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Introducing IPOs good for economy

Introducing IPOs good for economy
Economic growth. Photo/Courtesy

Now that the government has signalled its intention to privatise selected State corporations through the Nairobi Securities Exchange (NSE), citizens should start preparing for new Initial Public Offerings that could help them grow their investments.

Granted, the main aim of the move is to raise funds for the government to meet its expenditure needs and help it to reduce borrowing given that the country is already carrying a heavy debt burden. However, there is nothing to stop savvy investors from making money from IPOs and long-term investments in the stock market.

The government has also hinted at further divestiture for State-run firms that are already listed on the bourse which, if well managed, can give investors good returns in dividends, given the growing demand for energy.

Privatisation of public assets is not an end in itself; it is a strategy meant to improve the efficient allocation of government resources, mobilise investment to meet public expenditure needs, and equally important, stimulate private sector growth. That means local investors can gain even as the government taps into their resources to meet its revenue needs. Should the plan be actualised, this will end a seven-year listing drought at the NSE whose last IPO was in 2015 with the listing of Cooperative Bank.

The call for privatisation is a win-win arrangement for both the government and the investing public because it will unlock financing for the National Treasury. Spent well, the money so raised can be used to plug budget holes and reduce borrowing. In turn, this will help the country consolidate its fiscal policy and bring down debt, which hit a high of Sh8.6 trillion in June.

Already, Kenya’s debt servicing costs hit Sh178 billion in July and August against Sh280.23 billion in tax collection. This needs to be reduced in the medium term to avoid debt distress by shoring up revenues.

The encouraging news is that the Capital Markets Authority already has a list of the proposed sale of enterprises, including divestitures, which means the systems are ready and the sale could be rolled out sooner rather than later.

For the divestiture to succeed, the targeted enterprises must leverage a free market to ensure they thrive on the new platform for prosperity and to create shareholder value. They must be the new face of cost-cutting and greater attention to customer satisfaction to ensure they thrive.

They should also be ready and willing to change, from management to product to corporate culture, so that they can grow and remain resilient despite the prevailing economic challenges.

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