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Focus on capital markets.


Capital market is a key ingredient for economic growth

Rwanda co- hosted with the International Finance Corporation (IFC) a high-level international conference dubbed ‘Capital Markets East Africa 2015: Accelerating Economic Development in Kigali, Rwanda, from 12-13 February 2015.

The conference brought together300 global and regional experts, regulators, law firms, issuers and rating agency to discuss issues affecting the development of African capital markets, especially in East Africa.

In his warm remark to delegates, President Paul Kagame said that the business sense of the development of capital markets is self evident.

“They mobilize savings for productive investments while the price discovery mechanisms make the economy more efficient, dynamic and transparent”.

Claver Gatete, Rwanda’s Minister of Finance and Economic Planning was quoted by capital market press release as saying that Capital markets have the potential to play a crucial role in consolidating and sustaining economic growth.

“In Rwanda, we are convinced that capital markets provide the best alternative for long-term financing for development initiatives such as infrastructure and energy.”

During the conference Jingdong Hua, the IFC Vice President and treasurer announced the placement of a 3 year maturity, 9% yield 3.5 billion Rwandan franc bonds ($5 million) with offshore international investors.

“I am very happy with the transaction because this paves the way for the Rwandan franc to become an offshore investment currency”. The bonds are the first Rwandan bonds to be placed offshore and will increase foreign investments to Rwanda.

I caught up with global experts to learn how Rwanda Stock Exchange (RSE) can be more vibrant as a young market. In addition to sharing their thoughts and insights, they commended RSE for how much it has already achieved in a short period of time. Though it is the youngest market on the continent, it is equipped with latest technology, globalized laws and regulations.

Experts told me that Rwanda Stock Exchange will only be vibrant if it has the backing of a strong economy. Ted H. Chu, the IFC chief economist said that if you don`t have sufficient enterprises that are growing, the stock market cannot have a healthy growth. He noted that capital market and the economy are conversely related and that a single minded focus on capital market is not enough. “If the capital market cannot provide the necessary funding and means for channeling savings into enterprises then it will have hard time to expand”.

Rwanda comparative advantage

In order to benefit from the stock market, Rwanda needs to answer a key question. What are the critical industries for such a small and landlocked country that need to be developed? Or what is Rwanda comparative advantage in the global economy?

The IFC chief economist pointed out that it is important for Rwanda to identify critical industries that constitute its comparative advantage. Then Rwanda Stock Exchange will play a leading role to raise and channel resources to developing the strategic industries.

Learn the rule of the game

Albert Einstein famously said that you have to learn the rule of the game so that you can play better than anyone else. Rwanda Stock Exchange has therefore an opportunity to learn from other countries early years experience in managing their stock exchanges.

Mr. Chu noted that RSE should allow doing take off initial stages for both investors and businesses to learn from experience.

He argued that in the early stages of capital markets, investors` particularly small investors view the stock market as a get rich quick scheme. As a result the market tends to be far more volatile than the mature stock markets. A young market can therefore be dominated by momentum investors who are chasing quick money.

“I don`t think those kind of investors should be totally discouraging. You need to allow a lot of excitement during initial stages even though it comes at the cost of excessive volatility in the market.”

Opportunity for SMEs

Experts appreciated the fact that the Rwandan market is ready for investment opportunities. Nerina Visser, a South African based consultant in Exchanged Traded Fund said that Rwanda Stock Exchange is a great opportunity for small and medium enterprises (SMEs) to raise capital for expansion.

She noted that SMEs will at the same time be providing investment opportunities for foreign investors who might be interested to trade in shares and participate in wealth creation process that the stock market provides.

However SMEs need to come to the table with well constructed business plans. Salomon Asamoah the Vice President of the African Development Bank made a point at the conference saying that there is no lack of capital to be invested in Africa.

“The problem is having bankable projects”.

Rwanda private sector should therefore be armed with well constructed business plans. Ms. Nerina pointed out that they need to formalize their own thinking about projects they want to implement.

“You`ve got the right proposal to the market then capital is available, simply as that”. The IFC chief economist noted that it is critically important that the government, as the regulator and standard setters put in place market mechanisms to encourage transparency and free flow of information.

“Because SMEs don`t have experience so you cannot set the standards too high at the beginning but on the other hands you need to have minimum standards”.

SMEs need to know the minimum standards to be listed on the stock market so that everybody understands. The government also needs to set full guidance meaning that over time the standards will increase. Mr. Chu said that this is how you can get the stock market to stand up and grow over time.

He warned that if standards are too high you cannot get off the ground.“You need to achieve a steady growth and this cannot be achieved overnight”.

Outreach campaigns

One way to bring momentum to Rwanda Stock Exchange is through communication. The private sector should be sensitized on the new way to raise finance on the stock exchange. IFC chief economist pointed out that education and communication are very important steps that should be undertaken.

Mr. Chu said that we need to nurture local champions and successful stories so that Rwanda`s business community can see role models and be aware of what the stock exchange can enable them to achieve.

“Because right now everything is starting from the ground and every business is small”. How do you deal with this situation? Mr. Chu said that through market participation there can be a dozen small companies quickly turning into midsized then large companies.

“I think nurturing some local champions would be stimulating for the SMEs community. They can see concrete evidence on how to grow a business and being successful taking advantage of Rwanda stock exchange.”


Experts argued that even though Rwanda might be the late to come to the party, it is so innovative and proactive in tackling its development issues. This might be one of the reasons why it will be successful to develop its capital market.

Ms. Merina tipped Rwanda Stock Exchange first to look within Rwanda in terms both listing requirements, the capital that might be required in the stock exchange. This is in addition to mobilizing local savings in terms of investment on the stock exchange.

“The more you can focus on the internal resources, the more resilient you are as a stock exchange but also as a market”, said the South African consultant. She further noted that the more dependants you are on international investment flows the more vulnerable you becomes.

RSE should not only focus on equity listing but also look to the bond markets. Ms Merina said that restructuring bond market products will be giving investors a low risky investment and more certainty in terms of the returns that they will achieve.

“In that way you are educating local investors` base in terms of what it means to invest in the stock market”.

RSE in East Africa integration

Rwanda integration process into East African Community was encouraged by experts because it provides economy of scale and competition among market players.

However some experts cautioned what is called institutionalized integration when it comes to capital markets. Ms. Merina said that there is a danger that such integrated market is dominated by one or two big players then the smaller players almost get swallowed up in the process.

“I am very much in favor of integrated infrastructure”. She said that payment settlement system that is already being implemented across East Africa is a good move as it means a sharing of resources.

“But it still allows each of the country to have its national pride for its own stock exchange and really ensure that it remains relevant for its local market.”

She noted that technological and regulatory infrastructure has to be the same across the region.

“I am here talking about technological infrastructure, about free flow of information, settlements and payment systems. This is in addition to allowing alignment of regulatory requirements of accounting standards across East Africa”.


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