Capital Markets play a big role in the growth of any economy this is because they link long term capital from the owners of capital to the people who need it. Some of the largest players in the capital markets remain institutions like pension schemes. Comparing the development of the Kenya stock market to other markets and using the Market Capitalization to GDP as a measure of the level of development, Kenya still lags behind as its Market Cap to GDP stands at 27% compared to South Africa’s  at over 340%, Australia at 106% and the US at 148%.  There is, therefore, continue room for growth and we have seen significant development in the capital markets starting from the increase in the number of products that are in the market to the general improvement in the operation of the capital markets itself. The government continues to help create an enabling environment for the markets to thrive. In this year’s budget, some of the key changes that were proposed include:

1. Removal of VAT on the transfer of assets into the Real Estate Investment Trusts (REIT): Following the enactment of the REITS regulations, the markets for REITS is yet to fully take off. So far there are only two successful REITS ie Fahari IREIT and the Acorn REIT. The key players in the REIT are large institutions and foreign investors. In a bid to help grow this part of the market the government continues to change regulations as it is central to the attainment of the housing agenda which is one of the President’s big four agenda. The scraping of the VAT on the transfer of assets into a REIT is a great move as it improves the overall return of the portfolio making it more attractive to the investors.
   

2. Tribunal hearings should be concluded in ninety days: like any other well-functioning democracy two very reasonable people will often see things differently and this largely leads to conflict. It is therefore important to create paths for dispute resolutions and that is why a well-functioning Judiciary is important. For the Capital Markets, the Tribunal is charged with ensuring that any disagreements are dealt with within the shortest possible time. Initially, there were no timelines and disputes could take longer but now to increase efficiency the minister is putting a cap to a maximum of   ninety days.
   

3. Establishment of an Over Counter trading platform for government securities: the government largely finances its budget deficit through the issuance of government bonds and bills. To be able to attract more people participating in the market one of the key things they need to ensure is that there is sufficient liquidity (people should be able to trade on their assets without losing value) and also trades are not expensive and that the process of trade is seamless. As of now, trades are done through the Nairobi Securities Exchange but now to create more options the minister is proposing an introduction of the Over Counter platform where people can trade between themselves freely without going through a market intermediary. This will help improve market activity and lead to the overall growth of the bond market as it creates more options for investors. To give context the average monthly secondary bond trades stands at Kshs 72 bn this year up from a five-year monthly average of Kshs. 47 bn.
   

4. Opening of Omnibus to invest in the market: for well-functioning markets, the ability to have as many people participate in the market is of key importance. People participate in the market either directly as individual or joint accounts, through nominee accounts opened by a bank or through investments in the unit trusts. To expand this the Minister is providing that individuals can use omnibus for trading and the individuals can be able to trade. This is largely meant to activate the market through more foreign and local trades where people can get full value through entrusting certain people to trade for them.
   

The capital markets remains a key priority area for the government as a key source of long term development capital. We, therefore, expect to continue seeing more changes to help push further growth in terms of product and process innovation.