Capital markets: Rwanda's new securities exchange will boost economic diversification; Rwanda's economic development has taken another step in the right direction with the launch of a securities exchange by the Central Bank of Rwanda, as the first stage on the path towards creating a full blown stock exchange. Report by Neil Ford

African Business, April, 2008 by Neil Ford

Kigali is seeking to build an economic structure that will overcome many of the weaknesses that helped to destabilise the country even prior to the genocide in 1994. Rwanda's over reliance on agriculture and particularly on coffee cultivation is deemed to be dangerous in what is one of the most densely populated parts of Africa, so the government is keen to put the financial infrastructure in place to support a more diverse economy.

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At the opening of the new Rwanda Capital Market, President Paul Kagame described it as "an important achievement which will provide the business community with a second option to financing that is long term and which will inevitably add great value to our economy."

He also called the formation of the exchange, which will deal in both treasury and corporate bonds, a milestone in the recovery of the nation.

As in many other African states, access to credit in Rwanda is limited as well as expensive, as commercial banks have largely failed to provide the support for the small and medium sized enterprises (SMEs) that are generally regarded as the building blocks of any successful economy.

It will be interesting to see whether greater access to credit will further fuel the construction boom that accounts for much of the economic growth currently being recorded in Kigali.

Looking further ahead, it is hoped that the new financial institution will widen its range of operations to become a stock exchange handling the shares of companies registered in the country.

The governor of the Central Bank of Rwanda, Francois Kanimba, said that he hoped that property, manufacturing, mining and tourist sector companies would eventually seek a listing on the exchange. In the longer term, the Central Bank hopes to permit foreign firms to seek a listing.

The launch of the new exchange allowed Rwanda to become a fully paid up member of the East Africa Securities Exchange Association, within which it had previously acted only as an observer.

The emerging Rwanda Stock Exchange (RSE) will allow the shares of privatised companies to gain a domestic listing. The executive director of what will become the RSE, Robert Mathu, said: "We are targeting at least six government owned companies for privatisation this financial year."

Mathu also serves as the executive director of the Capital Market Advisory Council (CMAC) of Rwanda, the regulatory body set up by the government to oversee the sector.

His involvement provides some confidence in the new arrangements as he previously helped to set up stock exchanges in Kampala and Dar es Salaam, after helping to run the Nairobi Stock Exchange for many years.

Despite the current instability in Kenya, the process of integration within the East African Community (EAC) is expected to continue this year. Rwanda joined the EAC as recently as last year but the government is a committed member of the regional group and hopes to take full advantage of economic integration.

Strong sub-regional interest

As part of the process of economic harmonisation, the EAC has pledged to allow regional trade in most financial products and assets. Any new Rwandan stocks are therefore likely to attract investment from neighbouring states. Interest in the new Rwanda Capital Market has already come from across the sub-region.

Within three weeks of opening, four Kenyan stockbrokers had already obtained operating licences: African Alliance, Dyer and Blair, Faida Investment Bank and Tsavo Securities.

Fred Mweni, the managing director of Tsavo, said that registering his firm in Rwanda had been relatively easy and expects similar companies to follow suit.

The managing director of Faida, Bob Karina, commented: "Our decision to register a company in Rwanda is mainly a strategic one since we are now an investment bank and can offer transaction advisory services but this is only possible if you are a registered Rwandese company."

The Central Bank of Rwanda has issued two treasury bonds to kick start the new capital market--one of $9m and another of $18m--both have been heavily oversubscribed and Kigali now plans a larger $36m bond issue later this year.

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In mid-February, the Banque Commerciale du Rwanda (BCR) buoyed the exchange still further with a bond for 5bn Rwandan francs ($9.4m).

UK-based emerging markets private equity fund Actis holds an 80% stake in BCR but despite such investment, Rwanda still has a very small number of banks.

A partner in Actis, Nkossana Moyo, says: "The bond issuance will put us in a better financial position and will continue building our reputation as an innovative financier."

The managing director of BCR, David Kuwana, believes that the bond will help to create a capital market by encouraging saving, while his bank plans to use the money to launch mortgage products in Rwanda. Mortgages have been relatively uncommon to date, partly because of problems with land registration and legislation.

Yet, although most of the population still suffers from poverty, economic growth has averaged 7% over the past decade, so there is money to be invested by some elements of society.