• The Zimbabwe Stock Exchange has been labelled the Crown Jewel of African Markets for the first quarter of 2023
  • The Nairobi Stock Exchange has been labled the worst performing African stock market in the first quarter of 2023
  • Over 40% of companies listed on the Nairobi Securities Exchange (NSE) did not pay dividends in the last financial year

Nairobi Stock Exchange Meltdown: Here’s the Reasons Behind the Downfall

Harare-The Nairobi Stock Exchange has earned the unfortunate distinction of being the worst performing African stock market in the first quarter of 2023. So far this year, it has experienced a significant decline of 17.4% in USD returns. Unfortunately, this trend is not new, as the market also suffered a drop of 27% in the past year.

Over 40% of companies listed on the Nairobi Securities Exchange (NSE) did not pay dividends in the last financial year, resulting in poor returns for investors. Out of the 59 companies with ongoing operations, 28 did not pay out dividends for their latest financial years, with some even extending the pay-out drought for several years. This lack of cash distributions has caused significant losses for investors in companies such as Kenya Airways, HF Group, Home Afrika, and WPP Scan group, as their share prices have decreased.

While a few companies, like Olympia Capital, have seen price gains over the past year, overall, those who did not pay dividends have underperformed compared to their peers, like BAT Kenya and Safaricom, who consistently make cash distributions to shareholders.

 The absence of dividends from 28 firms listed on the NSE is resulting in shareholders relying solely on capital gains for returns. Investing in non-dividend paying stocks is considered a speculative venture, especially since the market is still trading below the peak of the last bull run in early 2015. Price discovery is limited in the current market, due to the lack of market participants, particularly foreign investors who have retreated from the market.

In contrast, advanced markets often reinvest profits instead of paying dividends to gain through share price discovery. However, the absence of dividends in the NSE largely consists of firms that either persistently return losses or strive to remain profitable, such as Kenya Airways, which is suspended from the NSE but continues to operate in the loss-making territory. Meanwhile, Kenya Power, Sanlam, and Britam have been attempting to turn a profit, but with years of swings into loss-making. The absence of dividends from half of the listed firms has been disappointing for investors, particularly retirees who rely on dividend payments for income. Some companies, such as Kenya Power, have not declared dividends despite posting profits, indicating a need for more capital.

Zimbabwe Stock Exchange Emerges as the Crown Jewel of African Markets: Here's Why

ZSE has kicked off 2023 as the most lucrative African stock market, defying its presently challenging economic fundamentals. The bourse has achieved an impressive year-to-date return of 39.74% in USD. Despite the inflationary environment in the country, the listed companies have paid dividends, and capital gains continue to accumulate. This has enabled ZSE to maintain its status as a highly rewarding stock exchange, even amidst the mass exodus of companies to the USD-denominated VFEX.

The stock market performances have been bolstered by increased liquidity in the market due to an expansionary monetary policy initiated by the payment of contractors and a 400% increase in salaries for uniformed forces civil servants. This has led to speculative borrowing, further bolstering stock market performance.

In the short-term, the lack of structural reforms to improve the business environment, combined with soaring inflation and foreign exchange shortages, will dampen economic growth. Nevertheless, the potential injection of election funding could further boost the performance of the ZSE, as it will increase liquidity in circulation and consequently drive GDP growth in the 2023-27 period

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