If you feel that reading AfricanAccelerationism was worth more than $0 zero dollars, please consider making a donation.

Donate here: Your donation would be appreciated.

Update on Weekend fundraiser: we had 222 supporters and raised $5,000 (Ksh 477,000 on the platform and some off platform). This is a huge success, especially for the first year running HakiHack and only having 1 month to go from idea to hackathon. We are more than half way there.

Why is this important?

Kenya is at the tip of re-creating an “Arab Spring,” but this time in Africa. See my earlier posts on the magic of 80% literacy and citizen-led accountability transformed the US.

In addition to the in-person protests, Kenyan techies have created apps to encourage government accountability. If protests v1.0 were in person, what would protests v2.0, leveraging digital tools, look like?

This ain’t your grandma’s protest. Let me share a few examples:

Kenya Kwanza Promise Tracker

President Ruto made promises. How is he doing against them? After 2 years in office only 18% are complete.

Corrupt Politicians GPT

Type in the name of a politician and get a list of the corruption schemes for which they are responsible.

Citizens of Kenya

A list of projects financed by taxpayers that have stalled and an estimate for each of how much money was stolen.

Lost in Kenya

Missing persons who are suspected to have been abducted by the government for protesting.

Wall of Shame

Politicians who voted for the 2024 Finance Bill

If you love the idea of Kenyans creating tech to support government accountability, if you love the freedom you have in your own country and you want other people to also enjoy freedom. If you just wanted to give me a birthday present🎂…

Kindly donate here. All donations go directly to Kenyans building civic tech for a better country.

The HakiHack hackathon will award prizes to new innovations and some of the innovations you see above. So far, these civic builders have not received the recognition they deserve for the work they have put into building tech to support government accountability.

I know most people make monthly contributions to causes they care about. If you care about freedom, growth and equality, please include HakiHack in your donations this month.

PS: If you feel like you can’t make a difference, please read here to see why even countries like the US have relatively low corruption because of initiatives like this one.

Allow me to clarify this misconception.

Tech companies sell technology. Microsoft, for instance, builds Microsoft Office once and sells it an infinite number of times. Each additional sale costs them virtually nothing. Now, let’s contrast this with Twiga. When Twiga sells a banana, can they sell that same banana again? Tech for Twiga is not a profit center; it’s a cost center. The fact that they have to spend their money on tech rather than buy software off the shelf is a bad thing, not a good thing. This is the crux of the Twiga paradox.

Imagine Amazon selling a Kindle book. Every additional sale is nearly pure profit because the cost to reproduce and deliver the book is almost zero. A paper book, on the other hand, involves printing, shipping, and logistics – significant costs that digital sales sidestep. Now, think about selling bananas. Traditional agriculture involves planting, growing, harvesting, and transporting – all tangible, all costly. Twiga may have reduced the cost of getting that banana to market from Ksh 15 to Ksh 10, but the savings predominantly benefit the consumer, not Twiga. Twiga is merely tech-enabled.

Okay, smart guy. Based on that analysis, you are saying that Uber isn’t a tech company but tech-enabled.

Yes. That’s why Uber is having such a hard time making a profit.

What about AgTech? AgTech would be eProd, the agriculture software suite. eProd can sell the same software suite over and over. Unfortately the market size for AgTech is pretttttty small in Africa, so AgTech is generally not a good business either.

In Africa, technology as a business proposition faces inherent challenges. Developers here are often more expensive and have less relevant experience than those in India or Eastern Europe. Consequently, cutting-edge technology flows from the United States, and affordable solutions come from India. Africa, caught in this vice, struggles to find its technological footing. QuickBooks from the US and Tally from India squeeze local options out of the market.

There are, however, niches where African tech can thrive. Take Mpesa, for example. It isn’t a tech company in the purest sense; it’s tech-enabled. Mpesa used technology to create monopoly network effects. Similarly, Shara and Pezesha are essentially banks with tech enhancements, holding banking licenses that afford them government-backed monopolies. Twiga, dealing in bananas, faces no such monopoly prospects.

Investing in African tech because it succeeded in the US is cargo cult investing. We need to…

Back to Apple(s)

Agriculture is not typically seen as a high-return investment in the US or Europe, where each improvement is incremental. But in Africa, the potential is 10x or even 1,000x. Here’s why:

Consider a smallholder farmer with a hectare of land producing a ton of maize. They consume half and lose 20% post-harvest, leaving them with 300kg of low-quality maize worth about $150 during market gluts. Now, hand that land to an experienced agronomist. They could quintuple the maize yield, plant high-value cash crops like tomatoes or mangoes, reduce post-harvest losses to 2%, and add value through processing, like making tomato sauce or drying mangoes for export to the UAE. This transformation could generate $392,000 annually from that same hectare—a staggering 2,613x increase.

Yes, a US farm could switch from maize to tomatoes, but the labor costs would eat away the profit. Wages in developing countries are a fraction of those in the West, making these transformations huge opportunities in Africa but not in more developed economies.

Moreover, agricultural growth drives employment-led economic growth, which significantly empowers women—a key impact consideration. Technology, in contrast, creates relatively few direct jobs.

In most cases, agri-processing is Africa’s best high-growth sector, not tech. The real goldmine in Africa isn’t hidden in lines of code—it’s in the fertile fields and factories waiting to be transformed.

Timing is crucial. Arguably THE most important factor in a company’s success.

Webvan was too early in 2000, Uber Eats timed the market perfectly in 2015.

Apple Newton (which no one remembers) was too early, iPhone was just right.

Is now the right time to start an agri-processing business in Africa or Kenya? China, Mexico, and Malaysia have taken off. Now it's Africa's turn, right? Right?

Or will any capital accumulation be ripped out of your hands like it has so many times before by socialist, African governments?

Will another civil war destroy your machines? Or have we reached the Pax Africana? 

There are lots of starry-eyed articles about Africa’s bright future. 

But is it?

Let’s dig into the numbers. Let’s try to figure out if now is the right time.

To quantify things we need measures. And not all measures are good. I prioritized:

1. Quantitative (rather than qualitative)

2. Relatable, (like days of delay instead of an index, where possible)

3. Valid across decades and centuries with data points over a long period of time (and into the future)

4. Should be absolutely clear that it improves development (a counter-example would be tax rate where both a very high and very low tax rate might not be ideal)

I will focus on Kenya as it is the leading development in Africa. I was in a village in rural Uganda recently—there were no tomatoes or onions. None. I can’t imagine a village in Kenya without onions and tomatoes. It got me wondering, how much more developed is Kenya than Uganda?

It turns out that the ratio of GDP per capita in Kenya to Uganda is the same as the US to Poland.

Kenya:Uganda::US: Poland.

I used to think of the countries as relatively similar, but that’s not the case at all. So of the ~46 continental sub-Saharan African countries (excluding SA), Kenya will likely be the first to pop as an economy. (Economist Tyler Cowan wrote last year “Kenya is poised to be the Singapore of Africa”)

“Years behind”

We are going to develop a new metric: years behind. When was country x at the same level as country y? Assuming growth rates stay the same (which they won’t but it’s kinda close) we can predict when country y will reach a new level. The beauty of developing countries is that more advanced economies have created an (imprecise) road map for how to get from A to B.

Note that by behind we are not making a moral judgement good or bad about higher levels of development. Or whether being ahead in GDP per capita means a country is also ahead in cultural richness, happiness, etc. So, don’t take offense to the terminology. Feel free to suggest better terminology.

Buckle in, let’s time-travel back to 1990…

GDP per capita PPP

GDP per capita is the worst way to measure an economy…except for all the other ones.

Let’s start with Kenya.

Kenyan GDP per capita PPP is about 19 years behind Peru. Peru is 15 years behind Mexico. Mexico is 32 years behind the US. We don’t have long enough data to say how far Kenya is behind the US. So let’s do some math, add up the years behind and that puts Kenya 66 years behind the US. That sounds about right: after WWII the US still had 3m donkeys and horses plowing fields, which is about where Kenya is today.

Meanwhile, Kenya is about a decade ahead of Rwanda and has caught up to Nigeria, which has stagnated despite being a resource-rich country (both human and natural resources).

I have included China and Malaysia here as well. If we use those economies, Kenya is only 46 years behind the US. But China and Malaysia had exceptional growth rates which might not be repeatable. Also, Africa is historically more similar to Latin America than Asia (Asia had many large civilizations while Latin America was largely tribal and highly colonized, as evidenced by using European languages while Asia was less colonized and maintained its languages.)

Governance

I don’t trust Indexes much, but for governance I couldn’t find one number that was broad enough to track governance improvements over time. Of note, for a country to be a huge success like China, Malaysia, etc, it doesn’t need ridiculously great governance like Switzerland. (Arguably too much governance in Europe stifles innovation.)

I have grouped countries into groups to make the data easier to look at. Green Revolution countries are those that saw their agriculture yield increase from subsistence levels seen in Africa today to the level of developed countries in just 60 years. See our article on what made these Green Revolution countries special.

Kenya is perhaps 25 years behind Green Revolution countries in governance, according to this index.

Population growth

Population growth integrates a large number of factors into one output indicator that is easy to measure and hard to fake. It’s a lagging indicator of economic growth, though it corroborates the other metrics in this article, such as “Kenya leads Africa.”

Kenya is about 24 years behind Mexico in population growth rate reduction.

Red Tape from startup to export

Government bureaucracy is the root cause of poverty and lack of growth.

According to Senegalese entrepreneur Magatte Wade, “Africa is not poor because of colonialism. Africa is poor because people don’t have money. People don’t have money because they don’t have jobs. They don’t have jobs because there are few successful companies. There are few successful companies because government regulations in Africa stifle companies.” 

Talking about government bureaucracy is intangible, so let’s take the example of a fruit exporter to make it more concrete.

See how expensive the “bureaucracy tax” is below for a typical fruit exporter to set up shop and make 10 shipments:

Green Revolution countries didn’t always have better regulations. It took hard work inside governments to undo anti-competitive laws.

Take Malaysia as an example. In 2007, Malaysia set up a task force to improve the ease of doing business, which seems to have worked.

Kenya is at least 15 years behind according to this graph. I say at least because we don’t have enough data to say when Malaysia had the same level of bureaucracy as Kenya.

Internet Speeds

Maybe Kenya and Africa weren’t meant to be manufacturing economies; maybe they will leapfrog from Agriculture to Services and skip Manufacturing (China, Vietnam, etc are already pretty good at manufacturing so why try to play their game?) To have services in the modern world you need literacy and fast internet.

From the data I found, Kenya is >10 years behind Mexican internet speeds.

Literacy

Kenya has just achieved the literacy rate of Peru in the 1970s, 50+ years ago. Note that a lot has happened in Peru since the 1970s, including the Shining Path terrorist group that nearly took over the country and put the country in limbo for a decade.

It’s hard to have a functioning representative democracy without nearly full literacy. For example, the literacy of the voting citizens of the United States at formation in 1789 was around 95%. Creating democracy in African countries in the 1960s may have been premature for the literacy of the voting public. Note: Landowners in the US in 1789 were mostly white males, but some women and non-whites, too. Why was literacy so high in the US? Remember that Americans were often people who fled Europe because they loved the bible so much that they wanted the right to read the bible according to their own beliefs. 

Projecting literacy forward, Kenya will have Peru’s level of literacy in 2037, 13 years from now.

Related to literacy is intelligence or IQ. IQ was supposed to measure innate intelligence, but the Flynn Effect suggests otherwise. From 1900 to 2000, IQ in the US went up about 3 points per decade. The average adult in 1900 America had the same IQ as a 9-year-old in 2000. This is HUGE! 

We now know that IQ at the population level is mainly affected by education, nutrition (especially iodine), and reduced toxin exposure (especially lead). Iodized salt increased IQ by 12-15 points, and lead-free gasoline increased IQ by 4-5 points. source.

The Flynn effect was seen in Asia, too.

In Africa, IQ data is very scant, but one study showed IQ in Kenya went up 10 points in just one decade in the 1990s. This is ~3x faster than the IQ increase in the US.

I’m bullish.

Population

In your opinion, are there too many, too few or just the right number of people in Africa to be economically effective?

The answer surprised me.

Too few.

African population density at independence was only 1/6th that of Asia.

At such low population density, its hard to justify the construction of roads—there just aren’t enough people to use them. It’s hard to build internationally competitive industries if there isn’t enough agglomeration of talent.

Even when adjusting for agricultural land, the picture is similar:

Kenya is about 60 years behind Malaysia.

To make thing worse for Africa, the people are too young to be economically productive. Adults have many children to take care of and can be less productive themselves.

Again Kenya leads the way, about 35 years behind.

Electricity

Graphed on a log scale, we can compare the growth rates of electricity use visually. Kenyan electricity growth is not nearly as fast as China, India or Malaysia. Kenya is about 40 years behind China in electricity. Therefore, the economic miracle of Chinese manufacturing isn’t likely to be repeated in Kenya for the foreseeable future.

Talking about kWh’s of electricity is hard to visualize, so let’s make it more tangible by using “refrigerators worth of electricity” as the unit of measure. How many refrigerator-equivalents of electricity are used per household?

Note: Todd Moss originally came up with the refrigerator comparison

Debt

African debt levels are…scary. But Green Revolution countries have seen worse and recovered. Will Kenya’s debt problem be resolved like Singapore or turn into a crisis like Philippines and Mexico?

I was surprised to discover in doing this research that Malaysia never had a debt crisis.

There is a big question if Kenya will default on its debt like Zambia, Ghana, and Ethiopia have in the last 3 years.

The Eurobond due July 2024 is trading at 97 cents on the dollar, meaning the market thinks Kenya will repay, but that is yet to be seen. Update: after the refinancing, Kenya’s EuroBond is trading at 99 cents on the dollar.

Credit Rating

Credit rating for Africa is far below India and China and shows no signs of improving, the way other metrics have improved. A better credit rating would enable lower interest rates and enable faster growth.

African countries’ credit ratings are not converging on the credit ratings of Green Revolution countries. Hopefully, if Kenya can repay the Eurobond 2024 its credit rating will improve. Credit ratings are not completely objective; perhaps risk in Kenya is exaggerated and there are risk-adjusted returns possible that other investors aren’t seeing due to mispriced risk by partially subjective ratings. 

Roads

If a Kenyan wants to do business in Morocco, they will fly through Europe, discuss in English, and pay in US dollars. For another example, it is cheaper and faster to fly from Kenya to Dubai than from the capital of Kenya to the capital of Tanzania, its neighbor. Interconnection or lack thereof causes extra costs. 

Roads are the best quantitative measure of the interconnectedness that I could come up with.

The best way I could find to compare roads between countries is paved roads per km² of agricultural land (agricultural as that is the area that is being used and excludes deserts where the metric might not be as useful.) Road development in African countries is far below its Green Revolution cousins.

But this is just a snapshot in time. How long would it take for African countries to catch up? I had to hunt through government records which were in bad shape and the government doesn’t report the amount of roads on an apples-to-apples basis each year. I did find road data at Kenyan independence, in 2010 and 2020 as reference points. Recently road construction has increased, however, projected forward, Kenya has many years to go before reaching the level of even Pakistan.

Kenyan road networks are about 120 years behind Pakistan. Yes, most of Kenya is a desert and doesn't need roads, but here we are looking at Agricultural Land only, which mostly controls for that.

Trust

Trust in strangers is a feature of high-functioning societies. It enables us to collaborate in large groups outside kinship and tribal boundaries.

Humans are only better than animals at one thing: it’s not that we are the fastest, can fly the farthest, swim the deepest, strongest or even have the largest brains or most neurons. No, humans are able to coordinate better than any other species.

Most developing countries have lower trust in others than Green revolution countries like China, Vietnam and Malaysia, not to mention developed countries.

The challenge is that Trust in Strangers doesn’t seem to change much. Trust in the US has gone down in the last 70 years, for example.

What could cause trust in strangers to improve in Africa?

Conclusion

Kenya, the country leading development in Sub-saharan Africa (excluding South Africa), is behind Green Revolution countries as follows:

• 120 years behind in roads

• >30 years behind in credit rating

• 50 years behind in electricity

• 40 years behind in literacy

• 35 years behind in population demographics

• >10 years behind in internet speed

• 25 years behind in governance

These are the primitives or building blocks needed for an economy to grow. On average this puts Kenya about 45 years behind Green Revolution countries. And the rest of Sub-Saharan Africa is another 10-50 years behind Kenya.

Meanwhile, Green Revolution countries saw agriculture yields take off ~45 years ago.

On the one hand, this may seem pessimistic. But I am encouraged by these numbers, which give clear indication of where these variables stand: Green Revolution countries took off like a rocketship ~45 years ago. Kenya is ~45 years behind Green Revolution countries.

This will be Kenya’s decade and Africa’s century.

You saw this analysis here first :-) 

➡️ Please like, comment and share. That’s the only way others can see how the data for Africa is very encouraging.

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To go public, or not…

I attended the Ibuka accelerator, a program to help get private companies listed,  kickoff event in October at the Nairobi Securities Exchange.

The Kenyan stock exchange, being the largest in the region, is worth a close look.

The requirements for listing in Nairobi are minimal and it is not nearly as hard to list as people make it out to be. A company needs only 1 year of track record, doesn’t need to be profitable, only needs to list 15% of their shares, only needs a capitalization of about $100,000, and only needs to have 25 shareholders within a few months of listing.

So why aren’t more companies doing it?

The Lagos, Johannesburg, Mauritius and Nairobi stock exchanges are the most promising places to go public in Africa. We will focus on the Nairobi Securities Exchange as a case study to enable us to deep dive.

Note: nothing here should be construed as an insult to Africa, Kenya or the Nairobi Securities Exchange. I love Kenya and hope to work together to find solutions that keep increasing investment in and wealth of Africa.

Brand Problem

Listing is only one part of the problem; you must have someone buy your shares. Is there a market that wants to buy shares in these particular companies?

Kenyan equities (stocks) have not performed well, underperforming against bonds and land and even savings accounts. This isn’t a recent phenomenon, although the current economic downturn has worsened it. It has, in fact, been going down for 8 years.

Source: Hass Consult

The NSE 20 index is down from 6,000 in 2015 to 1,400 in 2023. 

Why take more risk with equities and get a lower return?

So, the brand name of Equities in Kenya and Africa is generally not good. What factors lead to this, and how can it be fixed?

Remember, Investing is a Keynesian Beauty Contest: the goal is not to pick the most beautiful investment but to pick the one that others think is the best. If Kenyan Equities have a bad brand and investors don’t think others will pick them, then no one will pick them, and they will go down.

Too hard to list… or too easy?

The requirements of the NSE (Nairobi Securities Exchange) are very entrepreneur-friendly, probably too friendly. There are two ways exchanges should maintain quality: ethics and financial performance. The NSE could improve on both accounts.

Ethics: the NSE has frozen the shares of Mumias and Kenya Airways, which prevents shareholders from liquidating their shares and props up the companies so they can keep operating rather than declare bankruptcy. There is also an earnings call calendar which public companies don’t hold to, preventing their shareholders from access information that they are entitled to in a timely manner.

Financial Performance: Other stock exchanges delist companies if their share price or market capitalization falls too low. The electric scooter startup, Bird, once valued at $3.2b has now been delisted from NYSE because it failed to maintain the $15m market cap minimum threshold and has since gone bankrupt. Stocks that fall below $1.00 per share on NYSE are also delisted. NSE could also set a minimum price to encourage management to improve performance or face the consequences of being delisted.

A leadership problem?

The Ibuka event had an enthusiastic vibe but maintained certain unfortunate stereotypes: the event started 1 hour late, and the presentation contained a major data inaccuracy. Timeliness and data integrity must be core to the culture of a stock exchange.

This suggests room for improvement in the NSE company culture and, consequently, for leadership improvement. According to publicly available information, the outgoing CEO of the NSE made Ksh31m (~$210,000) in 2022, a 19% increase over the previous year, all while making only Ksh14m (~$100,000) for the exchange in profit, a drop of 90% from the previous year. This suggests a problem with his compensation package (and the compensation structuring at the NSE).

Overall, the NSE Equities market has been down since the NSE CEO was appointed 9 years ago, while the Kenyan economy has grown at ~5% a year. Having met him briefly, I had the impression the CEO of the NSE was more of a politician than a visionary who made things happen. Subsequent conversations with market players have not changed that impression.

A new CEO has been appointed as the current CEO has ended his two 4 year terms. Hopefully, new leadership will improve the company culture and results. But this 4-year term suggests more room for improvement: why not have the CEO’s tenure be based on performance? Stock exchanges like NYSE don’t have specific terms for their CEOs. But, perhaps the NSE is a quasi-parastatal. And with the “prestige” associated with running a public market there is a risk that new appointees will be based more on politics than competence and compensation will not be tied to results.

Furthermore, 8 years isn’t enough time to turn something around. A true visionary would want 15 good years to build something great. Imagine Steve Jobs had to leave Apple in 2005, before the iPhone came out? Or Elon had to leave before the Model S came out? The 2x4 year term could be disposed of.

The newly appointed CEO looks to be a strong choice. He is a lawyer/accountant and Partner from EY. We were hoping for an entrepreneur. Hopefully, he will be an entrepreneurial lawyer/accountant.

Capital flight?

Another explanation for poor NSE performance is that foreign investors have left the African stock markets, especially the Kenyan stock market.

However, the Ksh 125b loss due to foreign investors leaving is only part of why the NSE has lost Ksh 1.5 trillion in value since 2021. Capital flight explains less than 10% of the story.

Anti-Free Market behavior

Here are two examples:

• The NSE has frozen the trading of Kenya Airlines and Mumias, both of which have substantial government ownership. Kenya Airlines shares have been frozen for 4 years, renewed annually each year with the explanation that Kenya Airways needed time to restructure. In 2022, Kenya Airways lost about $40m. In 2023, they lost about $150m. The more time they get to restructure, the worse it gets. Both companies should go bankrupt, and shareholders should be able to sell their shares. The exchange freezing shares makes investors nervous. By comparison, the NYSE only froze trading for 1 day, and that was when the World Trade Center buildings were attacked in 2001.

• That the CEO of the CMA has attempted to put price floors on stock prices is concerning. “Capital Markets Authority (CMA) chief executive Wycliff Shamia told the Star that the move has been necessitated by the fact some of the companies have very strong fundamentals but the valuation is quite low.” Yes, this is how free markets work. The market decides what something is worth, not the government. The latter would be communism.

Preference for other investments

Investors would rather speculate on land because Kenya has no property tax. GoK should fairly tax other parts of the economy, like creating a 0.1 to 1% annual Property Tax on land so that people can’t just sit on their land and speculate without contributing to the economy. All other developed and emerging economies have an annual Property Tax; it’s time Kenya did the same. Property tax is generally recognized as the least bad tax for economic growth and yet Kenya doesn’t have it and isn't even considering it. See here how property tax could be implemented in Kenya and make all parties happy. With the devolved county governments, this could more easily be accomplished than in the past.

The effect of no property tax is clear in the numbers: Kenyan real estate is 75x bigger than equities ($678b vs $9b); meanwhile, by comparison, US real estate is only 2x bigger than US equities ($96T vs $46T). The US equities market sources capital from around the world because people trust Uncle Sam to treat equities fairly, but people don’t (yet) trust Uncle Kamau to do the same. Personally, I think the lack of Property Tax is the nail in the coffin of the NSE, and without this reform, there can be no vibrant equities market. (Note: the only meaningful property tax that exists is the capital gains tax when property is sold, and even then, people can easily underreport the sale price, which is much harder to do on a public equities market. Some counties like Nairobi charge property tax at around $5-30 per year, which is a joke. There is also a tax on Rental payments, but this is not a tax on the property but a tax on a business being done on the property, making matters worse by disincentivizing property development.)

Because Treasury Bonds are over 15%, investors put their money there rather than risk equities. Hopefully, after the Eurobond payment in June 2024, Treasury yields will reduce and more money will flow back to the equities market.

The opportunity

But there are reasons to be bullish on African stock markets. African markets, excl. South Africa have a relatively small proportion of their GDP trading. There is room for the equities market to grow 10x to align with other markets like the US, South Africa and India.

source: Wikipedia and related exchanges

Further, Kenya is the region's largest and most liquid market and could be a regional player—it is already one of the most liquid markets in Africa. By aggregating regional companies onto its exchange, NSE could grow another 10x. On top of that, GDP will compound to 63% growth over the next 10 years. This brings the total NSE market cap potential to ~163x growth over the next 10 years.… if NSE can play its cards right. 163x growth would put the NSE inline with India, so it’s not impossible, as discussed below.

On top of that, Annual Turnover (trading of the shares) is relatively low compared to other markets at 4.7% on NSE, ~40x less trading than the US, adjusted for market cap.

There is room for more economic activity on African stock markets.

So where is this 163x growth going to come from?

1. Increase valuation. The P/E (price to earnings) ratio is only 4.9 on NSE, a sign that investors have low growth expectations. This is half its historical level and 1/4th the ~20 P/E seen on US exchanges, a 4x growth potential for NSE stocks. This is due to uncertainty, low expectations and discounting for inflation.

2. More companies listing. About 1% of US companies are publicly listed compared to 0.001%ish (my guesstimate) of Kenyan companies. Realistically, 10x growth potential (as most Kenyan businesses are too small to go public).

3. NSE quality. If the NSE can improve quality that will improve investor confidence and 2-10x growth.

4. Virtuous Cycle. There are the compounding effects of a growing market, generating interest and crowding in more capital.

5. Encourage international investors on local trading platforms. Currently, American, Canadian, Singaporean and other foreign investors are discouraged from investing through existing brokerage channels and online trading platforms as the regulations in those countries are too costly to manage given the small public market. But as the market grows and trading platforms enable more foreign investors and you can imagine that as returns are becoming more predictable with lower returns in the west, some intrepid investors will take an interest in Africa. 2x opportunity

6. Distribution on international trading platforms. Like Robinhood, Charles Schwab, etc. 10x opportunity.

7. Cross-listing from other countries in East, Central and Southern Africa. Theoretically, a 10x opportunity, but in reality, maybe a 2x. Already, some of this is happening. Bank of Kigali (Rwanda) and Umeme (Uganda) are listed in their own countries but cross-listed on NSE. Crosslisting is relatively easy. Evidence suggests that cross-listing increases company valuation, so the cost of cross-listing more than pays for itself. (Source: Peristiani, Federal Reserve Bank of New York, 2010) Old Mutual, for example, is cross-listed on 5 exchanges. A Kenyan equities lawyer confirmed this would be a workable strategy.

8. Behavioral nudges. There is no way for Kenyan trading apps to automatically reinvest dividends, while automatic reinvestment of dividends is possible in other markets like the US. This could boost share price by 5% per year. This would cut out stock brokers and their fees. My little research online suggests the CMA (Capital Markets Authority) currently prevents automatic dividend reinvestment due to pressure from stock brokers.

9. Better trading UX. New trading apps that make it easy to buy shares can 2x capital yet again. I tried to sign up with 6 different trading apps and brokers. 3 didn’t allow Americans, Dutch, Singaporeans or Canadians to trade. The others each had cumbersome documentation requirements: one required a scanned copy of a notarized copy of my passport. What’s the point of a copy of something notarized? The friction to buying shares as a foreigner or local is severe.

10. Reduced trading fees. This is the big one. CDSC and other government entities can reduce the tax on trades, which are currently at 0.36%. If a stock is only expected to gain 10% a year, paying 0.36% per trade precludes an efficient market that quickly buys and sells. For comparison, the NYSE has a fee on trades of $0.001 (which comes to 0.003% for a typical $30/share stock, 1/100th the price of Kenyan fees). Broker fees are also extremely high in Kenya at 1-1.5%, 10x higher than the US at 0-0.1%. Reducing fees would not directly increase market cap, but a 10x reduction in fees might increase liquidity 10x, bringing the NSE more in line with other exchanges, from 4.7% turnover to perhaps 50% turnover. Increasing liquidity would perhaps increase the market cap by 2-10x by increasing P/E and crowding in more companies.

11. Improving taxation. Right now, US investors in Kenyan companies get taxed twice. Thus, going through Mauritius is advantageous.

Case study:

I tried to sign up for various trading apps (Exness, Sterling, AIB-AXYS, ABC). Finally, after a week I was able to sign up on EFG Hermes. I tried to trade using the Market Price but the Market Price was 2x the Limit Price. I was told by customer service to ignore the Market Price. Once I did make a trade it took two days for my trade to be reflected in the app. After many customer service requests, my trade was reflected but then the app showed I had negative account balance. After another customer service call that has been fixed. Then my password stopped working.

I can see why there might not be a lot of retail investors in Kenyan securities as the buying experience does not inspire confidence. But it does show an opportunity for someone to build a better trading experience.

Why are companies resistant to going public?

Before we determine whether listing at all would benefit companies, let’s consider:

• does going public preclude a company from raising additional institutional capital?

• what are the tax implications?

• what are the compliance costs?

• with interest rates as they are, is now really the right time to list?

Treasuries are 15% in Kenya at the moment, so raising equity is a hard sell. But global interest rates are unlikely to stay high, so perhaps a reduction down to 10% in the coming years will be good for equities. Also, land prices, the other investment option, may run out of room to grow further as rural land prices in Kenya are already about the same as rural land prices in the US, channeling more investment to equities.

Compliance costs are Kenyan SMEs' most commonly cited problem for not listing. However, the compliance costs in Kenya are typically only around $5,000 a month, which they should be doing even as a private company, like maintaining a board of directors and informing shareholders of material changes. Thus, this argument from SMEs doesn’t hold water. 

In an IPO, a company would sell at least 15% of its shares to raise additional capital. Some companies might be concerned with how they can raise more capital after the IPO. Never fear! There are several options:

• Corporate Bond: this is just a loan with a maturity. Of note, there is no collateral required for this. Also, it has a bullet payment at the end, which gives the company some breathing room on repayment.

• Private placement: a select group of investors are invited to buy shares in the company. This can be done even before a public offering and provides more privacy for the company.

• Rights Issue: this is where shares are offered to existing shareholders only so they are not diluted. This funding method is fairly common in Kenya, though not as common in the US.

• Secondary Offering: just like a rights issue but open to anyone. This is common in the US. Tesla, for example, has had 8 Secondary Offerings since 2012.

• All-stock acquisition: not strictly raising capital, but a public company can issue new shares to buy another company without spending cash. For example, Facebook’s acquisitions of WhatsApp and Instagram were mostly paid for in shares. Berkshire Hathaway makes its acquisitions this way, or through retained earnings (reinvested profits) rather than through Secondary Offerings.

Kenya has many advantages over other markets:

• Recently, an app developed for retail investors called Dosikaa (I wrote the first review for it on the Play Store—it didn’t work for) enables anyone to buy shares. Once Dosikaa works out the bugs, this greatly improves the share-buying UX, instead of going to a broker and signing a paper.

• Kenya doesn’t limit foreign ownership in most companies (aside from banks and telcos) thus, international capital could invest in NSE-listed companies, while other African countries often have more restrictions on foreign ownership.

• Increased liquidity and market capitalization compared to most other African exchanges.

There are also downsides:

• registering a company in Kenya doesn’t have the same tax advantages as Mauritius

• it doesn’t have nearly the same market depth as Johannesburg or other exchanges. Jumia, despite doing most of its business in Egypt, Kenya and Nigeria, chose to list on the NYSE. JMIA once traded at $60/share but fell 20x. I bought some shares there at $2.5 last week. Let’s see if they can bounce back. Jumia raised more money on the NYSE than they could have on the NSE, but Jumia also might not have lost as much value if it had been listed in an African market. Local buyers in Kenya would have seen the value it creates by direct interaction on the ground. Thus, there are advantages to listing in Africa vs. New York.

One possible tax-efficient structure might be to register the holding company in Mauritius, list it in Mauritius, and then cross-list it to NSE (and other African exchanges) to increase liquidity.

Kenyan stocks have more government and founder ownership than the US; the US has more Retail, ESOP and ETF (e.g. Index Fund) ownership than Kenya. (Source: CMA and TPC)

Case Study: 
Flametree, listed on NSE GEMS (the growth board), has Equity value around $10m, sales growing about 25% a year. Flametree is a holding company that owns ~15 common spice, shampoo and water tank brands in Kenya and other African countries. The CEO owns 84% of the company. The market cap is around $1.5m, the P/S is 0.05, P/B 0.3--this would seem to be a very good buy. The CEO pays himself about $180,000 a year, which seems fair for a company of this size. But Flametree hasn't paid dividends in years and the CEO has no incentive to. So the shares are kind stuck in limbo, even as they are undervalued; since the CEO owns 84% there is no opportunity for a hostile takeover. The share price has declined about 90% since listing in 2014.

Case Study:
Equity Bank vs. KCB. 

Equity Bank has a P/E of around 3.4 while KCB is around 1.8. Both seem undervalued. However they have fairly different shareholdings. Largeset investors:

Equity
- Arise BV (owned by Dutch and Norwegian Development finance institutions)
- James Mwangi (founder CEO)

KCB
- Government of Kenya
- NSSF (social security)
Does ownership by a DFI and the founder help maintain the share price of Equity Bank?

I bought both Equity and KCB in December. Let's see how they do.

Is a stock exchange ‘fit for purpose’ in Africa?

Just like mobile money in the US looks very different than mobile money in Africa (Venmo vs. Mpesa), perhaps funding large companies faces an analogous problem. Currently, African public markets are roughly a copy/paste of systems that work in the US. But the chances that a market with vastly less wealth, trust and education would have the same optimal solution seems…small.

For example, NASDAQ was not even considered a stock market when Apple used it to sell its shares. It was considered an electronic over-the-counter (OTC) system typically reserved for the purgatory of penny stocks. But now it has risen to be the world’s second-largest exchange.

What would the African version of NASDAQ look like? 

The EABX OTC system received regulatory approval on Feb 1, 2024. An OTC system for SACCO shares has also been created by Sacco Shares Exchange and SakoSoko.

MPesa was developed and funded by foreigners; Equity Bank, to this day, has a disproportionate amount of foreign shareholders.

What could a fit-for-purpose capital market look like? How can international Development Finance Institutions help?

Criticism of this article

Due to the nature of this article, many people have written comments to me directly rather than post them publicly. While the majority of comments were positive, I’ll focus on the critical ones here:

• “You are biased and you promote American Exceptionalism [that is, that Americans are somehow better than others.] NSE and the US stock market not comparable in any way.”

  • My goal is not to insult Kenya with this piece; I love Kenya and hope we can do better. I compared NSE to NYSE but could as easily have compared it to Bombay Stock Exchange. NSE could serve all of Africa’s 1.4b people just like India's stock exchanges serves 1.4b Indias. India is one country compared to 54 in Africa, but it is divided by religion, language and culture just like Africa. BRSV exchange works across 7ish countries in West Africa so there’s no reason we can’t do the same in the east. Cross listing seems like the low hanging fruit where companies in Rwanda, Zambia, etc cross list to NSE. We would see more of this if the NSE was more vivacious. So I'm not advocating that we should be like Americans but that there's existence proof that it's possible to be better.

• “You cherry-picked your data.”

  • After asking for better data, none was shared.

• “CMA is actually doing a great job to reform the public markets for the better.”

  • When I requested to share examples of the reforms, none were shared.

Macro trends

There is a trend globally for reduced public market listings. The number of IPOs in the US and UK have halved over the last 25 years.

This is reflected in Kenya where there have been no IPOs for a while, but in just the first half of 2023 there were 34 Private Equity deals worth $1.3b.

As the world becomes flatter, there is consolidation. Why list on the London Securities Exchange when you could list on EuroNext or Nasdaq?

Therefore, there is a now or never, go big or go home for the NSE. If it doesn’t become a regional player it will be eclipsed by Mauritius, Johanesburg, Bombay, Euronext or Nasdaq.

Go regional or become irrelevant.

Conclusion

Why don’t the public markets get fixed in Africa?

Fixing the capital markets starts with quality:

• Rebrand the NSE as the African Stock Exchange and implement the below changes to become a regional player.

• The most important and urgent problem is NSE leadership. The board is currently selecting a new CEO. A lot depends upon this choice. We need a visionary.

• NSE (Nairobi Securities Exchange) can delist companies trading below $1m market cap, below Ksh 10 per share or have less than 25% freely floating shares.

• NSE can maintain a culture of timeliness and data quality.

• There is an earnings call calendar and yet public companies often report their earnings late. The NSE should fine companies that are late.

• CMA (Capital Markets Authority) can revoke stock broker licenses for trading apps with less than 99% uptime.

• Insider trades are not required to be reported on the NSE. Either the NSE or CMA could make this a requirement and improve investor confidence.

• Government of Kenya can let the shilling float freely to eliminate the black market for currency and restore investor confidence.

• GoK can fairly tax land which will drive more investment to productive parts of the economy like equities.

• GoK can reduce interest rates on Treasury bonds. At 15% people would rather buy treasuries than take additional risk for the same (or even less) return on the stock exchange.

• Reduce trading fees. CDSC, NSE, brokers and government entities can reduce fees that currently preclude an efficient market and high turnover.

• Let the free market do its job: Unfreeze listings like Mumias and Kenya Airways and the regulator, CEO of CMA, could avoid saying things that sound communist.

• Sell off parastatals and partially government-owned companies. Government of Kenya can sell KenGen and Safaricom to pay off its own debt and let companies operate more efficiently on the public markets and in private hands.

• Allow automatic dividend reinvestment: Public companies can create DRIPs (Dividend ReInvestment Programs) to increase demand for shares by automatically reinvesting dividends

• Develop a built-for-Africa solution. Innovators and entrepreneurs can consider what an African-native solution to public markets might be that looks very different from public markets we have in the West.

Together, these actions would instill confidence in investors and companies, local and foreign.

Improving the public markets could be a win for everyone. A big win that could 10x the economy. A win for investors, for companies, for stock brokers, for the NSE, for international development orgs and for the Kenyan government revenue collection.

Action items

• For those interested in getting involved Mwango Capital has a vibrant WhatsApp group for “Revitalizing the NSE.”

• If you’d like to start trading I’d recommend EFG Hermes’ app (even if it isn’t perfect). 

• Simply Wall Street has a great website/app with current information about all the pubic companies in Africa and around the world which I have been impressed by.

• Irene Gathiaka hosts regular talks with public company experts.

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No exit for DFIs...but a glimmer of hope for the rest of us

Capital has dried up in a big way. IPOs in the US are down by 90%, which means investors don’t have the capital to recycle into new startups.

Even investments in Africa are down 50%.

In talking with DFIs and institutional investors at conferences, they are increasingly worried about exits. Their “10-year funds” are now 16 years old and have no exit in sight.

Never mind the logic of why startups that take 11-12 years (e.g. Airbnb, Uber) to mature in the US should somehow take less time (10 years) in less developed markets.

On paper, Funds of Funds would invest in funds that would exit in 10 years to Private Equity or acquisitions. But there aren’t enough big companies to make such acquisitions. The existing big companies have a reputation for just stealing the tech rather than buying it. Meanwhile, Private Equity is facing the same exit problem as institutional investors.

Over the next few years, it is more likely than not that  DFIs will focus more on debt. If they can only make <10% returns (IRR) on high-risk equity investments that they can’t get out of for 16 years, why not provide debt at 10% lower risk and have a clear exit? As we see funders move into debt, supply will go up, and price will go down, which is good for entrepreneurs. Interest rates to entrepreneurs will drop even further as the Fed will likely reduce interest rates, reducing prime rates worldwide—DFIs will get squeezed in the middle. 

[Note: if you run a business fueled by debt, like a fintech, and you are profitable/don’t need to raise equity, the next 5 years look very bright for you]

There is one obvious option that has been staring everyone in the face for decades:

Public listing…

Subscribe to see how/if public listing will work in the next 10 years in Africa.

People often ask me, “Do you believe in global warming?” as if it’s a religion. But “belief” is not how reality works. More useful questions could be: What’s the probability that the

1. climate is changing?

2. change is bad?

3. change is worse than the alternative?

It’s worth thinking about to see if we understand the world properly. I researched this topic for strategic reasons for our business—is climate something we want to invest in? Anyone who has a more accurate prediction of the future has an advantage.

The discussion of climate has become muddied due to conflicts of interest. We can’t trust the coal miner or the conservative politician when they say “Global warming is a non-issue,” nor can we trust the left-wing or solar startup that global warming is the biggest threat to humanity.

“You cannot get a man to understand something that his salary depends upon him not understanding.”

Meanwhile, we sit somewhere in the middle: environmentalists in the traditional sense and we do raise funding from climate-related groups.

Is the climate changing?

Climate activists say 99% of scientists agree that the climate is warming and humans are responsible for it. But that disguises the consensus. Are all of those scientists 100% convinced? Or are they 51% convinced? If they are truly 100% convinced, then I’ll happily make a 100:0 bet with them as I would have no downside. No one so far has taken me up on this offer suggesting that people think there could be other causes of climate change, however unlikely (sunspots, aliens with a large magnifying glass 🤷‍♂️). There are no certainties.

Is it bad?

The Dutch have built dikes since the 1300s. 40% of the Netherlands was reclaimed from the sea, and even today, some of their land is still as much as 7 meters below sea level. Can we, with 21st-century technology, also build dikes to protect land that is 1 meter below sea level?

But, people say, what about places like Africa, which are most affected? Yes, but a well and irrigation would make people resilient to decreased or unreliable rains. These are known, albeit costly, solutions, and thus, it wouldn’t be the end of the world.

We can handle the immediate effects of a warmer climate, but, people argue, global warming can spiral out of control: the warm weather melts more ice, less ice means less sunlight reflected and a positive feedback loop that makes the planet warmer ad infinitum until the whole planet is drier than the Sahara.

But there are also negative feedback loops; more carbon dioxide and warmer weather means more plant growth. Plants sequester carbon and reduce temperatures. In fact, the world has become greener over the last few decades with increased forestation in Europe, North America and China, and more greening (think tree crops+forest) in Brazil and Southeast Asia.

Forests in China, Scotland, France, Costa Rica and the US bounced back. Brazil, Peru, and DRC forests are still in steep decline. The world's net forest cover is in decline, but the decline is slowing with every decade; at this rate, there will be a net increasing forest cover by 2050.

So climate change is possibly neutral to possibly very bad. But good and bad don’t exist in isolation. There are pros and cons of every choice…

Was there a better alternative?

We did pump a lot of carbon into the atmosphere, but carbon-based fuels have saved billions of lives in the last 2 centuries through advances in medicine and sanitation, not to mention improved quality of life for billions more. There wasn’t a viable alternative to carbon-based fuels to have saved those lives at that time. So would we rather have a 1-3°C temperature increase or 1-5 billion dead?

People often say climate change could kill millions of people. But what if it’s more complicated than that. What if modern technology, made possible by fossil fuels, saves millions of people. Just look at the data.

It’s almost as if the same thing that increases CO2 levels also decreases climate disasters. Based on 1920s Climate-related Death Rate of ~0.25% and considering there are 8b people on earth now, 20m people each year are saved compared to 1920s levels. EM-DAT, CRED / UCLouvain (2023)

This is not just a question of the past—billions still remain in energy poverty. Is it fair to prevent them from saving perhaps a billion more lives?

Guyana recently announced oil and gas exploration.

Interviewer: Does that give you the right to release all of this carbon?

Pres. of Guyana: Does that give you the right to lecture us on climate change? I'm going to lecture you on climate change.

Do you know that Guyana has a forest the size of England and Scotland combined that stores 19.5 gigatons of carbon, that we have kept alive, that you and the world enjoy, that you don’t pay us for, that you don’t value. And even with oil and gas exploration Guyana will still be carbon neutral.

It gives me chills

Let’s look at the environmental alternative. Is global warming better than global cooling? This is not an idle remark. In the 1950s, climate scientists noticed there was global cooling. In fact, due to the predictable changes in the earth’s orbit and axis of rotation, we can (very roughly) predict when we would possibly have had an ice age. The period of ice ages is about 21,000 years. The last ice age started about 21,000 years ago. Did we just narrowly miss having another ice age? We can never know for sure. But would we rather have 1-3°C warming than an ice age where the average global temperature dropped by 14°C and glaciers came all the way down to New York? 

I just read Why the West Rules…For Now, detailing human development from 14,000BCE to present and a shocking number of times civilization collapsed right as we had a mini ice age (as compared to the 21,000 year major ice age referred to above). A worthwhile read.

Maybe we don’t want the world to get 1-3°C warmer. But we definitely don’t want it to get 14°C colder. If we could modulate the amount of carbon dioxide in the atmosphere to stay somewhere around what we have now AND relieve energy poverty around the world, that would be great. If only there was a way to maintain our current lifestyle AND carbon dioxide concentration…

When will we get this magical zero-carbon energy?

We already have it! Nuclear power is abundant, reliable, safe and cheap (if the government just allows a plant to be built). Climate change is a solved problem (technically). Politically, there are still roadblocks. But politics is just made up of people like you and me. If you say let’s use nuclear and I do too and a billion other people do, then we could maintain slightly elevated levels of carbon dioxide to stave off an ice age. I have little sympathy for environmentalists against nuclear power; We can have our cake and eat it, too. At COP28, 22 countries committed to increasing Nuclear Power 3x by 2050.

What should we actually worry about?

I’m concerned that by 2100, we will have moved from a Military-Industrial Complex to a Carbon-Industrial Complex; we will have created an entrenched group of lobbyists and special interests that incentivize removing carbon from the atmosphere even though doing so is no longer needed. This could create a bullwhip effect that overcompensates and pushes us back towards too little carbon dioxide in the atmosphere, causing low plant growth and another ice age. I have not heard anyone talk about a Carbon-Industrial Complex before, and hopefully, people a century from now will laugh at my wrong-headed theory. But maybe not… History rhymes—if there’s one thing I’m 100% sure of, it’s that humans have proven repeatedly successful at overcompensating.

Closer to home than 2100, consider the parable of the Baptists and the Bootleggers. The religious baptists wanted to ban alcohol in the US in the 1910s to 1920s. Who could blame them? Less alcohol abuse seems like a good thing. But whenever there is someone with good intentions there is someone else who hides under good intentions. Who else wanted alcohol to be banned? The bootleggers! Originally environmentalists had good intentions. Hell, I’m an environmentalist who previously ran a biogas company and attempts permaculture farming when I can. But when the “bootleggers” saw the opportunity to extract rents from people by applying a moral purity test the power hungry saw a way to get what they wanted under the guise of environmentalism. It’s too soon to really sort out who are baptists and who are bootleggers but people who conveniently became concerned about the climate right when it benefitted them are suspect. Just like communism, “we need to control people for their own good.”

We’re a pragmatic bunch at Grant&Co. If carbon credits can raise capital for entrepreneurs who can replant trees or provide funding for rural solar projects, I’m all for it—for better or worse, such projects are a drop in the bucket for global carbon. However, the unintended consequences of carbon credits are not discussed. Like giving away free clothes in Africa, thereby destroying nascent textile businesses, there are always unintended consequences.

What do you think?

This week: Predicting the Future

Podcast: Two of my favorites on the same podcast. Rick Rubin and Marc Andresen discuss how the past of tech can predict the future and why Marc is an Effective Accelerationist.

Book: Why the West Rules—for Now is an incredible read, even better than Sapiens or Germs, Guns and Steel. It seeks to review historical patterns and make predictions about the future of Civilization.