Kenya pulls out of EA capital markets project over tender

Kenya's capital markets regulators have reservations about the quality of the software being purchased. PHOTO | FILE 

By JAMES ANYANZWA

In Summary

• The capital markets integration project is part of a wider World Bank-funded EAC Financial Sector Development and Regionalisation Project 1 (EAC-FSDRP1), which seeks to support the establishment of a single financial market among the EAC member states.
• The other components of the project are financial inclusion and strengthening of market participants to be carried out at a cost of $1.74 million and harmonisation of financial laws and regulations, set to cost $2.33 million.
• Others are mutual recognition of supervisory agencies ($700,000), capacity building ($7.2 million) and development of the bond market.
• The World Bank has disbursed $10.82 million towards the project implementation.

Kenya has pulled out of a capital markets integration project meant to make trading in shares across East Africa cheaper and faster, citing irregularities in tendering for the $3.8 million software.

The other EAC member states — Rwanda, Uganda and Tanzania — will proceed with the interconnection as Kenya consults over the alleged irregularities. Burundi, which does not have a securities exchange, is expected to link up to the interface when it launches one.

Kenya’s capital markets regulators have reservations about the quality of the software being purchased and whether it will be compatible with the Nairobi Securities Exchange’s clearing and settlement system. They are also concerned about the capacity of the vendor to deliver on the project.

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The decision by Kenya, the most developed capital market in the region, with the NSE being among the top five bourses in Africa, to sit out of the initial phase of the project raises doubt about its success.

The EastAfrican has learnt that the tender was awarded to Infotech, a Pakistan-based software firm based on terms of reference that had not been approved by the region’s Sectoral Council of Finance and Economic Affairs.

“The pre-budget meeting of ministers of finance agreed that the project can be implemented with the other four partner states as Kenya undertakes consultations,” an EAC report to the Council of Ministers released on May 30 shows.

“We were advised by the capital markets authorities of the region that there were issues with the company that had been identified to provide the software. We want the contract to be cancelled and the process to start afresh, but the EAC Secretariat has indicated the project will go ahead, so we have decided not be part of the process,” said Kenya’s Cabinet Secretary for the National Treasury Henry Rotich.

It is understood that the EAC Secretariat signed the contentious contract without the involvement of key stakeholders.

“We just found out that the contract has been signed,” Mr Rotich told The EastAfrican.

“The IT solution is in the final stage of procurement... The main issue was how the procurement was done. Kenya looked at the process and felt that there was some work that needed to be done before we select the vendor of the IT solution but the other members decided they would move forward with the person identified so Kenya stepped back,” said Paul Muthaura, acting chief executive of Kenya’s Capital Markets Authority.

“We have written to the EAC Secretariat expressing our concerns and we are still waiting for the feedback,” said Geoffrey Odundo, NSE chief executive.

The integration of the region’s capital markets is in line with the provisions of the EAC Common Market Protocol, which provides for free movement of capital in the region.

The software was to link the trading platforms of the NSE, Uganda Securities Exchange (USE), Dar es Salaam Securities Exchange (DSE) and Rwanda Stock Exchange (RSE) so that they run as a single market in real time.