Interview with Robert Mathu (CEO Rwanda Stock Exchange)

The capital market is the market for securities, where companies and the government can raise funds for the long-term. The capital market includes the stock market and the bond market. Financial regulators oversee the capital markets in their designated countries to ensure that investors are protected against fraud. The capital markets consist of the primary market, where new issues are distributed to investors, and the secondary market, where existing securities are traded. A stock exchange is a corporation which provides facilities for stock brokers and traders to trade company stocks and other securities. Stock exchanges provide facilities for the issue and redemption of securities as well as other financial instruments and capital events including the payment of income and dividends. 

Business Rwanda spoke to Robert Mathu and Pierre Celestin Rwabukumba who are here to introduce the Stock Exchange to Rwanda. 

Business Rwanda: Exactly what role are you going to play in the growth of Rwanda’s economy?

I am here to set up the Rwanda capital market. Capital markets provide an ideal platform for transparency in transferring management from the private to the public sector by floating shares to the general public and offering the common man an opportunity to buy ownership into those companies, as opposed to going through the long and tedious tendering process. 

Business Rwanda:  How will a capital market work in Rwanda?

In any economy we have the money market and the capital market. The money market is for short term funds and is dominated by banks, commercial banks and microfinance institutions. They receive savings and offer products like fixed deposit and current accounts.  However, we constantly go back for this money so the bank cannot use it to lend to a project with a long gestation period.  

Citing an example, if an investor wanted to venture in long term projects such as coffee, tea or cement, the minimum gestation period is about three years.  Going for a bank loan would be costly for the bank and the company. This is where capital markets come in. All the company has to do is sell shares to the public. Money obtained will be invested in the long term project and the long run returns will benefit the shareholders by increasing the value of their shares and paying dividends. 

As an investor, you have the option to sell your shares and get your money back. All this happens in an organized ‘capital market’. Essentially, a capital market is a market for long term capital.

Business Rwanda:  Could you explain the structure of a capital market?

All economies fundamentally require government planning authorities for finance, banking, insurance and retirement. Of equal importance is the capital markets authority, which, however, does not have to be under the government. Such is the global trend; the New York, London and Johannesburg Stock Exchanges were all started by private entities. In Africa, the World Bank has influenced financial reforms to ignite capital markets through legislation to provide security for the investors.  

In Rwanda we are taking a double edged approach by working with the government as the main sponsor and our private agency as a guide that puts together the infrastructure of the capital market. The agency already has a secretariat and a board in place with members appointed by the Minister of Finance. I am heading the secretariat.

Business Rwanda:  What are the direct benefits of a capital market to national development?

The benefits are mainly Long term. Capital Markets will create wealth and employment by mobilizing funds within the economy and injecting them into large projects. The process will also encourage thrift savings as the value of shares go up, thereby creating wealth for shareholders. Google initially sold their shares at US$100 back in 2004 and right now that share is over $730, which means anybody who bought a significant amount of those shares at the initial price got wealthy. 

In any economy, if you don’t have savings you cannot invest, because there are only two primary sources of funding in a business; savings or loans. In aggregate economics savings are important, as the performance of most economies is judged by the level of savings.

Business Rwanda:  How would one predict the direction of the price of a share on the stock market?

Speculators understand the market and help those who don’t to predict the trends. Like any business, there is always risk, but there are ways of guarding against a volatile market. When a company is first listed on the stock market, the price of a share of its stock is determined by its performance. Once a company sells shares to the public and is quoted on the capital market, the company signs an undertaking stating that whenever anything material happens in their business or they have audited their accounts, they must send that information to the market, and this is called fundamental information. This ensures that when people are making an investment decision, they are basing it on information that is available publicly.  

For example, say a share was selling at FRW 100, and we just received information today that the turnover of that company has gone up by 20% and profitability has gone up by 50%.  Then you will be ready to pay more for that company’s shares. That is how the price goes up.  However if the news is negative, the market price will go down. The stock exchange cannot determine the direction of the price.  We are just a platform for issuers of shares and investors to come and trade.  

Business Rwanda:  It has been established that Africa offers the highest return on investment in the world. Do you expect the capital markets here in Rwanda to follow this trend?

Africa is a growth market.  For example it is good business to have shares in a company such as CIMERWA because everybody is building with cement. Due to the lack of a capital market, we are not able to participate in such companies.  But this initiative is going to give us that opportunity.  As long as African economies continue to perform the way they are performing we are going to see good returns. Of course the world economy has been growing at a high rate, so there are more funds available for investment.

Business Rwanda:  In your experience, do you find that only the elite invest in the stock market?

You would be surprised.  When it comes to investing, beyond the sophistication of the type of investment you are investing in, it’s important to keep people aware. The best awareness that you can give people is that companies that come over make money, as you’ll not need to educate a potential investor. Just the news that people are making money somewhere will be enough incentive for every Rwandan to participate. The importance of creating awareness is that it will enable them to understand what they are getting into.

Business RwandaWill any company be able to list on the stock exchange?

Only profitable companies will qualify to come to the market. You could be looking for money but it is not money you are lacking.  You could be lacking good management or markets, or business acumen. So, to be in the capital market you have to have your house in order. We will have rules stipulating what kind of management systems need to be in place before being listed and the minimum capital requirement. We are also going to have trained and licensed stock brokers.

Business Rwanda:  Investor confidence has a lot to do with perception of the country.   Will Rwanda’s international image attract investors?

The perception of Rwanda is extremely good compared to many other African countries because there is clear political good will in terms of supporting development.  Rwanda has good political systems, given where you’ve come from and where you are now.  Everybody admires Rwanda.  

The most important thing is that there is governance in this country.  There is little corruption, and corruption is what scares investors away.  I mean, Rwanda is very open, and more than that, the government of Rwanda has already gone out to the world to promote itself and invite investors to come see for themselves. The perception of Rwanda is very good and it is going to influence the emergence of our capital market.