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Daily Nation : February 11th 2014
news DAILY NATION Tuesday February 11, 2014 smart company 3 REGULATION » CURRENTLY, FOREIGN OWNERSHIP IN LISTED FIRMS IS AT 75 PER CENT Kenya risks global financial shocks in new markets plan Push by CMA to allow foreigners own 100pc of shares in listed firms may lock out locals from bourse BY JOSHUA MASINDE firstname.lastname@example.org E hit by the subprime crises as we were not very connected. But it seems that the lessons of the financial crises have not been learnt at all,” notes Dr Radha Upadhyaya, a development economist and research fellow at the University of Nairobi’s Institute for Development Studies. Dr Radha says making the stock market to attract huge capital inflows can be useful in good times but can quickly lead to liquidity crises during economic turmoil. Imposition of a limit on conomic experts are fault- ing a proposal by the capital markets regulator to allow foreigners to own 100 per cent of shares in companies listed on the bourse. Lifting the cap on listed firms, which is currently at 75 per cent, the experts note, will not only expose Kenya to global financial shocks but also lock out many locals from investing in the Nairobi Securities Exchange (NSE). “After the 2007/2008 finan- cial crisis, there was the recognition even by the International Monetary Fund (IMF) that some level of capital controls may be necessary in times of crises. Africa in general was not foreign ownership, she said, was meant to encourage local ownership, given that the equities market provides a good alternative investment vehicle for middle class Kenyans. 10-year master plan In its 10-year master plan, the Capital Markets Authority has proposed a review of the law on foreign ownership limits. The regulator argues that the rule should be changed to “remove the blanket ownership ceiling which can unnecessarily inhibit foreign investment.” The authority is to spearhead the law review, which it terms “important” and should be carried out in the medium term. AFRICA IN GENERAL WAS NOT HIT BY THE ECONOMIC CRISES AS WE WERE NOT VERY CONNECTED. BUT IT SEEMS THAT THE LESSONS OF THE FINANCIAL CRISES HAVE NOT BEEN LEARNT AT ALL. Development economist, Dr Radha Upadhyaya GAMBLING» BY JOHN NJIRU Licence in hand, firm bets big on Kenya CONVINCED that East Africa’s largest economy is ready to withstand online gambling, Pevans have acquired a licence to introduce the trade. Two years after its registration in Kenya, the wagering firm has invested Sh400 million to launch SportPesa, an online gaming platform pegging its success on mobile money. With its offices based at Sameer Busi- ness Park, Mombasa Road, Pevans’ chief executive Guerassim Nikolov says Kenyan market is ripe for the venture. “Kenyans have a fetish for sports, espe- cially football, and SportPesa will bring the fans together where there is a likelihood of winning from bets,” he says. While Pevans may not be the first firm to offer online gambling in Kenya, the over 30 million mobile phone users in the country can offer a fertile ground for success of the venture. Consumers will be required to register by texting ‘GAME’ to 79079 on any mobile platform for Sh2, and place bets on fixtures displayed on the firm’s site. The maximum amount one can win on the bet is Sh5 million. “The consumer wins the money with- out entering draws. The fixtures are set and if you predicted correctly, you will win money,” Mr Nikolov said. Kenya’s gambling dens are mainly ca- sinos, which have witnessed remarkable growth in the past few years. Common games include roulettes, pontoon, blackjack, cards and pokers. Pevans plans to expand to Uganda and Tanzania. Sports betting in Kenya got a major boost on December 2012, with the en- trance of Gaming International, a Sh300 million investment by a Ugandan firm. Local companies have also cashed in with mobile platform gambling to further their brand visibility. The government has introduced a 20 per cent withholding tax on winnings from betting and gaming. “It is not fair to punish the consumer for winning a prize. This will hurt the end-consumer. The government should, at least, target the firm but not the winner,” added Mr Nikolov. PricewaterhouseCoopers estimates that the Kenyan gambling industry made about Sh1.7 billion ($20 million) in gross revenues last year, up from Sh1.5 billion ($18 billion) in 2011. In 2014, it is estimated that Sh1.98 billion will be generated in revenue. — ByJohn Njiru SALATON NJAU | NATION Capital Markets Authority acting CEO Paul Muthaura. In its 10-year plan, the regulator is proposing a review of the law on foreign ownership in listed companies. This is part of an attempt to make Kenya the market of choice for both local and global investors. It is also expected to up- grade Kenya’s status from a frontier to an emerging market, allowing easy access to Kenyan markets by foreign investors. “The reason for suggesting this change is that the 75 per cent ceiling has an impact on liquidity of certain stocks and this is likely to be exacerbated as foreigners continue to increase their investment in the Kenyan market,” said CMA. During her recent tour of Kenya, IMF head Christine Lagarde noted that the momentum of growth in economies like Kenya’s was crucial to softening the impact of the 2008 global financial crisis. She, however, noted that as financial health in developed countries normalise, the risk of heightened volatility may give rise to new challenges in emerging market economies. Mr Gerald Cohen, a senior fellow in economic studies at the Brookings Institution US, in an article last month, noted that significant foreign investor inflows, while they are good for emerging markets, are likely to cause serious economic imbalances. “The risk is that the recipient countries don’t have economic structures and financial markets which are equipped to handle what can be massive flows relative to the size of these economies,” said Mr Cohen.
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