Despite Tanzanias resistance to cross-border investment, a position that contradicts the East African Community Customs Management Act, plans are going ahead to integrate the three major bourses within the region, namely the Dar es Salaam stock exchange, the Nairobi stock exchange and the Uganda securities exchange, plus the stock exchange in Burundi.
The act stipulates that residents of the original East African Community (EAC) states -- Kenya, Tanzania and Uganda should treat each others nationals as locals when it comes to investment opportunities in their respective countries.
Contrary to the act, the Tanzanian government barred non-citizens from participating in the initial public offer (IPO) when it sold its 21 percent stake in the National Microfinance Bank (NMB) this August. When Safaricom, a Kenyan mobile telephone provider and east Africas most profitable company, issued its IPO this March, Tanzania blocked its own citizens from participating in the investment.
However, when Stanbic Uganda, a subsidiary of South Africas Standard Bank Group, offered its IPO in January 2007 Tanzanian and Kenyan nationals, including non-East Africans, took part.
When you are small, you need to keep all the wealth in the country. That must be why Tanzania decided to lock out foreigners in IPOs taking place in their country, says James Murigu, a director of Suntra Investment Bank, a leading Kenyan firm. Chris Mwebesa, outgoing CEO of the Nairobi stock exchange, believes the new initiative will not be hindered by the foreign exchange regimes in individual countries. His opposite number in Tanzania, Jonathan Njau, tends to agree.
The restrictions put forth by the Tanzanian government are political.'' But, reveals Njau, the Tanzanian government is considering ''liberalising its market so that Tanzanians could freely invest in other countries in the near future''.
According to Simon Rutega, chief executive officer of the Uganda Securities Exchange, Uganda fully supports the proposed integration of stock markets in east Africa. According to the privately owned Monitor newspaper of Uganda, the initiative should be backed by all three the east African countries.
Early this September honchos from east Africas capital market authorities held a consultative meeting here in Nairobi which was attended by chief executives of the Burundi, Tanzanian, Kenyan and Ugandan stock exchanges.
The meeting proposed integration of the trading platforms of the four exchanges and agreed to adopt software that will link all stock brokers across the region. Under the new initiative, whose implementation deadline has been set for this December, securities will be traded anywhere in the region, using the local currency.
Rutega believes that the initiative will demystify cross-border investment across the region, encourage more co-operation and investment and expedite the economic integration agenda of the east African region.
According to Mwebesa, who also doubles as the head of the East African Stock Exchange Association (EASE), the project implementation will take less than six months.
The integration of the exchanges will benefit the east African region through consolidation of market liquidity and increasing visibility of the East Africa Communitys capital markets to foreign investors, hence attracting capital flows, says Mwebesa.
Rutega argues that it would increase economies of scale and reduce the costs of managing the trading, clearing and settlement infrastructure of the bourses in the region. When our markets integrate, we shall be able to share licences and the maintenance costs of information technology hardware. Investors will also have more financial instruments at their disposal to invest across the region.
Consultancy firm Ernst and Young in a recent study proposed that integration of the regional stock exchanges will be effective if there is a fair degree of regional economic integration. This includes the harmonisation of financial rules and regulations among the countries.
According to Ernst and Young, the bourses would need a common business language, culture and legal systems and excellent communications and technology solutions to integrate. An obstacle would be the fact that Uganda and Kenya have different operational methods. The latter relies on an electronic central depository system while the former relies on physical share certificates to carry out transactions.
Bourses also need to have internationally acceptable rules and regulations regarding capital adequacy, listing standards, insider trading and sound trading infrastructure. Another key requirement would be that individual stock exchanges be restructured and converted from mutual entities to profit companies.
Regional governments should harmonise the regional capital account convertibility, the regional clearing and settlement systems, taxes and the legal and regulatory framework within the region, Ernst and Young states in its report. For now the integration of the regions stock exchanges remains a work in progress.