Britam: ‘Kenya has successfully entered the bond market’

World Finance speaks to British American Insurance Co. Kenya about the country's burgeoning sovereign bond market

December 5, 2014

Kenya is leading its African neighbours by raising $2bn in the sovereign bond market. World Finance speaks to representatives from British American Insurance Co. Kenya, Stephen Wandera and Ambrose Dabani, to find out how this move is helping to boost investment products.

World Finance: Now, Kenya is rivalling its neighbours – we’re talking about Zambia, even South Africa – in terms of its investment prospects. Can you tell me what entering the bond market has meant?
Stephen Wandera: Kenya has successfully entered the global bond market. And this has increased foreign direct investment in the country. It has also reduced the crowding-out of the domestic borrowers’ market. And it also has resulted in the entry of Kenya into the top three bond markets in sub-Saharan Africa.

We’re looking at a bond market of $15bn, and this has increased liquidity tremendously. And of course, this means that opportunities for price discovery, and the stabilisation of the bond market, have increased very dramatically.

World Finance: Ambrose, tell me: how is this money being invested? Both locally and internationally.
Ambrose Dabani: Kenya’s embarked on a ‘Vision 2030,’ where we hope to place ourselves as a middle-income country. Therefore, it’s key that we are investing in our infrastructure.

We’re looking at a bond market of $15bn, and this has increased liquidity tremendously

Here I’m talking about road infrastructure, rail infrastructure; we’ll also need to invest a lot in the energy sector. And here we’re focusing on geothermal energy.

We’re also investing in food security and general security, because of the increased terrorism risk in the region.

World Finance: Very interesting; now we know that the information communication technology sector is expected to get a big boost from the entry into the bond market; tell me how this money is going to be spent?
Stephen Wandera: The ICT industry provides direct investment opportunities for investors. Apart from that of course, it has also resulted in business tapping opportunities for revolutionising the business, automating business. We have got fibre-optic cabling solutions all over the country; four options as a matter of fact, for anybody, at any time, to tap into.

World Finance: Now we’ve got the momentum that we just heard about, but there have been recent events that have impacted the industry. There’s been a temporary shadow in fact, following the terrorist attacks in Kenya. Tell me, how has that – or has that? – affected investor sentiment.
Ambrose Dabani: The recent events you’re referring to, the Westgate attack, and more recently the attacks that happened in the Lamu, one of the coastal towns in Kenya. Our take on that is, we haven’t seen the investor sentiments come down. In fact investors have been very bullish. Last year alone, Kenya still got $510m in terms of foreign direct investments.

I think the investor community realises that terrorism is a global menace. It is not restricted to Kenya. Even here in London, you also issues around terrorism. And the investor community is also very keen on what the government is doing. And I think they approve of the successes that we’re having in Somalia, in terms of downgrading Al-Shabaab capabilities there.

They also approve of the security measures that the country is taking. Part of the money that we raised is investment in security operators. And therefore we’re seeing the investor community approving those actions. They’re looking at us, and looking at the partnerships that we have now. d partnerships that are developing around terrorism. And therefore we believe that the market will learn to ignore terrorism as a factor when it comes to doing business with Kenya.

World Finance: Can you tell me a little bit about frontier markets, and what your long-term investors are looking to take advantage of?
Stephen Wandera: Our long-term investors are very bullish about Kenya at the moment. We’re looking at a GDP which has been in excess of five percent over the last three years. We’re looking at an IT platform which is available to the entire economy. We’re looking at a very, very capable human capital base, which has made a contribution in the West. We have got a very significant diaspora.

Investors really are looking for higher risk-adjusted returns

We’re looking at a market within the region of 160 million people.

Over and above that, we’re looking at natural resources, which are being discovered at this particular time. Some of them extremely exciting; particularly in the petroleum industry – oil, gas, and so on. Not just in Kenya, but throughout the entire region.

Over and above that, we’re looking at an internal market where we have devolved government. So there are lots of opportunities within the country itself.

So it is a very, very exciting story. Investors really are looking for higher risk-adjusted returns. And certainly these returns are available within Kenya and throughout the region.

World Finance: Given those lofty expectations, can you tell me where do your long-term expansion plans fall into the mix?
Stephen Wandera: We believe that our insights and our business – our insights of sub-Saharan Africa – give us an edge over our competitors, both within Africa, and outside.

Then we’re looking also at devolved government in our own country, which has resulted in absolutely amazing opportunities, including opportunities to penetrate the country, and to really take advantage of the catchment areas that have become more accessible as a result.

World Finance: Stephen, Ambrose, thank you so much for joining me today.
Both: Thank you very much.