Investing in Kenya

Dated Dec 24, 2019; last modified on Sat, 12 Mar 2022

Areas to Consider

Capital Markets

The Central Depository and Settlement Corporation (CDSC) runs the Central Depository System (CDS) that facilitates holding and trading of shares at the Nairobi Stock Exchange (NSE). A Central Depository Agent (CDA) is a Stockbroker, an Investment Bank, or a Custodian Bank, who has been authorized by the CDSC to open accounts in CDS on behalf of investors.

In 2006, an Automatic Trading System was introduced so that orders are matched automatically and executed by stockbrokers on a first-come first-served basis. Government bonds have also been added to the ATS. Securities lending, short-selling and same day turnaround trades are not yet permitted.

I guess that’s why quant funds are not a thing in Kenya.

The NSE 20 compared to the S&P 500 over 5 years (2015 - 2019). The NSE 20 lost 48%, while the Fortune 500 gained 55%. Credits:

The NSE 20 compared to the S&P 500 over 5 years (2015 - 2019). The NSE 20 lost 48%, while the Fortune 500 gained 55%. Credits:

Consequently, why would a rational investor put money into the NSE 20 instead of the S&P 500? I’m biased to look for gems because I’m Kenyan. This performance pokes holes in the ‘Kenya’s economy is rapidly growing’ narrative. Is it the place to be as an investor?

To invest in bonds, open a CDS account with the Central Bank of Kenya. Treasury bills mature in < 1 year, and start at 100k KES. Treasury bonds mature in 1 - 30 years, and start at 50k KES.

It seems like bills and bonds are more reliable for the Kenyan market. Kenya USA Diaspora Sacco and Cytonn Investments do bills and bonds for diaspora .

tracks Africa ETFs listed on US exchanges. They’re not doing so well. The top 4 performers in the last 5 years: EZA at 17.96%, AFK at 15.65%, EGPT at 9.70%, and NGE at -19.82%. Kenya is not on this list.

The unremarkable ETF performance dampens the “Africa is the next big investment scene” campaign. cites the increasingly familiar claim, “Seven of the ten fastest growing economies in the world are in Africa and of the 10 best cities to invest in Africa, two are in Kenya.”

Real Estate

I’m not bullish on real estate in Kenya. Seems like a bad lemons market. There’s the prevailing belief that land will always appreciate. Maybe they’re right, maybe it’s 2008 all over again.

value propositions for partnering with them for real estate are: clean titles, legitimate owners, fairly priced and projected to appreciate, ensure amenities are in place and negotiated financing plans.

Questions to Dig Into

Processes for Investing

Investment Vehicles

Investment groups (chamas) are popular for pooling investor resources. is an umbrella non-profit organization. The list of chamas is not publicly available though, which makes picking a good chama trickier.

Kenya USA Diaspora Sacco claim to address stringent financial requirements from banks, unreliable relatives and friends, and limited control and accountability of investments in Kenya. They offer term deposits (best rate is 10% for 5m+ KES), bringing together group investments, facilitating real estate deals .

offers a high yield fund, which is mostly (up to 80%) invested in real estate. Promise target returns of ~14%, and charge a 2% management fee.

In 2020, ’s minimum for the fund was 1m KES, but in 2022, the minimum is 100k KES.

Starting a Business

has components like: mega-investment projects; guides on labor, taxes, investor rights; primers for getting started in various sectors. Many steps need to be completed in Kenya (can appoint an agent).

Capital Movement

US to Kenya Money Transfers

The foreign exchange markup is calculated as \((r_{mkt} - r_{bank}) / r_{mkt} \cdot 100\).

currently offers a USD/KES rate of 110.65, while the market rate is 113.65, and so the FX markup is \((113.65 - 110.65) / 113.65 \cdot 100 = 2.64\%\). Sendwave is convenient though as the funds arrive in the recipient’s M-Pesa account in minutes.

US banks charge an average flat fee of 42 USD for outgoing international wire transfers . There may be incoming wire fees, e.g. NCBA - 850 KES , Standard Chartered - 15 USD , KCB - 2,000 KES , Co-op Bank - 500 KES , Diamond Trust - 500 KES , and Absa - 12 USD . So 55 USD is a good upper bound.

If wire transfers incur total flat fees \(f_{wire}\), and a “no-fee” money transfer tool has an FX markup of \(m\), then using a wire transfer makes sense for \(x \ge f_{wire}/m \). In Sendwave’s case, \(x \ge 1{,}590.91 \text{ USD}\).

Any form of electronically moving money from one bank account to another is an electronic fund transfer (EFT). A wire transfer is an EFT between individuals/entities across a network of financial institutions. The institutions communicate through a secure messaging system, e.g. the SWIFT network.

Credit card companies offer low FX rates, but may have foreign transaction fees (see for sample transaction fees, and cards that lack such fees). Some debit cards charge a flat rate, or a percentage, or both for ATM withdrawals. Some banks have relationships with other banks that results in lower fees. Prepaid cards lock in the FX rate at load/reload time; read the fine print though on fees, validity, and guarantees if card is stolen. Airport and hotel exchange desks have hefty FX markups. Using your home currency on the credit card invites more fees because the local bank needs to convert, and the home bank needs to re-convert; good for the banks, but not so for you.

Exchange Rate Risk

One of the challenges is the KES being relatively volatile against the USD. For instance, buying USD-denominated goods is expensive when the KES is depreciating against the USD.

The rule of thumb is to leave the exchange rate risk unhedged when the local currency is depreciating against the foreign-investment currency, but to hedge this risk if the local currency is appreciating against the foreign-investment currency.

lists ways of hedging currency risk by locking in an exchange rate:

  • Currency futures: buy/sell a fix amount of currency at a set rate for a defined period of time; traded at an exchange, with a margin payable; binding obligation; can be sold before maturity.
  • Currency forwards: often large sums; customizable amount and maturity; traded over-the-counter so more counter-party risk and less liquidity.
  • Currency options: pay premium to have the right (but not obligation) to buy the currency at a pre-determined rate before the option expires.

For small amounts, recommends currency ETFs as discussed by . A currency ETF tracks the currency, and typically has low management fees.

What counts as a small amount?


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