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Speech for the Chairman, Capital Markets Authority, Mr Kung’u Gatabaki, During the 5th Anniversary Celebration of Fusion Capital, 18th August 2011, Nairobi Serena Hotel

 The Chairman, Fusion Capital, Dr. Phillip Goodwin;

The Group Chief Executive Officer, Fusion Capital, Mr. Luke Kinoti;

Other Directors of Fusion Capital present;

Invited guests;

Ladies and Gentlemen;

1. Introduction

I am delighted to join you this morning as you celebrate your 5th anniversary. I would like to congratulate Fusion Capital on this important milestone, which also marks the launch of the private equity fund, Fusion African Access Limited Partnership.

The plan to grow the Private Equity fund to US$150 million demonstrates yourcommitment to the region, which I believe has enormous potential.

I note your focus on Small and Medium Enterprises (SMEs) to which you offer both debt and equity capital. Your business strategy is aligned to the Vision 2030 Economic Blueprint, which recognises the importance of the SME sector in unlocking Kenya’s economic potential.

2. Role of Capital Markets Authority in facilitating growth of Private Equity

The Capital Markets Authority supports the growth of Private Equity in Kenya as it provides a source of funds for Kenyans businesses, especially SMEs, seeking support for business expansion and growth strategies. The biggest investors in private equity across the world are Pension Schemes and Collective Investment Schemes.

The Authority is aware that the existing regulatory framework for pension funds and collective investment schemes limits their investment in private equity funds. To address this challenge, the Authority is currently working with the Retirement Benefits Authority to review existing asset class ceilings to enable Pension and Collective Investment Schemes invest in private equity companies as well as Fund of Funds.

Further we will be reviewing our regulatory framework to allow the listing of Private Equity Funds at the Nairobi Stock Exchange, in addition to Venture Capital Funds, to offer an exit mechanism as investors seek to unlock the value of their investment.

3. SME Platform at the Nairobi Stock Exchange

This strategy is underpinned by the realisation that unlocking the potential of SMEs,which contribute about 40 percent of GDP in Kenya and about 80 percent of the employment in Kenya, is key to propelling Kenya to double digit growth as envisaged in the Vision 2030 Economic Blueprint.

We are at an advanced stage, working with the Nairobi Stock Exchange and Central Depository and Settlement Corporation, to finalize the listing and eligibility requirements for this platform. 

4. Legal and Regulatory Reforms in the Capital Markets

The recent delivery of a new Capital Markets Authority Bill and Securities and Investments Bill to the Deputy Prime Minister and Minister for Finance for onward tabling in Parliament marks the evolution of our regulatory framework to be aligned to international best practice in effective securities regulations. 

One of the major ongoing reform initiatives is the demutualisation of the Nairobi Stock Exchange. The objectives of the demutualization process include; separation of ownership from management to support effective and sustainable governance structures; building independent management structures to ensure compliance by market intermediaries through effective supervision, and enforcement; and promoting increased efficiency driven by open competition in the provision of services.

With the support of all stakeholders we expect the process to be finalized within the next few months.

5. Opportunities in the regional capital markets

The capital market regulators in the region have been working towards harmonising the legal and regulatory framework in line with international standards. Some of the benefits include recognition of East African investors as locals in IPOs and crosslisting of companies.

Other initiatives to strengthen the regional capital markets include; promoting issuance of regional bonds, facilitating East African Community investment service providers & market intermediaries to offer services across borders, and creating a

legal framework to facilitate commodities and futures exchanges. 

6. Conclusion

The Capital Markets Authority Board and Management will continue working closely with all market players and stakeholders in the capital markets industry to make the market environment more facilitative to enhance issuer and investor confidence.

I am confident this will go a long way in improving Kenya’s position as a major financial hub in the region.

Ladies and Gentlemen, thank you for listening to me.

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