East African Capital Markets: Three Lessons

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“The earth has music for those who listen.”

I thought of this piece of wisdom, variously attributed to George Santayana and William Shakespeare, among others, as I prepared for my speaker’s tour across four East African CFA societies late last year.

The purpose of the tour? To share my thoughts on how to advance investment decisions through applied behavioral finance and to listen and learn about the domestic trends, challenges, and success stories.

So with my mind set on open, I embarked in early November to Tanzania, Kenya, Rwanda, and Uganda and returned with a wealth of insights.

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I was warmly welcomed at the Charter Award Dinners and Exam Recognitions. These are the celebrations at which new charterholders, with their family and friends looking on, receive their certificates. There’s a special ambience at these events: The awardees’ deep satisfaction with having achieved their goal and closed a rewarding chapter in their lives sets the tone.

I hope the thoughts I shared on how to gain an edge in increasingly competitive markets through a learning organization, cognitively diverse teams, and ambiguity-tolerant decisions makers encouraged them to continue to embrace a steep learning curve. Because that steep curve is a must: The short half-life of financial knowledge requires it.

Capital markets are globally intertwined. Emerging and frontier markets feel the upside during good times, when foreign direct investments (FDIs) flow in. But they feel the downside even more acutely when that capital is swiftly withdrawn.

There is only one solution: To create and empower a critical mass of professional market participants, so decisions are taken locally, who are embedded in a robust domestic capital market infrastructure.

When I reflect on all the impressions I collected during my trip, three lessons, in particular, stand out as to how this solution might be accomplished.

Ad for African Capital Markets: Challenges and Opportunities

1. Awareness Matters

Effective capital markets require both solid financial infrastructure and skilled financial professionals.

Contributing to that infrastructure and producing and empowering those professionals was the chief focus of the CFA societies I visited. They all sought to raise awareness about what CFA charterholders stand for and how they can help bring the benefits of capital markets to their local communities. This is distinct from the priorities of CFA societies in Europe and North America, which focus on deepening the relationship with charterholders once they join the society.

Kenya is definitely in the lead in these endeavors. The country has a strong cohort of CFA charterholders and a comparatively advanced financial sector. In the three other countries, especially Rwanda and Tanzania, CFA societies are more focused on lobbying governments, central banks, and the emerging financial sectors both as a means of building the capital markets and attracting candidates. CFA societies are now the first point of contact for charterholders so they can tailor the necessary lobbying to domestic particularities. Still, the societies in East Africa have an uphill climb as they approach the institutions through bottom-up initiatives, one at a time.

Efforts to achieve the UN Sustainable Development Goals (SDGs) and integrating environmental, social, and governance (ESG) factors in portfolio management could help raise awareness and help these financial sectors fully emerge. And more trained finance professionals would certainly improve investment decision making in frontier markets and contribute to reaching the SDGs.

2. Quality Benchmark Appreciated

Of course, whatever the efforts of CFA charterholders and financial professionals in these nations, whether the respective governments have the same priorities and the same sense of urgency remains a critical question. After all, the region still has significant political tensions within and among its constituent nations. Indeed, recent contretemps between Uganda and Rwanda brought their trade relations to a halt.

Moreover, all four countries have achieved differing levels of economic and social development. Some may have more existential matters to deal with perhaps than improving the quality of their capital markets and the qualifications of their professional investors.

What surprised me the most during my trip? Rwanda. The country’s modern infrastructure, orderliness, and business orientation demonstrated how fast it has developed over the last 25 years. No wonder many believe Rwanda may soon rival Kenya as the leading economy of East Africa.

In all four countries, I heard about government or central bank initiatives to facilitate financial inclusion and, in parallel, the development of a stronger financial services industry.

But again, while the development of the financial sector is critical for all four countries, it will only bear fruit in the medium-term. Meanwhile, poverty, corruption, and trade tensions, among other urgent topics, may seem like much more pressing concerns.

Which is why it will be interesting to chart how these financial sectors progress in the months and years ahead.

Investment Management: A Science to Teach or an Art to Learn?

3. Joint Intervention

The best way to prepare for the future of finance — indeed, for the future in general — is to develop the ability to adapt. Unless a return to autarky is the desired outcome, staying competitive in a globalized world means honing in on domestic culture, gender, religion, and demographics as starting points for learning paths. This remains true for economies at all development stages.

For frontier markets to find their place in that competitive landscape, their local knowledge, size, and comparative youth must be leveraged as the critical drivers in their development.

So what sorts of organizations can support that adaptation and help build the financial knowledge base and infrastructure? The contributions of the following are worth keeping an eye on:

  • All the central banks of the East African countries I visited list “financial literacy and inclusion” among their primary objectives. They would be natural partners for the CFA societies.
  • The African Institute for Economic Development and Planning (UN IDEP) shares the capacity-building agenda of financial literacy and inclusion, and advanced financial literacy for market professionals is a key aspect of that. The IDEP works with local partners in government, the private sector, and civil society to implement its agenda and could facilitate best practice exchanges as well as planning and financing initiatives.
  • The European Bank for Reconstruction and Development (EBRD) may expand its financing to sub-Saharan Africa and seeks to improve the adaptive and technical skills of its borrowers and is another potential partner.
  • The African Union is a natural ally for capacity-building in all forms of financial literacy and in supporting domestic agendas. As a European, I know how effortful and yielding such integrative steps can be — see the European Union. 
  • The East African Community (EAC) has plans to integrate and deepen the respective market infrastructures. But coordination is difficult given the diverse and potentially competing domestic interests. The EAC could intensify its efforts and focus on creating a market framework that supports the bottom-up initiatives by the domestic public and private sectors.

But perhaps the most essential ingredient in achieving these goals is more abstract. In several conversations, people mentioned how important it is to dream — to delay gratification in order to achieve something bigger. Creative and critical thinking are prerequisites for innovative specialization. Those qualities must be fostered and honed to truly unlock the potential of the region.

All told, the East African tour gave me a compelling window into how four rising economies are working to find a place for their nascent finance sectors in global capital markets.

In addition to the warm welcome I received at each event, I especially enjoyed the frank exchanges with taxi drivers, hotel personnel, and others about what issues they thought need to be addressed for their countries to develop more inclusively.

These invaluable and promising takeaways complemented the tour. All in all, it was a trip to remember, one that gave me plenty of reasons to come back.

For more on finance in Africa, don’t miss African Capital Markets: Challenges and Opportunities , edited by Heidi Raubenheimer, PhD, CFA, from the CFA Institute Research Foundation.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

Image credit: ©Getty Images/ ac productions


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Markus Schuller

Markus Schuller is the founder and managing partner of Panthera Solutions. As Investment Decision Architects, Panthera optimizes the choice architecture of professional investors through applied behavioral finance methods. Empowering the decision makers towards comparative advantages in capital markets remains the ultimate goal. The Panthera intervention toolbox has proven to be equally effective and innovative. As adjunct professor, Schuller teaches such courses as Adaptive Risk Management, Investment Banking, and Asset Allocation for Practitioners at the renowned Master in Finance programs of the EDHEC Business School and the International University of Monaco. Schuller publishes in top academic journals (i.e., Journal of Portfolio Management, 2018), writes articles for professional journals (i.e., CFA Institute, OECD Insights, etc.), and holds keynotes at international investment conferences. In short, as investment banker, adjunct professor, and author, Schuller looks back at 18 rewarding years of trading, structuring, and managing standard and alternative investment products. Prior to founding Panthera Solutions, he worked in executive roles for a long/short equity hedge fund for which he developed the trading algorithm. Schuller started his career working as an equity trader, derivatives trader, and macro analyst for different banks.



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