Foreign investor outflows hit Sh23 billion as new taxes bite

By Dominic Omondi
 New punitive taxes by the Jubilee administration have scared away investors from the stock market, with the bourse suffering a massive Sh22.9 billion in foreign cash outflows.
The mass exit from the Nairobi Securities Exchange (NSE) - the highest in recent years - has deeply worried the market regulator that is now calling for concerted efforts by key industry stakeholders to win back the ebbing investor confidence.

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In its latest Soundness Report, the Capital Markets Authority (CMA) singled out increased excise duty fees on money transfer services by providers from 10 per cent to 12 per cent as one of the reasons for the record outflow in nine months this year. "Actions like the eight per cent fuel VAT tax and the 20 per cent and 12 per cent excise duty on transfer of funds in banks and when transferring fund using mobile phones respectively, have exacerbated the problem," indicated the report.
The loss surpasses the Sh11.5 billion foreign outflow suffered in the whole of last year. The Government is eyeing a share of the billions of shillings that are transacted every day by individuals and businesses through 54 million bank accounts as listed by Central Bank of Kenya.
Besides charging 20 per cent excise duty on money transfers, up from 10 per cent, all other fees such as ATM withdrawals, depositing a banker’s cheque, over-the-counter withdrawals will all attract a 20 per cent charge, up from 10 per cent.
These increased costs relating to the transfer of funds in relation to banking services, said CMA, have also contributed the outflows. A requirement for investors to open different accounts to trade different securities has also caused jitters in the stock market, which less than two weeks ago saw its benchmark index, NSE20, touch a decade-low of 2,775 points. One of the notable reasons for the exit of foreigners from the Nairobi bourse has been the improved market conditions in foreign source markets, especially with the strengthening of the US economy.
Billions have left the shores of emerging and frontier markets like Kenya, threatening the stability of the local currencies and whole economies. Already, the shilling, which has held steady at an exchange rate of 101 against the US dollar for several months, has crossed the 102 mark, putting a damper on the country’s refinancing plans this year. Stay informed while on the go by subscribing to the Standard Group SMS service.
Text the word 'NEWS' to 22840. Highest levels “Investors are not just looking at high-interest rate today, they are also expecting high-interest rate tomorrow,” said Johnson Nderi, manager at ABC Capital Ltd. He noted that investors fear that the shilling could slide as the dollar gains.
The Balance of Payments Report for the Second Quarter, 2018 by the Kenya National Bureau of Statistics showed that the financial account net inflows declined to Sh18.8 billion between April and June from Sh140.8 billion in the second quarter of 2017.