East Africa still wary of foreign investors.
Attractive portfolio investment opportunities are few and far between. Investors say they are close to giving up on a region where governments, perhaps justifiably, seem to view them with a mixture of indifference and suspicion.
“The East African economies are down and out and totally dependent on aid flows,” said John Clemmow, an investment adviser with Investec Securities in London. “Yet their attitude to foreign investment seems to be ‘take it or leave it.'”
“They seem much more prepared to live with foreign aid than to encourage foreign investment,” he said.
Only Kenya in the region has any financial markets to speak of – even then, it tends to be classified as a “frontier” rather than an “emerging” market.
Tanzania bars foreign investors from its nascent bourse, while investors have all but given up waiting for the first share to be traded on Uganda’s new stock exchange.
The three countries presented their budgets last week in a show of unity to symbolise the new East African Cooperation (EAC) movement.
Noticeably absent was any mention of opening up the region further to foreign portfolio investors or pushing ahead with plans to develop a regional bourse.
A year ago, Africa seemed an exciting prospect. Bold investors, looking to expand their horizons as the world’s emerging markets went from strength to strength, were scrambling to get on board booming bourses from Harare to Lusaka.
In the east, Kenyan stocks, and especially its high-yielding treasury bills, were attracting a decent share of the limelight.
At the end of July, it all started going wrong.
The International Monetary Fund suspended a key loan to Kenya, largely on the grounds of official corruption.
The Kenyan shilling fell by up to 25 percent as investors headed for the exit. Those foreigners who had not seen the calamity coming were left holding significant currency losses on their treasury bill and equity holdings – many will not return in a hurry.
When Asia’s economic meltdown began, Africa became everyone’s last priority. It has now all but disappeared from mainstream investors’ radar screens.
“What is sad is that the mass market started to arrive last year,” said Clemmow. “Now we are back to the same old faces.”
Kenya’s Finance Minister Simeon Nyachae last week set out a bold set of reform proposals designed to slash public spending, pay down domestic debt, reduce interest rates and kickstart the country’s moribund economy.
Largely as a result of Nyachae’s determination to put things right, the bravest foreign investors are starting to take notice of the country’s stock and bill markets again.
But how welcome are they?
Kenya’s stock market legislation allows foreigners to purchase shares only in locally-controlled companies, up to a limit of 40 percent.
Local brokers this year fanned foreign hopes that the budget would finally see a relaxation of that rule. In the end, their hopes were dashed again.
Nor were foreign investors happy to have received only 20 percent of the allocation in last month’s public offer of shares in Kenya Commercial Bank.
Kenya liberalised its capital market in 1994. Foreign direct investment in factories and tourism is actively encouraged.
But many officials acknowledge an ambivalence towards the type of foreigners who will woo them one minute and shun them the next.
“My personal view would be to encourage more domestic participation in the market,” said Nairobi Stock Exchange secretary Jonathan Muthiani.
“(Then) we can have a strong market…we will not be hit below the belt by foreigners withdrawing from the market.”
James Leahy of London brokers T. Hoare sympathises.
“I can understand the frustration from both sides,” he said.
“It would be a sad day if Kenya was run by stockbrokers,” he said. “Once sovereignty has been given away you have to fight a revolution to win it back.”
Leahy is optimistic about the Kenyan market’s prospects and is telling his clients to take a much closer look.
But next door in Tanzania and Uganda, progress is painfully slow. Stock markets in the two countries finally got off the ground in 1998 after years of delay.
Uganda has just one bond on offer. Tanzania will soon have two stocks, but does not allow foreign investors to take part.
Local brokers are struggling to contain their frustration.
“No one seems to understand that growth in many other countries has not taken place without support from foreign investors,” complained Manoj Shinde of Exim Securities in Dar es Salaam.
With Tanzania’s annual per capita income at just $200 and domestic capital scarce, Tanzania’s fledgling exchange will not be flying too high in the immediate future, analysts say.
Simon Denyer 
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