Gatuyuriana Explains: Why Kenyan Capital Markets are failing
January 21, 2016 Gatuyu
The performance of our capital markets has started the year on low footing. Even though there is a significant improvement from the end of 2015 especially on fixed income securities, trading at the Nairobi Securities Exchange is still bearish. Listed entities in various counters have been issuing profits warnings.Is this a signal to our collapsing capital markets? If so, why do capital markets collapse? We interrogate:
1.Capital flight. This occurs when investors pull out of the market en masse either due to panic, which triggers an exit stampede. The market is left injured. In our case, foreign investors have been pulling capital out of Kenya and relocating to other emerging markets which are performing comparatively better than the NSE.
We have a charging bull at Wall Street. Should we have a crawling tortoise at NSE?
2.Market bubble. This is when the securities value are exaggrated. Either, during an initial public offering, there is floated an hyped offer price which does not commensurate with the underlying assets of the issuer. We saw this in home Africa listing. In such instance, there is a rush to acquire the securities by speculators eager to make hay while the sun shines. The securities price shoots far above the listing offer.
Then there is a lull. Markets gyrations causes market correction, and eventually the stock finds its actual value. The bubble just explodes. The investors in the primary offer have already made a killing. The investors who acquired the securities in the secondary markets are left with valueless stock. They dispose it to count the losses, aggregating the situation. In the long run. this affects the markets, both in operations and confidence.
3.External shocks. The country may have no control over this. However, this could also be caused by inept legal framework. We saw this with the re-introduction of Capital Gains Tax on market Securities, an action which caused down turn on the markets.
4.Ethical deficiency. There are investors, regulators and industry sharks who deliberately engineer the collapse of the markets for selfish needs. They may push strategic issuers to precipice with an hidsight that the government would bail them out anyway. Could this may have been the case with KQ and Uchumi?
These reasons would have sank better if effeciently contextualized with more illustrations. Nevertheless, the reasons are visible and are causing our markets to fail. We expect the markets to boom this year, But this expectation is just a hope. For there to be booming markets, a potpourri of issues are at play. Most important, the regulators must play their part.
Gatuyuriana explains: Why Waitiki 'squattors' were not given a Title Deed
Waitiki squattors have accused the Government issuing them a document other than a 'title deed' to prove their ownership of the land granted.
Even though their concerns may sound daft to the involved in land matters or people in the legal sub-sector, at Gatuyuriana we admit their concerns are genuine. These issues may be a little confusing to people not in the named specialties.
President Uhuru Kenyatta issuing title deeds to Waitiki squatters in Likoni, Mombasa County. [Photo: Courtesy of the Standard]
Indeed, once upon a time, there used to be a document called title deed. However, after the new land laws were enacted in the year 2012, all titles to land (not property), were reduced into two major classifications. You now have either:
1. The Certificate of Title; or
2. The Certificate of lease.
Title deed has only remained a commercial terminology. Just like the term mortagage (there is nothing like mortage anymore).
The Certificate of title is isued for freehold properties, where one owns the property in fee simple, with least conditions, and it can be passed to dependants in continuity or disposed at will.
However, its not a good economic policy to have swathes of land in a country under freehold tenure. This is due to law on perpetuities, that is, land must be allowed to be commoditised and be in circulation, instead of being it tied to one family. Its where the imperative to have leasehold tenure originates.
In Leasehold, you are entited to land for a stipulated period of time under the outlined conditions. The government is the landlord. You only pay periodic rent to the landlord. The rent is mostly at peppercorn (small amount). When the lease expires, the land revert back to government.
If you tranfer a freehold land to a company, or to a foreigner, it immediately converts to leasehold. With these basics explained, we turn to Waitiki.
The land was initially owned by a company, which had a deed of conveyance from the Government. It was under leasehold tenure. Waitiki bought it in 1971 when the company was pulling out of Kenya. He developed it. Then Waitiki squattors invaded. Court ruled they be kicked out. The government was afraid or unable to kick them out. It opted for a settlement.
Note, even where the land is in freehold, the government can always convert it into leasehold during transfers in exercise of zoning powers.
Waitiki land having been under leasehold tenure, the squattors could only get a certificate of lease (which is charged for an amaount indicated) and not a Certificate of title. But they can use it as collateral. They can create other small titles, the sub leases over the land.
Be merry, the Waitiki beneficiaries, for your windfall. It never comes easy