Pillar: Financial Markets

Tier one lender Absa Kenya has teamed up with the Nairobi Securities Exchange (NSE) and the Chartered Institute for Securities and Investment (CISI) to enhance knowledge and expertise of the Capital markets amongst its staff.

The initiative aims to improve the value provided to their customer base by actively engaging in various Capital Markets offerings and achieving the best possible outcomes for their corporate and retail clients’ financial objectives, said Absa.

The capacity building programme dubbed Securities Industry Certification programme was designed by the CISI in conjunction with the Capital Markets Authority (CMA) and Financial Sector Deepening Africa (FSD Africa).

The organisers said it offers a broad introduction to the financial services professional sector, with a specific focus on investments from a global perspective.

It for instance focuses on local and international markets and covers key financial principles and products including assets and markets, equities, bonds, derivatives and investment funds.

The programme enables candidates to better engage with their clientele in determining their objectives, risk profile and constraints towards ensuring advice that is suitable and appropriate to each individual client, a key pillar towards ensuring that a practitioner acts as a fiduciary to their clientele.

The NSE, a CISI Accredited Training Partner, has been working with the Absa team to ensure appropriate delivery of the programme and attaining of the learning objectives.

Outgoing Nairobi bourse chief executive Geoffrey Odundo said the the NSE is committed to building and strengthening the capacity of capital market players through partnering with organizations such as the Chartered Institute for Securities and Investments.

“Capacity of market participants is at the heart of robust market infrastructures and we will continue to pursue strategic initiatives to accelerate this agenda,” he said.

Absa Bank said it will continue to beef up the skills of its workers.

“Absa is committed to continue being a market leader in providing differentiated financial services that are tailored to the unique needs of our client base,” said Absa Bank Kenya Director of People and Culture Mumbi Kahindo.

“Capacity building is key towards achieving this commitment, by ensuring that our people are armed with the right knowledge and skills to deliver the best experiences to our customers and stakeholders.”

CMA director of Policy and Market Development, CMA noted that appropriate capacity building will play a critical role towards positioning Kenya as a premier investment destination and an International Financial Center.

“Adoption of international certification standards will enable more diversified products and services in the market, thus ensuring that we remain competitive and attract international flow of funds,” he said.

His comments were echoed CISI EA Regional Representative Kimacia Gitau.

“We are proud to be associated with Absa and the NSE towards building appropriate Knowledge and expertise among the Absa Premier staff and the sector as a whole,” he said.

“We are fully committed to the advancement and dissemination of knowledge in the field of securities and investments within the region.”

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Kenya Green Building Society (KGBS) in collaboration with the Financial Deepening Sector (FSD Africa) and the International Finance Corporation (IFC), handed over the IFC EDGE plaque and certificate to Nairobi Governor Johnson Sakaja in a colourful ceremony in Nairobi today.

The event meant to celebrate the Nairobi City County Governor’s office meeting the IFC EDGE Green Building standard, marking it as the first EDGE certified green government office building in Africa.

The certification follows the conclusion of the United Nations climate conference in Dubai in 2023, which emphasized the pivotal role of cities, local governments, and mayors in combating climate change.

While attending the ceremony, Governor Johnson Sakaja expressed his delight, highlighting two key points.

The Governor emphasized that Africa has the potential to lead the way in designing sustainable spaces to tackle future challenges, given the existing skills, incentives, and capabilities.

Governor Sakaja further expressed the importance of cities and local governments in driving the conversation on climate change and shaping cities that reflect dignity and progress, aligning with the vision of the Africa We Want, with Nairobi as its green capital.

This certification signifies leadership in climate action at the local government level and marks the initial step in Nairobi’s implementation of its Climate Action plan, solidifying its status as the green capital of the world.

Governor Sakaja emphasized that climate change, adaptation, and

environmental management are critical global challenges, but Nairobi stands out for its innovation,

resilience, and leadership.

Nasra Nanda, Chairperson of the Africa Regional Network at World GBC and CEO of KGBS, noted that the certification is not only a victory for Nairobi and other local governments but

also for Kenya and Africa as a whole.

Nasra expressed KGBS’s commitment to leveraging this milestone to advocate for green legislation and to make Nairobi truly the green and resilient capital of Africa, while also unlocking green finance for the city.

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Competition in Kenya’s bond market is set to heat up following the Capital Markets Authority’s (CMA) approval of an application for a license for Over-the-Counter (OTC) trading by the East African Bond Exchange (EABX).

The Business Daily has learnt that the market regulator granted EABX the license on Tuesday, setting the stage for competition between the Nairobi Securities Exchange (NSE) and EABX for bond market activity whose annual turnover has averaged Sh734.0 billion between 2020 and 2023.

An OTC market is an infrastructure that allows traders to interact without having to go through a formal securities exchange. The framework works purely through bilateral negotiations between traders without the intervention of the established securities exchange since all trades are captured electronically and directly between the engaging parties.

This comes just a fortnight after the International Monetary (IMF) Staff Report following the January 17, 2024, sixth review of Kenya’s $4.43 billion, Sh717.3 billion, programme indicated that the government had committed the fund to take steps towards an OTC automated exchange to complement the operations of the NSE.

“We will further enhance the market infrastructure through policy support to market participants to operationalise an over-the-counter automated exchange to complement the broker intermediated Nairobi Securities Exchange,” the government committed to the IMF in the just concluded reviews.

“The aim of the exchange will be to promote trading transparency and settlement efficiency and attract more capital in the economy eventually leading to reduction of yields and cost of new public debt.”

This marks the third milestone for EABX with the first having been the no objection for set up acquired in 2020 and the second being the approval for capital raising secured in 2023.

The rollout of an OTC market for bond trading in the country now means fixed income activity in Kenya’s capital markets will be operating much like Nigeria, which has the Nigeria Stock Exchange and the OT bond trading targeted FMDQ Group operating side by side with FMDQ Group having been set up in 2012.

The top leadership of CMA has decried that whereas Kenya was ahead of Nigeria in bond market reforms a decade ago, Nigeria’s set up of an OTC bond trading market has seen the West African economy leapfrog ahead of Kenya in bond trading activity.

“When you look across the globe, the biggest OTC market is foreign currency. You can also find trading in OTC in equities, debt securities, derivatives and many others. Bonds, despite being not very small issuances, are finding their way in most jurisdictions in trading via OTC. Contrary to what you expect in a centralised exchange, the requirements for trading in an OTC market are far less onerous. The annual market turnover for Nigeria’s FMDQ comes to about Sh90 trillion annually and you can see the potential given that we were slightly way ahead of Nigeria in terms of bond market reforms,” CMA’s Director for Policy and Market Development, Luke Ombara, told journalists recently.

The NSE raked in an average of Sh73.2 million per annum in bond levies over the last two years and stands to lose a revenue line should activity gravitate towards EABX. Bond dealers in brokerage entities are also set to take a hit should the OTC market take off and cement direct engagement between traders.

Further, this move comes at a time when the NSE is struggling with depressed activity within the equities market.

The licensing of an OTC market player marks the second major change in under six months in Kenya’s bond market with President William Ruto having launched the new online bond trading platform, DhowCSD, on September 11, 2023.

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With the framework in place, it is a matter of when, not if, the government will issue a green bond, and experts estimate it may be very soon as no hurdle now stands in the way. Green bonds allow public and private institutions to raise finances to be used specifically for environmental projects that help with climate change mitigation and adaptation.

Through the framework, the government specified the kind of projects that will benefit from the proceeds of a green bond, should it float one, focusing on programmes that will boost Kenya’s environmental sustainability.

“Proceeds of the Kenyan Sovereign Green Bond will be used to finance in whole or in part eligible green assets or projects that are to bc identified from the approved National Budget by Parliament,” states the framework. Some of the projects earmarked to benefit from the financing are sustainable water and wastewater management systems, which are expected to increase supply of water to farmers, households and industry, solving one Of the most widespread challenges associated with climate change today.

Other projects will be in renewable energy, projected to reduce the energy access gap; clean transport, including the much anticipated bus rapid transport (BRT); and green residential and commercial buildings to boost energy efficiency.

Green bond

Experts who worked on the framework say it was built on the International Capital Markets Association’s (ICMA) green taxonomy — a standard on what kind of projects can benefit from funds raised from a green bond. Mr Evans Osano, the Capital Markets Director at Financial Sector Deepening (FSD) Africa, which helped in the development of the framework, explains that

The framework also specifies how the government will select and evaluate projects, how the proceeds will be managed and how the impacts of the investments made from the proceeds will be reported. “Credible, science-based, widely supported guidelines about what assets or projects qualify for green bonds help investors make informed decisions about the green credentials of a bond,” says Vimal Parmar, a senior capital markets specialist at FSD Africa.

This means that unlike traditional bonds, green bonds require a much higher level Of transparency about the use Of the funds raised from them, a factor which has been a double-edged sword for the growth of the green bonds in Africa.

While the idea of green bonds is not new, it has remained an elusive concept for African governments. Since its inception in 2008, only two African countries have so far successfully issued sovereign green bonds.

Nigeria was the first country to float such an instrument in 2019, raising $40 million (Sh6.5 billion), followed by Egypt, which raised $750 million (Sh127 billion) in 2020. Globally, 32 countries have issued green bonds, raising around $355.6 billion (Sh57.2 trillion), of which only 0.2 percent has come to Africa, data from the ICMA shows.

Mr Osano believes that the slow issuance in Africa is because “the requirements are quite onerous; therefore, issuers have to be prepared to meet them”. It is not yet clear how much Kenya will seek to raise from the market in the expected first issuance of a green bond, or whether the bond will be floated locally or on the international market, like a Eurobond. However, the climate finance gap is currently estimated at Shll.16 trillion (S69 billion), which is the amount required to meet Kenya’s Nationally Determined Contributions (N DCS) — the country’s climate change mitigation and adaptation commitments — by 2030.

Osano avers that while green bonds may not raise the entire deficit, they are the most important form of climate finance, as “it has the potential to raise the highest amount for climate finance.” I le estimates that up to 75 per cent Of the gap, about Sh8.7 trillion, could be raised from green bonds by 2030.

Ikechukwu Iheagwarn, East Africa regional director at credit rating agency, contends that green bond investors are indeed more concerned with the environmental impact of the finances they raise, rather that the returns, making green bonds much cheaper than traditional bonds.

“Investors in a green bond won’t look at it like a conventional bond. They look at the expected impact and gives concessional terms, so it will definitely be cheaper than other bonds,” says Mr Iheagwam.

Green bonds market

Today, the global green bonds market is estimated to be worth S 2.2 trillion, more than a tenfold increase from what it was worth about ten years ago, positioning the facility as a leading source of climate finance for African countries. With Kenya now much closer to issuing the financial market product that ever, experts contend that it won’t just be a source Of funds for ‘government
projects, it is expected to bolster economic growth, save lives, livelihoods, and businesses, which are already bearing the brunt of climate change.

“Without the green finance from green bonds, no African country will meet the net-zero emissions goal nor the sustainable development goals. We need the finances to realise those goals,” said Rachel Antwi, head of sustainability at Pan-African lender EcoBank. “Climate change has severe consequences over the short to medium term across multiple sectors, such as agriculture, industry, energy, water, trade and tourism. If we don’t act now, it will impede Kenya’s vision to be a nation that has a clean, secure and sustainable environment by 2030.” Explains ESD Africa’s Parmar.

“Ihe National Treasury estimates that every year, floods alone erode 2 to 2.1 percent of Kenya’s gross domestic product, and droughts cost the country about pollution, general environmental degradation and other challenges which either stem from climate change or increase the country’s vulnerability to climate shocks.

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