President Ruto Must Root Out Cartels at Capital Markets Authority to Solve Unemployment Crisis

As his term officially kicks off, Kenyans are eagerly awaiting the fulfillment of President William Ruto’s promise of a new economic model that will address the unemployment and lack of opportunities for youth, which has ravaged the country since independence.

In his inaugural speech on September 13, 2022, Ruto signaled the establishment of a fund that will provide cheap and easy loans with no need for security, pledging to pump billions of shillings to support various sectors.

But even as the new administration embarks on implementing all these interventions, experts have warned that these measures are not enough to fully combat the unemployment crisis.

“Despite the promises, the new administration needs to understand that we cannot create jobs without growing enterprises,” opines Cytonn Investments CEO Edwin Dande.

He adds: “We cannot grow enterprises without businesses accessing funding. One of the best ways of growing enterprises is restructuring the policies in the banking and capital markets, to enable the free flow of funds in all sectors, without having to stifle one sector to grow another one.”

In well-functioning economies, banks provide only 40 percent of business funding, with a majority of 60 percent coming from capital markets.

However, in Kenya, because of our moribund capital markets, banks provide 99 percent of business funding, leaving only 1 percent of funding from capital markets.

That is why financing for businesses is hard to access and, when accessed, it’s expensive.

To tackle this problem permanently, Mr. Dande further argues that the Ruto administration must focus on reforming Capital Markets in order for businesses to grow and create enough jobs.

Capital Markets, being a catalyst for economic growth, also enable the business community to raise long-term capital funds that are used to purchase capital goods, propelling their growth and supporting the country’s economic growth.

“Some of the key reforms needed to catalyze capital markets growth is the opening up of the markets to more participants, infusing the management of the Capital Markets Authority with staff that has capital markets business experience, and allowing unit trust funds to have multiple bank accounts to receive investor funds, and free unit trust funds from the control of banks as the sole trustees by allowing for corporate trustees,” notes Mr. Dande.

For this to happen, President Ruto must commit to rooting out cartels at the Capital Markets Authority (CMA) – the regulating body charged with the prime responsibility of supervising, licensing, and monitoring the activities of market intermediaries, including the stock exchange and the central depository and settlement system and all the other persons licensed under the Capital Markets Act.

Over the past years, a dangerous syndicate that enjoyed the blessings of top state officials has held the CMA captive.

The six-year tenure of billionaire business executive James Ndegwa, son of former Central Bank of Kenya governor Phillip Ndegwa, was marred with conflict-of-interest accusations.

Since his appointment in April 2015, businesses in which his family has an interest started or completed several mergers and acquisitions that were approved by the regulator.

This included the latest merger between the former NIC Group and CBA Group that created the Nairobi Securities Exchange-listed NCBA Group, the country’s fourth-largest bank by assets.

The Kenyatta Family and Philip Ndegwa Family are NCBA Bank’s top shareholders with a combined 25.72 percent stake valued at Ksh.10.5 billion, according to the bank’s annual report.

It is Mr Ndegwa that appointed Paul Muthaura, the son of former civil servant Francis Muthaura, as the CMA chief executive.

Apart from playing a crucial role in signing off the dubious transactions, Mr Muthaura also oversaw endemic impunity and tribalism.

The catastrophic era led to the rise of economic criminals like the perpetrators of the Chase bank collapse, who ended up with a slap on the wrist from CMA.

They failed to intervene when needed.

Mr Muthaura recently left the regulator to join ICEA Lion General Insurance – another company partly owned by the Ndegwa family — as the chief operating officer.

Mr Ndegwa’s also memorably tenure coincided with drought in fresh listing on the NSE and delisting of firms like KenolKobil, Rea Vipingo, Marshalls East Africa, Hutchings Biemer, A Baumanns and Atlas East Africa.

They misused the authority as a political weapon to settle petty scores.

This external influence on CMA has continued under the leadership of new NSE chairperson Kiprono Kittony, son to Hon. Zipporah Kittony, the former chairperson of the briefcase organization “Maendeleo ya Wanawake”.

With so much foreign interference, it is impossible for the CMA to adequately perform its role until it’s rescued from the shackles of economic criminals.

Edwin Dande is the CEO of Cytonn Investments and a senior economic analyst.

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