Using the capital markets to reduce Kenya’s fiscal deficit

President William Ruto said his government would bring to the bourse through initial public offerings (IPOs) between six and ten companies, urging the private sector also to list at least five companies to boost activity at the Nairobi bourse.

It is hoped that the government would sell its shares in at least six firms – through IPOs – in the financial year starting July 2023. The government hopes that the sale of its assets will reduce the fiscal deficit to 4.4% of GDP in the 2023/2024 budget from an estimated 5.8% in the year ending June 2023.

Kenya Pipeline Company, the Kenya Ports Authority, the Kenya Tourist Development Corporation, the Consolidated Bank, the Development Bank of Kenya, and the Agrochemical and Food Corporation were some entities the government had listed for privatization.

In early 2023, a new Privatization Bill was passed that enabled the Treasury to exclude Parliament from approving the sale of State-owned firms, a change aimed at shortening the approval process for the sale of government assets. The Commission was also allocated Ksh 175 million to support the privatization program in the 2023/2024 budget.

The money will fund expenses such as marketing, legal fees, and transactional advisory fees. Privatization of state-owned enterprises stirs unprecedented interest among local individual and institutional investors. This increases trading activity and general interest in the market. The last major initial public offer was the Stanlib Fahari REIT in 2015, seven years ago.

Source: Capital Market Authority of Kenya

With uncertainty surrounding the government’s sale of its assets, attention will most likely shift to the private sector to see which companies can list. Bio Foods – a dairy company – have announced plans to list at the NSE.