Should Kenyans Really Invest in Government IPOs?

Insights from Hon. Dindi’s Contribution in Parliament

The debate around whether the government should continue owning and running commercial enterprises has been a heated one in Kenya. In a recent parliamentary contribution, Hon. Dindi shed light on the broader economic, historical, and strategic considerations that shape this issue. His remarks, centered on the Kenya Pipeline Company (KPC) IPO proposal, provide a valuable lens through which Kenyans can evaluate whether investing in such ventures truly makes sense.

1. The Case for a Lean Government

Hon. Dindi emphasized the importance of a lean government that focuses on essential services—justice, security, and infrastructure—while leaving commercial ventures to the private sector. According to him, “what can be done by others should be left to them, because they will always do it more efficiently.”

This reflects a global trend:

Private-sector-driven economies like the U.S. and South Korea thrive with limited government ownership.
State-driven economies like China also perform well, but under very different governance and trust structures.

Thus, there is no universal model. The key is strategic decision-making based on the country’s current circumstances.

2. Government’s Invisible Hand: The 35% Tax Stake

Hon. Dindi noted that through corporate taxation (35%), the government already indirectly owns a third of every business in Kenya. In this sense, government participation in direct ownership of commercial entities may lead to duplication of roles and inefficiency.

3. Why Governments Initially Entered Business

Historically, Kenya’s state-owned enterprises (SOEs) were justified:

Banking in the 1960s–70s: Only the state had the capital and trust to run large financial institutions. That is why National Bank and KCB were established.
Energy & Infrastructure: Heavy investments in power generation and pipelines were seen as strategic and necessary for national development.

But times have changed. Barriers to entry have fallen, the private sector has grown, and efficiency has become more critical than sheer ownership.

4. Efficiency Gaps: A Tale of Two Banks

A powerful example came from comparing Consolidated Bank (98% state-owned) and Equity Bank (privately grown). Equity Bank, which started later, has amassed shareholder funds worth over KSh 300 billion and diversified profits, while Consolidated Bank struggles with weak capital and limited growth.

This highlights a persistent truth: government-run enterprises often underperform compared to private sector players.

5. Strategic Investments vs. Political Patronage

Globally, governments still invest in companies—but for strategic reasons:

The U.S. invested $9 billion in Intel to strengthen AI and semiconductor capacity.
It also took stakes in American Lithium to secure critical mineral supply chains.

These were not profit-driven investments but strategic moves in areas vital to national security and future competitiveness.

Kenya, by contrast, risks turning IPOs into fundraising schemes rather than strategic plays—raising concerns about sustainability.

6. The Capital Markets Perspective

Hon. Dindi stressed that Kenya’s capital markets remain too small and undervalued compared to global peers:

U.S. equity markets = 2x GDP.
Kenyan equity markets = tiny fraction of GDP, with most companies trading far below asset value.

Examples:

Kenya Power: Assets worth KSh 350B, annual revenues of KSh 20B, but market valuation is only KSh 27B.
Unga Group: Net assets of KSh 51B, but valuation only KSh 17B.
KenGen: Market value KSh 55B, yet similar Nigerian peers are valued at KSh 200B+.

This mismatch means IPOs risk initial excitement followed by sharp price collapses when results are published, as retail investors realize the fundamentals don’t justify the hype.

7. The KPC IPO Risks

Hon. Dindi directly warned that:

Kenyans will likely rush to buy KPC shares out of patriotism and excitement.
But when results are published in February next, the stock’s true valuation may be capped at ≈ KSh 35B.
This could trigger a collapse in price, leaving retail investors holding losses.

He further cautioned against government coercion of institutions like NSSF and pension funds to buy into such IPOs, as this exposes workers’ savings to politically driven risks.

8. Corporate Governance Concerns

Even where the government owns minority stakes (e.g., 18% in KCB), it often controls the entire board. This imbalance discourages private investors, who fear political interference.

Unless governance reforms are embedded in IPO structures—such as fair board representation—listings may fail to attract credible long-term investors.