The financial market, as any other one, presents opportunities and constraints due to the economic environment of the country. The stock exchange grants a certain number of advantages for the economy in general and for the financial system in particular. So even thought it still is at an embryonic stage, the RSE (Rwandan Stock Exchange) presents opportunities linked with the country’s situation:
* The extension of the property in Rwandan companies
It is planned that once a company is quoted, the property is widened to much more people. Besides, the government widened the property of companies by favoring the development of investment companies and the other collective investment bodies where the small investors could contribute. Thanks to these institutions they can buy shares of the State companies, become owner of the capital and receive annual dividends.
* The facilitation of direct foreign investment
The RSE will help in increasing the direct foreign investment by allowing the foreigners strategic investors to acquire, thanks to the resumption, important parts in companies but the RSE must guarantee them a way of exit.
* Creation of new financial instruments
The stock exchange plans the creation of financial instruments that are non-existent nowadays. These instruments include the swap options and many others that can bring diversity and an innovation to the existing financial instruments, namely, the shares and the obligations.
* Supplies an ease of exit for investors
The stock exchange works as a mechanism that allows the investors to enter in or to withdraw from the financial market. In Rwanda, there are several companies of which the State held a consequent part of shares such as the BRALIRWA or the Bank of Kigali. A few years ago, the government could not have been able to withdraw. But thanks to the RSE, the State was able to withdraw from these companies in a fair market, where the strengths of the offer and the demand determine the prices and the transaction costs.
* The privatization
In Rwanda, many public enterprises were not successful and the government, through the committee of privatization, identified the remedy, in the short term, as the financial and operational restructuring, aiming the improvement of their efficiency and to allow them to provide quality services. However, the long-term solution is to restructure the viable companies and then, invite the participation of the local or international private sector. So, the sale of the government shares on the RSE, in the form of privatization, releases him it from its participation in these companies.
* Reduce the foreign dependence
The RSE will allow reducing the dependence to the external thorough lessors and will allow the country to have an internal financing. Indeed, the support of the donors is more expensive and creates, in most of the cases, the dependence to the international organizations such as the IMF (INTERNATIONAL MONETARY FUND) and the World Bank that commit the funds only under certain conditions, which are not inevitably the priority of the government.
* Opportunities bound to the investment environment
As the executive director of Capital Market Authority (CMA), Robert Mathu, said it, the Rwandan investment is very good, compared to the environment of investment of numerous African countries, because there is a clear will in term of support for the development.
* It is also important to know that several measures were taken in the field of the tax system to attract as much investments as possible :
-Tax exemption on the income
-Tax on the earnings in capital
-Tax on the value adds (VAT)
But even if the Rwandan Stock Exchange presents a lot of opportunities, certain constraints could raise problem:
* Insufficiency of big companies
Rwanda counts a large number, and thus mainly, SME (SMALL AND MEDIUM-SIZED ENTERPRISE) that are generally family companies
* Absence of investment banks
An investment bank is different from a commercial bank, in this sense that it does not accept deposits of the public. It is an institution of which the purpose is to advise the companies wishing to raise funds, via the market, by broadcast of securities. In Rwanda, there are no investment banks. Consequently, the banking services of investment as the subscription of securities or the management of wallets do not exist under this shape.
* Insufficiency of financial institution
Contrary to other countries of the EAC (East African Community) as Kenya, Uganda and Tanzania, that have a financial system constituted respectively of: (42 commercial banks, 12 investment banks, 21 brokers, 43 insurance companies); (33 commercial banks, 1 investment bank, 6 brokers, 22 insurance companies); (16 commercial banks, 8 brokers, 21 insurance companies), Rwanda still has a weak financial system: 9 commercial banks and 5 insurance companies and it reduces the level of investment on the financial market.
* The public awareness
The Rwandan population is not enough informed on the RSE and the stock market does not seem to be enough sold to the potential investors or to supply a sufficient variety of products to attract companies. This lack of raising awareness can be attributed to financial constraints or of human resources. The lack of raising sensitization on the operations of the RSE is thus a major obstacle to the participation of the public in the securities market.
Considering the constraints, the following recommendations may help: * The continuation of the privatization of government corporations is essential because it is a viable source of titles. In this regard, the implementation of a bill of privatization through the stock exchange is going to increase the offer of the capital on the market and consequently, be a trigger of the activities on the primary market of the actions. However, under the cover of the privatization, the weak and non-successful public enterprises must not be overvalued on the market.
* The RSE should play a more educational role and dash in a strong campaign in sight to make known and to make sensitive the potential investors on the opportunities that the market offers and how to exploit them effectively.
* The efforts spread to improve the public awareness on the possibilities that offers the financial market in Rwanda must be strengthened by using a variety of means of communication such as media campaigns through the radio, the television and the newspapers. It would also be necessary to make a commitment in meetings with eligible companies and potential investors through the country.
* The modernization of the system of trade to improve the liquidity, attract the foreign investors and reduce transaction costs is necessary. The automation of the exchanges will so come to complete the current central automation of the agent (compensation and payment) and, therefore, facilitate the capacity of the market to face an increase of new registrations inscriptions or greater negotiation.
* Encourage the free circulation of the capital through the borders thanks to the regional integration of the capital markets like the BRVM (Regional Stock exchange of Securities), as illustrated by the UEMOA (West-African Economic and monetary Union). And as a member of the EAC, participating actively in the creation of a regional stock exchange of the EAC.