I have recently pointed out a poor retail investors’ participation in the financial market in Rwanda. This investors’ demographic is a key player in the secondary markets since they are the ones most likely to sustain a healthy liquidity from both supply and demand. It’s not a market, unless someone is selling to a buyer, and vice versa.
From logistics to products diversity – not to mention again poor retail investors inclusion – here is what I think is slowing down the Rwanda capital markets:
1 – Non-digital real time market quotation system
Yes, I know that some digital real-time market quotation systems are very expensive. Bloomberg software can go as high as one million US dollars. But there are some real-time streaming systems that are well affordable provided that they are dealing with a relatively slow trades’ traffic such as the one at Rwanda Stock Exchange (RSE). I even happen to know coders who can build this kind of software from scratch, 80% cheaper. My point here is this is a national exchange, for God’s sake. It represents a country. And investors, whether local or foreign, look at it as an indicator of what to expect in terms of market efficiency. For the exchange that have been in operations for the past five years if not more, we should invest in logistics. We shouldn’t be using sharpie markers and hard boards to quote intraday trading prices. If it’s about saving money, we might as well switch to chalks.
2 – Lack of product diversity
Some investors like to target a particular geographic niche or a particular sector. I have had clients telling me that they would like investment recommendations only in specific sectors such as healthcare, consumer goods, tech or financials.
So, what if I wanted to invest in industrial sector in Rwanda? All I have is only Bralirwa. Or Bank of Kigali (BK), Kenya Commercial Bank (KCB), etc for financial sector; plus a couple of Kenyan supermarkets for retail sector. Not much to choose from really. As an investor or investment advisor, I need to have different products choices to run a competitive analysis before I recommend any to my clients. We lack products diversification at RSE. We need more listings amongst sectors. We need more growth stocks listed not just one or two large dividends paying stocks. This will attract several long term investors as well as short term speculators among seasonal or cyclical securities.
3 – Retail investors’ market participation and public education
I have written about this before but I cannot emphasize this enough. This is what indicates a healthy financial market. Mom and pop investors; not strong multi-millionaires institutions.
That school teacher from Huye who buys a few shares of Bralirwa; the following week, s/he needs to pay some school fees for kids, s/he then sells a portion of those shares to an average businessman from Kayonza. That is the key driver of trading activities.
Or that Kigali young entrepreneur who holds some BK shares and would like to speculate on seasonal agricultural products performance, s/he would want to buy some shares in Inyange Industries if this was a publicly traded company. And maybe sell some of his BK shares a couple of days later to a typical farmer from Nyagatare who just sold his gallons of milk to Inyange Industries and so on and so forth.
This is what drives supply and demand. This is the real definition of the market. Not just long term pension funds who buy the majority of companies only to hold for years. They might as well do it through private placement instead of going public.
Now the real problem lies from that school teacher, that small business man/farmer or that young entrepreneur who do not understand basic fundamentals of how money is made in the stock markets.
The public should be heavily educated about this investing culture. Most Rwandans are used to counting concepts of kilos and tons of crops or packages of retail goods but not educated enough on how to own shares of big companies or how dividends are paid; not to mention how to lend money to corporations and governments through bonds.
The RSE has done a fine job establishing this platform. But the momentum should be kept on a much faster pace moving forward.
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