Kenyan Exchange Sees Tax Change Curbing Foreign Investment

The Nairobi Securities Exchange asked Kenyan authorities to defer the introduction of a capital gains tax in 2015 because it may deter foreign investors, acting Chief Executive Officer Andrew Wachira said.

The bourse made submissions to the Kenya Revenue Authority and the Finance Ministry over the past two months, “aggressively lobbying” for the levy to be put on hold, Wachira said in an interview yesterday at a stock-exchange conference in Diani, Kenya. Foreign investors have expressed concern that there is a lack of clarity about how the tax will be administered, he said.

“The provisions of the capital gains tax are first and foremost very unclear, especially with regard to listed securities,” Wachira said. “The introduction of a capital gains tax, especially when the market is starting to grow, may not be advisable at this stage especially for a market of our size and given the projections we have.”

Kenya will introduce the 5 percent tax on Jan. 1 as part of its effort to fund infrastructure projects in East Africa’s biggest economy. The country is raising more taxes to help President Uhuru Kenyatta fulfill his electoral-campaign pledge to build a second international port in Lamu, double the network of paved roads to 24,000 kilometers (14,900 miles) and build a railway from the region’s largest harbor in Mombasa to the Ugandan border to boost trade.

The plan to impose the tax on oil discoveries is “totally wrong,” Aidan Heavey, the chief executive officer of Tullow Oil Plc, the British oil producer that found oil in Kenya two years ago, said this month in an interview.

‘Dissuading Foreigners’

The Kenyan exchange’s ambitions to introduce new products and listings next year may be undermined by the tax, Wachira said. The FTSE NSE Kenya 25 Index gained 20 percent this year, the biggest increase after Tanzania and Uganda among 14 African bourses tracked by Bloomberg.

“If we are talking about new products and we expect the exchange to be a conduit for foreign inflows, especially for new listings, we will be dissuading foreigners from coming,” he said. “The Kenya Revenue Authority is the implementing organization and they have been gracious enough to inform us that we shall be having discussions around this. Hopefully they will be able to delay implementation.”

New Listings

The Kenyan exchange, based in the capital, Nairobi, expects at least 12 companies to begin trading next year, with as many as 10 of them debuting on the Growth Enterprise Market Segment, or GEMS, for small- and medium-sized companies. The market, introduced in January 2013, has three listed companies, with one more expected by year-end, Wachira said.

London-listed Atlas Development & Support Services Ltd. is planning a private placement in Kenya and to start trading shares on the GEMS by Dec. 15.

“We have recognized that mid-sized companies are the drivers of our economy,” he said. The bourse is planning an education and marketing campaign next year to attract more companies seeking to raise capital, Wachira said.

The Nairobi Securities Exchange in September became the second African bourse to sell shares to investors. The market is targeting increasing its number of listed companies to 100 from 61 in the next four years, Chairman Eddy Njoroge said.

Other plans for next year include a platform to enable Kenyans to trade shares using their mobile phones, Real Estate Investment Trust derivatives and the introduction of spot and futures commodities trading for Kenyan farmers, Wachira said.

Tea, Coffee

Kenya produces crops ranging from coffee and tea to corn, sugar and pyrethrum.

“We’ve finally got through demutualization and self-listing,” he said. “What we’re doing now is creating a platform to enable us to develop our business solidly.”

The Nairobi Securities Exchange has a market capitalization of $25.2 billion, ranking it as sub-Saharan Africa’s third-biggest after South Africa and Nigeria, according to data compiled by Bloomberg.

Shares in the company have more than doubled to 21 shillings since the stock debuted on the exchange at 9.5 shillings on Sept. 8.

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