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The capital market can promote sustainable development
Monday 04 April 2022
Trading floor of the Nairobi Securities Exchange. FILE PHOTO | NMG
By NDIRANGU NGUNJIRI
Summary
- In Kenya, the private sector is reluctant to be listed on the securities market, which limits the attractiveness of the capital market for investors and leads to few listed companies.
- The Secretary of the Treasury has given companies a two-year tax amnesty if they go public to encourage them to go public.
- The capital market is a highly specialized and organized financial market and a key engine of economic growth due to its ability to facilitate and mobilize savings and investments.
The capital market offers a variety of financial instruments that allow economic actors to pool, price and exchange risks.
In Kenya, the private sector is reluctant to be listed on the securities market, which limits the attractiveness of the capital market for investors and leads to few listed companies.
The Secretary of the Treasury has given companies a two-year tax amnesty if they go public to encourage them to go public.
The capital market is a highly specialized and organized financial market and a key engine of economic growth due to its ability to facilitate and mobilize savings and investments.
The capital market is the main tool driving any economy on its path to growth and development.
This is because it is responsible for long-term growth and capital formation by allocating funds to investments, ensuring efficient and effective allocation of scarce resources for optimal benefit to the economy, and reducing the corporate sector’s over-reliance on short-term financing for long-term projects and encouraging inflow of foreign capital.
The capital market occupies an important place in the economic development of society.
The values of capital could be even more interesting in the case of emerging markets, which are notorious for reallocating financial resources to efficient activities. They contribute not only to economic reforms but also to the privatization process.
The growing importance of the world’s capital markets has reinforced the belief that finance is a critical component of economic growth and stock market development.
The capital market plays an important role in the growth of industries and companies.
Economic growth depends on an efficient financial sector that pools domestic savings and mobilizes foreign capital for productive investment. Underdeveloped or poorly functioning capital markets are illiquid and expensive and discourage foreign investors.
The capital market enables the contractual savings industry to mobilize long-term savings from small private households and channel them into long-term investments.
It performs the transfer function of current purchasing power in monetary terms from surplus sectors to deficit sectors in exchange for reimbursement of higher purchasing power in the future.
property
In this way, the capital market enables companies to raise capital to finance their investments in real assets.
The overarching goal of the Big Four agenda and Vision 2030 is to transform Kenya into a middle-income economy by improving its competitiveness while ensuring unity and inclusive growth. The Capital Market Authority is responsible for the development of the capital and financial markets.
The capital market provides equity for infrastructure developments such as roads, water, sewerage, housing, energy, telecommunications and public transport, which have strong socio-economic benefits.
Securities markets are important because they play a significant role in the economy, directing investments to where they are needed and making the best use of them.
The securities market offers an important alternative source of long-term financing for productive investments. This relieves the banking system by combining long-term investments with long-term capital.
Securities markets provide a way to raise capital and trade securities, including futures, options and other derivatives that offer investors the opportunity to earn returns.
The consequence will be an increase in productivity in the economy, the creation of more jobs, an increase in overall consumption and thus growth and development. It allows them to benefit from economic growth and wealth distribution while also providing opportunities for investment opportunities.
The capital markets facilitate the efficient allocation of scarce financial resources by offering a variety of financial instruments with different risk and return characteristics.
This competitive pricing of securities and the wide range of financial instruments allow investors to better allocate their funds according to their risk and return preferences, thereby supporting economic growth.
This is Ngunjiri, Managing Partner of Watermark Consultants
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