improves the quality of products and services available and creates highly skilled jobs that offer competitive pay.

Good jobs translate to health insurance premiums, pensions, rental income, and strong consumer spending — all of which help fuel sustainable economic growth and improve the quality of life for the public.

Stakeholders in the capital markets such as the NSE, Capital Markets Authority (CMA), CDSC and the Kenya Association of Stockbrokers and Investment Banks (KASIB) need to work collaboratively with business owners and the government to ease listing rules.

Read: Speed up privatisation of State sugar millers

Efforts to boost forex reserves, which recently hit an 88-month low, are also needed as access to dollars is crucial for foreign investors as their exit their holdings or take dividends.

The proposal to bypass parliament in the privatisation process will deliver the intended benefits only if public officials execute their mandate with integrity.

Mr Kittony is NSE chairman.