Stock Market Developmentand National

STOCK MARKET DEVELOPMENTAND NATIONAL

ECONOMIC DEVELOPMENT: A CASE OF

STUDY OF RWANDA STOCK EXCHANGE

VIANNEY RUGAMBA

MBA/3629/12

A Research Project submitted inPartial fulfillment for the Award of the

Degree of Master of Business Administration (Finance and Accounting

Option) of Mount Kenya University

OCTOBER 2016

DECLARATION

This research project is my original work and has not been presented to any other institution. No part of this project should be reproduced without the authors’ consent or that of Mount Kenya University.

VianneyRugamba: MBA/3629/12

Sign...... Date......

This research project has been submitted with my approval as the Mount Kenya

University supervisor.

Name: Mr. WanjohiMaina

Sign...... Date......

DEDICATION This work is dedicated to my dear parentsMrIyakaremenyeWellas and Ms Agnes

Mukamutara who gave their support towards the success of this research work.

Thank you all, may God bless you

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ACKNOWLEDGEMENT It is with pleasure that I acknowledge the contributions made by a number of people that enabled me to accomplish my research report.

My special gratitude goes to my research supervisor Mr. WanjohiMaina for his constructive and parental guidance.

Lastly but not the least, special thanks once again go to all the lecturers of Mount Kenya

University for their teaching skills.

ABSTRACT The general objective of the study is to find out the contributions of stock market development to the economic development of the country. Specifically, the study sought to determine the contributions of stock exchange market in creating investment opportunities for small investors, to identify the effects of trading companies on economic development in Rwanda and to establish ways in which stock exchange markets facilitate the government to raise capital for development projects. The studyused a descriptive research design to establish the effects of stock exchange on Rwandan economic development. The studytargeted the brokerage firms who trade at the Rwanda stock Exchange, senior management team of Rwanda stock Exchange and the three main listed companies in the stock market which are Bank of Kigali, Bralirwa Company and KCB bank Rwanda. Only the senior managers of those companies were involved in the study. The total number of people targeted were 110 respondentswho are directly involved in RSE activities. Convenient sampling was used to get the respondents from senior management of RSE because they are considered to have similar information regarding the performance of stock market. Simple random sampling was used to collect information from the brokers because they operate separately and independently and it is rare to stay in the market for long and therefore is found randomly. Purposive sampling was used to collect the information from the senior managers of BLARILWA and investment staff in BK because their shares seem to be higher than KCB bank. The study used questionnaires because it is easy to fill, takes less time to respond and can be administered to a large population at the same time. Quantitative data was entered into appropriate analysis programme, preferably statistical package for social sciences (SPSS) from which analysis was done using proportions (percentages), rates and descriptive statistics. The study found that The Rwanda equity market is segmented and has very few firms listed in the RSE. This market still remains under developed and therefore cannot provide enough liquidity needed by firms for their business funding needs. The basic function of a stock exchange is the raising of funds for investment in long-term assets. While this basic function is extremely important and is the engine through which stock exchanges are driven, there are also other quite important functions such as mobilization of savings for investment, growth of related financial services sector, check against flight of capital which takes place encouragement of the divorcement of the owners of capital from the managers of capital, upholding higher standards of accounting of the companies, equity financing, improvement of access to finance for new and smaller companies and encouragement of public floatation of private companies which in turn allows greater growth and increase of the supply of assets available for long term investment. The study recommends that the government should attempt to develop the financial sector more and one of the first steps is to have less state involvement in the system. This includes cutting back on public ownership of financial institutions and minimizing monetary financing of budget deficits. Moreover, governments should promote stock market liquidity by for instance propagating knowledge to the public on the benefits of investing in stock markets and moreover, create state‐run mutual funds so as to ensure higher liquidity on stock markets.

TABLE OF CONTENTS DECLARATION------ii DEDICATION ------iii ACKNOWLEDGEMENT ------iv ABSTRACT ------v TABLE OF CONTENTS ------vi LIST OF TABLES ------ix LIST OF FIGURES ------xi LIST OF ACRONYM AND ABBREVIATIONS ------xii OPERATIONAL DEFINITION OF KEY TERMS ------xiii CHAPTER ONE: INTRODUCTION ------1 1.0Introduction ------1 1.1Background of the study ------1 1.2 Statement of the problem ------4 1.3 Objectives of the Study ------5 1.3.1 General objective ------5 1.3.2 Specific objective ------5 1.4Research questions ------5 1.5Significance of the study ------5 1.6Limitations of the study ------6 1.7Scope of the study ------7 1.7.1 Geographic scope ------7 1.7.2 Time scope ------7 1.7.3 Content scope ------7 1.8Organization of the Study ------7

CHAPTER TWO: REVIEW OF RELATED LITERATURE ------9 2.0 Introduction ------9 2.1 Theoretical review ------9 2.2Empirical review------13

2.2.1 Number of companies listed in stock exchange in different African countries and their respective economic sizes ------14 2.2.2The influence of stock exchanges efficiency on economic development of countries -- 16 2.3 Critical review ------25 2.4Conceptual framework ------27

CHAPTER THREE: RESEARCH METHODOLOGY ------29 3.0Introduction ------29 3.1 Research design ------29 3.2 Target population ------29 3.3 Sampling design ------29 3.3.1 Sample size ------30 3.3.2 Sampling technique ------30 3.4 Data collection methods ------32 3.4.1 Primary sources ------32 3.4.2 Questionnaires ------32 3.4.3 Secondary data ------33 3.4.4 Reliability of the study ------33 3.4.5 Validity of the study ------33 3.5Data processing and analysis ------34 3.6 Data analysis ------34 3.6.1Quantitative data analysis ------35 3.6.2Qualitative data analysis ------35 3.7 Ethical considerations ------35

CHAPTER FOUR: RESULTS AND DISCUSSION ------36 4.1 Introduction ------36 4.1.1 Demographic information of the respondents ------36 4.2 Contributions of stock exchange market in creating investment opportunities for small investors ------40 4.3 Effects of trading companies on economic development in Rwanda ------52

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4.4Ways in which stock exchange markets facilitate the government to raise capital for development projects ------60

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS ------65 5.1 Introduction ------65 5.2Contributions of stock exchange market in creating investment opportunities for small investors ------65 5.3 Effects of trading companies on economic development in Rwanda ------66 5.4 Ways in which stock exchange markets facilitate the government to raise capital for development projects ------67 5.5Conclusion ------67 5.6Recommendations ------69 5.7Suggested further studies ------69

REFERENCES ------71 APPENDIX I: LETTER OF AUTHORIZATION ------77 APPENDIX II: DATA COLLECTION LETTER ------78 APPENDIX III: QUESTIONNAIRE FOR RSE EMPLOYEES ------79 General information ------80

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LIST OF TABLES Table 3.1: Sample frame ------31

Table 4.1 Gender of the respondents ------36

Table 4.2 Level of education ------37

Table 4.3 Occupation of the respondents ------38

Table 4.4 Level of experience serving in similar position ------39

Table 4.5 Raising capital ------40

Table 4.6 Liquidity with Employees ------42

Table 4.7 Liquidity for Investors ------44

Table 4.8 Increase Marketability of Shares ------45

Table 4.9 Sustainability ------46

Table 4.10 Gaining Public Confidence ------48

Table 4.11 Sharing Risk and Retaining Control ------49

Table 4.12 Expansion and Modernization ------51

Table 4.13 Increase the National output and income. ------52

Table 4.14 Increase per capita income ------53

Table 4.15 Improve human skill and labour productivity. ------54

Table 4.16 Increase the country’s GDP ------55

Table 4.17 Increase employment rate ------56

Table 4.18 Correlations between the contributions of RSE and its effects ------58

Table 4.19 More capital projects can be completed as more resources are available for government capital expenditure. ------60

Table 4.20 There will be better accountability for use of funds as statutory financial market. ------62

Table 4.21 Rising of funds from the capital market will release government subvention for purely social project. ------63

LIST OF FIGURES Figure 2.1 Conceptual framework ------27 Figure 4.1: Level of education ------37

Figure 4.2: Occupation of the respondents ------38

Figure 4.3: Level of experience serving in similar position ------40

Figure 4.4: Raising capital ------42

Figure 4.5: Liquidity with Employees ------43

Figure 4.6: Liquidity for Investors ------44

Figure 4.7: Increase Marketability of Shares ------45

Figure 4.8: Sustainability------47

Figure 4.9: Gaining Public Confidence ------48

Figure 4.10: Sharing Risk and Retaining Control ------50

Figure 4.11: Increase the National output and income ------52

Figure 4.12: Improve human skill and labour productivity ------54

Figure 4.13: Increase employment rate ------57

Figure 4.14: More capital projects can be completed as more resources are available for government capital expenditure ------61

Figure 4.15: Rising of funds from the capital market will release government subvention for purely social project ------64

LIST OF ACRONYM AND ABBREVIATIONS BK Bank of Kigali

BLRW Bralirwa

CMA Capital Market Authority

CMAC Capital Markets Advisory Council

EAC East African Community

EASEA East African Securities Exchanges Association

EASRA East African Securities Regulators Association

EMH Efficient Market Hypothesis

GDP Gross Domestic Product

IMF International Monetary Fund

KCB Kenya Commercial Bank

MKU Mount Kenya University

NSE Nairobi Stock Exchange

OTC Over the Counter

RSE Rwanda Stock Exchange

SPSS Statistical Package for Social Sciences

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OPERATIONAL DEFINITION OF KEY TERMS Economic development Economic growth is the increase in the market value of the goods and services produced by an economy over time. It is conventionally measured as the percent rate of increase in real gross domestic product, or real GDP. Listed companies In this study they are used to refer to firm whose shares are listed (quoted) on a stock exchange for public trading. Stock breakers A stockbroker is a regulated professional, usually associated with a brokerage firm or broker-dealer, who buys and sells stocks and other securities for both retail and institutional clients, through a stock exchange or over the counter, in return for a fee or commission. Stock exchange It is used as securities of a company which include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds. Stock market A stock market or equity market is a public entity (a loose network of economic transactions, not a physical facility or discrete entity) for the trading of company stock (shares) and derivatives at an agreed price; these are securities listed on a stock exchange as well as those only traded privately.

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CHAPTER ONE: INTRODUCTION

1.0 Introduction In this chapter the studypresents the background of the study, statement of the problem, research objectives, research questions, significance of the study, scope and limitations of the study.

1.1 Background of the study A stock exchange is a form of exchange which provides services for stock brokers and traders to trade stocks, bonds, and other securities. Stock exchanges also provide facilities for issue and redemption of securities and other financial instruments, and capital events including the payment of income and dividends. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds (Adjasi and Nicholas 2005).

There are several stock exchange markets which have been established in various countries around the world. Some are performing well while others are struggling to catch up. In recent years, new capital markets have emerged in many parts of the world, and some foreign capital controls have been relaxed to a certain extent. This relaxation of capital controls started with the stock market liberalization when the United States took an important step by passing the U.S. Securities Act Amendments of 1975, which deregulated stock brokerage commission rates. Following the passing of this Act, the world stock markets experienced a series of deregulations and internationalization. In

October 1979, exchange controls on capital outflows were eliminated in the United

Kingdom. This easing on both the inflow and outflow of capital is significantly observed after 1980 (Taylor &Tonks, 1999).

The Japanese capital market, conventionally known to be under stringent control until the

1970s, also carried out a brief deregulation in 1978-1979 where foreign capital controls were slightly relaxed. With the implementation of the Foreign Exchange and Foreign

Trade Control Law in December 1980, most capital controls in Japan were virtually abolished. As a result, trade of foreign financial assets by Japanese security firms and

Japanese securities by foreign companies were permitted (Chen and Wong, 2004).

With this relaxation of capital controls, there has been an increase in investors’ interest in international diversification because it allows investors to have a larger basket of foreign securities to choose from as part of their portfolio assets so as to enhance the reward-to- volatility ratio. The benefit of international diversification, however, is limited when equity markets are cointegrated, because the presence of common factors limits the amount of independent variation. This is why investors have sought to invest in different countries around the world. In Africa, Kenya and Nigeria are among the leading stock markets (Ezeoh, Ogamba and Onyiuke, 2009)

In Nigeria, Osinubi (2001), ventured into knowing whether ―stock market promotes economic growth. The study employed the least square regression using data from 1980 –

2000. The result established positive link between economic growth and stock market development and suggest the pursuit of policies geared towards rapid development of the stock market. Udegbunam (2002) noted that Nigerian economy is moving towards increased liberalization, greater openness and greater financial development. He then studied the implications of these developments for industrial growth in Nigeria using simple model which relates industrial output growth to openness, stock market development and some control variables. The study suggests that openness to world trade

and stock market development are among the key determinants of industrial output growth in Nigeria.

In Kenya, the Nairobi Stock Exchange (NSE) is currently a buyer’s market which presents foreign investors with massive bargain opportunities. This situation is a result of various factors that have converged to push stock prices to levels that are out of whack with the fundamentals on the ground. Foreign inflows have provided an impetus for strong performance (Capasso, 2006).

Rwanda stock exchange is among the recently established stock markets in the East

African region. The Rwanda Stock Exchange (RSE) is Rwanda's principal stock exchange. It was founded in January 2011. The RSE is operated under the jurisdiction of

Rwanda's Capital Markets Advisory Council, (CMAC), which in turn reports to National

Bank of Rwanda, the country's Central Bank.

That day coincided with the first day of trading in the stock of Rwanda's only brewery,

Bralirwa, which trades under the symbol: BLRW. The Rwanda Stock Exchange replaced the Rwanda over the Counter Exchange that had been in operation since January 2008.

Rwabukumba, (2012) pointed out that there is low public financial literacy among the investing public, the potential issuers, and professionals in the industry. This particular challenge is being tackled by a robust public education campaign that is ongoing while training of various sector professionals is taken as a key objective. There is also a low number of products. However, the lack of products will be mitigated by a legal framework specific to capital market industry that is expected to give more confidence for more products to emerge in the Rwandan bourse.

This study therefore seeks to find out the contributions of Rwanda Stock market development on the economy growth in the country. The general objectives of the study is to find out the role of stock exchange and economic development of the country.

1.2 Statement of the problem Rwanda stock exchange started nearly five and half year ago and has been seeking to get more companies to be listed in the stock market. Initially, there were three main companies which RSE started with namely KCB Rwanda ltd, BRALIRWA company

(BLRW) and bank of Kigali(BK)and this lowers the competition in the market. KCB bank is the least performing company (Rwanda Stock Exchange, 2012). Their shares have overtime stagnated and it discourage buyers to purchaser their shares. BK shares are selling but the trend at which they grow is low. People who buy them look at the long term investment. This leaves BRALIRWA Company to dominate the market. Their shares are ever increasing and it attracts more people to buy them. In most cases, many customers are not willing to sell them because each week, their prices rise. This kind of competition discourages more firms to join the stock market. Companies like Equity

Bank and KCB are listed in Nairobi stock exchange and they are performing well not only in improving their financial performance but also in terms of increasing their level of employment. The problem is that out of eight current listed companies in RSE only two seems to be performing well. The other six listed companies rarely undertake transactions. The study aims to find out the contributions of stock market development on the growth of these companies and economic development of the country in general.

1.3 Objectives of the Study

1.3.1 General objective The general objective of the study is to find out the contributionsof stock marketdevelopment on the economic development of the country.

1.3.2 Specific objective The specific objectives aimed to

i. To assessthe contributions of stock exchange market in creating investment

opportunities for small investors.

ii. To identify the effects of trading companies on economic development in Rwanda iii. To establish ways in which stock exchange facilitates the government to raise

capital for development projects

1.4 Research questions The studysought to address the following research questions

i. How does the stock exchange contributein creating investment opportunities for

small investors?

ii. What are the effects of trading companies on economic development in Rwanda? iii. In which ways does the stock exchange facilitates the government to raise capital

for development projects?

1.5 Significance of the study To the government:The government will benefit from the information documented in this study by obtaining empirical evidence on the importance of promoting company involvement in stock exchange in order to improve the country economic performance.

To policy makers: The policy makers will benefit from this study by obtaining information related to the performance of companies which are listed in the RSE in order to have an understanding on how to come up with initiative measures to support and promote them so that they become sustainable and more productive.

To RSE: By comparing the performance of RSE with other stock markets around the world, this information will be significant to them in gauging their strength and weaknesses. This will facilitate them to come up with promotion strategies to attract more companies to be listed in their board.

To MKU: A copy of this book is to be kept in MKU library and therefore will contribute through additional of reading and learning resources for the institution.

To other researchers: Those students who wish to conduct the study in the related field will obtain information to refer while dong their research.

To the researcher: This study is to be submitted to the school of business and public administration and management in partial fulfillment of the requirements for the award of the Master of philosophy in business administration (project management option) at

Mount Kenya University and therefore will facilitate the researcher to graduate.

Additionally, the researcher obtained firsthand information on skills of how to conduct a research.

1.6 Limitations of the study There were certain challenges encountered during the study such as enough time to conduct a detailed research because the time allocated for this study is limited to a year period. Issues related to economic development is observed over a longer period of time.

However, RSE market has been operational for a nearly five yearsbut the challenge is,

few companies used to participate in the market activities. Therefore of the issue of obtaining a comprehensive progression development over the years was a problem.

However, these challenges were overcome by using more examples in empirical literature in other countries in order to bring support the argument. Also, the scope of the study observed over a period from the time it was started up to the current activities in order to observe the progress.

1.7 Scope of the study

1.7.1 Geographic scope The research was conducted in Kigali city within the Rwanda Stock Exchange market which was established in 2011 and other listed companies in the market. RSE is located at the middle of Kigali City Tower, Nyarugenge district.

1.7.2 Time scope The information was obtained by extracting documented evidence of the performance starting from the period at which the company was started in 2011 to 2014because this period was considered adequate period to make inferences.

1.7.3 Content scope There are four listed companies which were considered for this study. The information obtained was limited to these four companies although there are others which have recently joined the list of quoted companies in the market.

1.8 Organization of the Study Chapter one presents the introduction of the study. In this chapter, the study presents the background of the study, the statement of the problem, research objectives, research questions, significance of the study, scope and limitation of the study and finally the

organization of the study. Chapter two presents the literature review of related studies whereby it was discussed according to theoretical review, empirical review and conceptual review. Chapter three presents the research methodology which was used in order to collect and analyze the data. Chapter four presents the analysis of the data after the data collection exercise is completed. Chapter five presents the summary, conclusion and recommendations according to the findings of the study.

CHAPTER TWO: REVIEW OF RELATED LITERATURE

2.0 Introduction In this chapter, the study seeks to discuss the contributions of stock exchange market in creating investment opportunities for small investors, the effects of trading companies on economic development in Rwanda and the ways in which stock exchange markets facilitates the government to raise capital for development projects. Publication of other authors will be cited in order to support the argument.

There are several theories which explain the market performances and those which explain the economic growth. However, there is a need to link such theories in order to assess the effects it has on each other. This study is discussed based on the content of the literature in three sections namely the theoretical review, the empirical review and the conceptual review. Theoretical review will seek to understand the theories related to financial market, the empirical will seek to understand the applicability of such theories in to action and evidence and the conceptual review is to establish the relationship between the two different variables understudy.

2.1 Theoretical review

Dow Theory This study will adopt the Dow Theory while discussing its content. Dow Theory comes from Charles Dow (1851–1902), who was a journalist and co-founder of Dow Jones and

Company. He believed that, markets have 3 trends: Most of the time, the market would moves sharply in one direction, recedes briefly in another, and then resumes the original direction. This is the basis of most all technical analysis. Markets have 3 phases: accumulation by astute investors, then trend followers jump on board, and finally the

same astute investors begin unloading their shares. Stock prices react quickly to news.

Stock market averages should confirm each other: When market indices begin to diverge, it typically signifies a change in direction is occurring. He also believed that trades are confirmed with volume and also exist, until real signals indicate otherwise.

Chaos Theory'

Another theory which will be based in this study is the chaos theory. It is a mathematical concept that explains that it is possible to get random results from normal equations.

Simply put, chaos theory is an attempt to see and understand the underlying order of complex systems that may appear to be without order at first glance.

Related to financial markets, proponents of chaos theory believe that price is the very last thing to change for a stock, bond, or some other security. Price changes can be determined through stringent mathematical equations predicting the following factors: A trader's own personal motives, needs, desires, hopes, fears and beliefs are complex and nonlinear, volume changes, acceleration of the changes or momentum behind the changes.

Information theory

Information theory is a branch of applied mathematics involving the quantification of information. Information theory was developed by Claude E. Shannon in 1948. With this regards investing on a stock market is one of the ways that people let their money work for them. There are many kinds of stock investing. A popular one is investing on mutual funds. The mutual funds are operated by a professional group of analysts that take the responsibility to invest clients’ money on many categories of stocks. The goal is to make

the most profit for their clients. It is very popular because the risk of investing on mutual funds is considerably lower than investing to common stocks directly by nonprofessional investors (as most of people)(Zhongxing&Jianguo, 2000).

Market life cycle theory One of the most frequently used models of a life cycle of an industry was presented in

1980 by Michael Porter. Although there is a wide array of research, this model still remains widely regarded as the cornerstone of the life cycle analysis. According to this concept, the industry is the most important part of the environment of a firm. Its properties and power determine the competitive struggle and its structure affects the rules of competitive contest, and thus the necessary strategy for survival and development.

Abernathy and Utterback (Abernathy &Utterback, 1978) differentiate life cycle of an industry in respect to the degree of dynamics of development of process and product innovations. Criteria for distinguishing changes of individual phases are increase/decrease in product and process innovations. The model describes the industry through three phases. In the first, the fluid phase, the firm is in pursuit of product innovations. The rate of product innovation is highest, aimed at achieving highest technological standards. However, products are being innovated according to ill-defined customer preferences, which in turn demands high production flexibility. High level of manufacturing innovation requires universal equipment and highly skilled workers.

Materials used in production are of very broad possible use, and manufacturing plants are small and close to the customers. Transitional phase occurs after reaching the level of dominant design of product(s), by which we mean the achievement of functional and technological standards. The reduction of the number of product variations reduces

product innovation, by which time process innovations becomethe primary interest of managers.

Production processes are automated, plants are universal with partlyspecialised equipment and the materials used in production are partly specialised as well. The mainfactor of competitive contest become variations of the product accompanied by cost reduction and increased quality of services. The last phase, the specific phase, is characterised by low level of bothproduct and process innovations with a continuing tendency to decrease. Products are standardized and undifferentiated, while the production process is rigid, automated, capital intensive with high switching costs, materials used are highly specialised. Production is highly inflexible, which makes it very difficult to adapt to changes in the environment of the firm. In turn, this calls for efficient management and control functions. Although the presented differentiation of phases of the industry life cycle is quite intuitive, we further introduce a model which explains how and why industries evolve.

The dynamics of development of the industry is defined by two types of threats of obsolescence –threat to core activities and threat to core assets (McGahan, 2004). The threat to core activities refers to a fundamental threat to industrial activities that have realised profits for the industry in the past. The threat to core assets (core competencies) is a threat to resources, knowledge and brand which made the organisation unique in the marketplace.

2.2 Empirical review

It is now securely established in the literature that a well-developed financial system with strong intermediaries increases productivity, technology diffusion and economic growth

(Levine &Zervos, 1996; Rousseau &Wachtel, 2000; Minier, 2000).

For example, Levine &Zervos (1996) find strong evidence that the development of strong financial intermediaries, and specifically stock markets, are causally prior to economic growth, and several authors have used multiple country panel data models to test this relationship. Studies such as Rousseau &Wachtel (2000) use a two-stage panel regression for a number of countries and find that the value of traded securities accounts for economic growth more than for market capitalization. Finally, studies using time series techniques and panel vector auto regression find that causality flows from both traded value and market capitalization to economic growth, with the former having the stronger effect (Minier, 2000).

The CMA is based on the fixed peg between each country’s nominal currency and the rand, and the Southern African Customs Union on the collective imposition of high customs tariffs on imports from outside its member countries.

A complementary literature concerns the origins of legal systems and particularly commercial law and this has been used to explain different success rates of stock market compared with bank based development in a number of emerging and developing economies (Beck & Levine, 2003). The consensus is that countries whose legal system is based on the French civil code offer less investor protection and fewer minority rights than those based on Anglo-Saxon law. The former group also has a lower likelihood of

being on the frontier of innovation in financial intermediation and stock market development and a greater reliance on intermediation through established banking systems (La Porta et al., 1997; Modigliani &Perotti, 1997). Thus in Francophone countries the law is applied through a rigid set of codified principles and follows centralised regulation, whereas Anglophone countries are more likely to have financial markets that adopt systems of self-regulation (Weissbourd& Mertz, 1985).

2.2.1 Number of companies listed in stock exchange in different African countries and their respective economic sizes

Tachiwou, (2010) argued that with the exception of the Johannesburg Stock Exchange,

Africa’s stock markets are small, illiquid, have few listings and lack the sophisticated infrastructure and range of the tradable assets on developed Organization for Economic

Cooperation and Development markets. Additionally, South Africa is the only market that has derivative instruments available to hedge risk and that permits short selling, since it has a well-developed and highly capitalized brokerage industry.

Economy Exchange Founded Listings

South Africa Johannesburg 1887 410

Nigeria Lagos 1960 223

Kenya Nairobi 1954 50

Uganda Kampala 1997 17

Tanzania Dar es Salaam 1998 17

Rwanda Kigali 2008 7

Source (Tachiwou, 2010)

Other constraints to investment activity are the stringent listing criteria and capitalization requirements, which reduce the supply of potential equity instruments. This has been partially resolved through innovation in national bourses by promoting alternative investment markets for smaller firms. Examples of these are the Alternative Exchange,

AltX, in South Africa (Irving, 2005), the creation of a second tier of listing in the Lusaka

Stock Exchange in Zambia, and the Gaborone Stock Exchange in Botswana. This means that companies that fail to meet the formal listing criteria can be quoted rather than listed and still gain from any benefits associated with the exchange (Marone, 2003).

Market capitalization and liquidity are also increased by the release of government equity holdings through Initial Primary Offerings (IPOs), although the effects on liquidity are usually brief on exchanges other than South Africa’s. IPOs are a valuable source of additional assets on the domestic market, raising the profile of the exchange as a source of capital. However, they are frequently politically unpopular because of the loss of state control even though many countries have privatization programmes nominally in place. A combination of political economy considerations together with the high costs of capital explains the lack of listings across Africa.

A major institutional failure in the majority of African markets is the lack of appropriate regulation. In many countries financial market liberalisation was introduced at the same time as the infrastructure to increase participation and improve performance and these new institutions are either incomplete or have failed altogether. Institutional investors can be highly beneficial to emerging economies and are unlikely to consider markets in sub-

Saharan Africa due to the settlement risks associated with small and undercapitalized

local brokerage houses. This is exacerbated by the inability of local investment banks to underwrite domestic market share issues and IPOs, and liquidity and political risks are also major concerns (Kenny & Moss, 1998). Despite the existing challenges in different

African countries, there is a clear evidence the number of the companies listed in their respective countries correspondents to the economic size/development. The more the companies listed in the stock exchange, the bigger the economy of the country.

2.2.2 The influence of stock exchanges efficiency on economic development of countries

The legal systems in sub-Saharan African countries that have a colonial history reflect

European patterns. These differences in colonial legacy and the resulting legal institutions are one reason why the size and activity of stock markets vary across Africa. For instance,Mozambique has adopted a variation of the Napoleonic French civil code, which is similar to that of Portugal. Swaziland is more complicated. It has been heavily influenced by a judiciary shared with neighbouring South Africa, whose legal regime itself evolved from unique historical circumstances in contrast to the rest of Africa. The

Roman-Dutch civil code in South Africa is derived from the pre-Napoleonic civil code in the Netherlands that was exported to the Cape Colony by the Dutch East India trading company in order to regulate its commercial affairs. Later, some influence of English common law was incorporated into the legal system of the Union (Visser& Zimmermann,

1996) and this combination is the basis of Swazi law (Bahadur and Neupane, 2006). All this factors seems to affect the size of the stock exchange in these countries.

However, Macey, (1997) argued that many of the benefits of stock markets to a developing economy depend on well-established property rights. If these exist, suitable regulation can be designed to minimize transactions costs associated with information search and verification. Well-designed primary listings criteria minimize transaction costs and allow all publicly available information to be incorporated into prices.

According to Agarwal (2001) the study of stock market development and economic growth in African countries suggested a positive relationship between several indicators of the stock market performance and economic growth.

Mishkin (2001) and Caporale and Soliman (2004) provided the evidence that an organized and managed stock market stimulate investment opportunities by recognizing and financing productive projects that lead to economic activity, mobilize domestic savings, allocate capital proficiency, help to diversify risks, and facilitate exchange of goods and services. Undoubtedly, stock markets are expected to increase economic growth by increasing the liquidity of financial assets, make global and domestic risk diversification possible, promote wiser investment decisions, and influence corporate governance that is, solving institutional problems by increasing shareholders’ interest value.

Bell and Rousseau (2001) evaluated the relationship between individual macroeconomic indicators and measures of financial development in India and revealed that the financial sector has been instrumental in promoting economic performance.

The study finds that the stock market and economic growth both may be able to promote growth, with the impact of the banking system being stronger. With well-functional financial sector or banking sector, stock markets can give a big boost to economic development (Rousseau and Wachtel, 2000; Beck and Levine, 2003).

Capasso (2003) provide further insight into the linkages between stock market development and economic growth within the context of a dynamic general equilibrium framework of informational asymmetries, endogenous contract choice and capital accumulation. The findings contend that stock market activity is closely related to real activity, with firms having a greater preference towards issuing equity (rather than debt) as capital accumulation proceeds.

Efficient stock markets provided guidelines to keep appropriate monetary policy through the issuance and repurchase of government securities in the liquid market, which is an important step towards financial liberalization. Similarly, well-organized and active stock markets could modify the pattern of demand for money, and would help create liquidity that eventually enhances economic growth (Caporale and Soliman, 2004). Similarly,

Siliverstovs and Duong (2006) revealed that the accounting for expectations has represented by the economic sentiment indicator in which stock market has certain predictive content for the real economic activity.

Levine (2003) shed some empirical light on the ambiguous predictions about the relationship between stock market liquidity and economic growth. The paper presents cross-country evidence on the association between one measure of stock market liquidity

– the total value of stock transactions divided by GDP – and average economic growth rates over the period 1976 – 1993. The data suggest that there is a strong positive relationship exists between long-run economic growth rates and stock market liquidity.

This positive relationship is found to be robust even to various changes in the containing information set.

Chen, Roll and Ross (2004) test whether innovations in macroeconomic variables are risks that are rewarded in the stock market. Financial theory suggests that the following macroeconomic variables should systematically affect stock market returns: the spread between long and short interest rates, expected and unexpected inflation, industrial production, and the spread between high- and low-grade bonds. They found these sources of risk are significantly priced. They also found that neither the market portfolio nor aggregate consumption is priced separately.

The study of Azarmi, Lazar and Jeyapaul (2005) tend to suggest that relevance of stock market development to economic growth is a function of economic policies prevalent in the economy of study. They examined the empirical association between stock market development and economic growth for a period of ten years around the Indian market

―liberalization event (1981 – 2001). Their primary object of the study is to know whether Indian stock market is a casino or not. The study revealed: Indian stock market development is not associated with economic growth for period 1981 – 2001; relevance of stock market to economic growth during the pre-liberalization era; negative correlation between stock market development and economic growth for the post-liberalization era;

Indian stock market is a casino for the sub-period of post liberalization and for the entire ten-year event study period. In particular their study result is consistent with the suggestion that the Indian stock market is a casino for the sub-period of post- liberalization and for the entire ten-year study period.

The study by Niewerburgh, Buelens and Cuyvers (2005) investigated the long term relationship between financial market development and economic development in

Belgium. They employed stock market indicators from 1873 – 1935 and found that

Institutional changes affecting the stock market explain the time-varying nature of the link between stock market development and economic growth. This credited the finding by Azarmi, Lazar and Jeyapaul (2005) that economic policies in vogue influence the relevance of stock market indicators on economic growth.

Adjasi and Biekpe (2005) found a significant positive impact of stock market development on economic growth in countries classified as upper middle-income economies. Bahadur and Neupane (2006) concluded that stock market fluctuations help in the prediction of the future growth of an economy.

Osei (2006) investigates both the long run and the short run relationships between the

Ghana stock market and macroeconomic variables. The study establishes that there is cointegration between the macroeconomic variables and Ghana stock market. The results of the short run dynamic analysis and the evidence of cointegration mean that there are both short run and long run relationships between the macroeconomic variables and the

index. In terms of Efficient Market Hypothesis (EMH), the study establishes that the

Ghana stock market is informationally inefficient particularly with respect to inflation, treasury bill rate and world gold price.

Hasan, Wachtel and Zhou (2007) posited that profound changes have occurred in both the

Chinese political and economic institutions over the years. They believed the pace of transition has led to variation across the country in the level of development. They then used panel data for the Chinese provinces to study the role of legal institutions, financial deepening and political pluralism on growth rates. The study uses regression models to explain provincial GDP growth rates. The study found that the development of financial markets, legal environment, awareness of property rights and political pluralism are associated with stronger growth.

Yartey and Adjasi (2007) studied critical issues and challenges of stock market development in Sub-Saharan Africa and found that stock markets have contributed to the financing of the growth of large corporations in certain African countries. The study found inconclusive evidence on the impact of stock markets on economic growth in

African countries, but acknowledged that the stock market value traded seems to be positively and significantly associated with growth.

Olofin and Afangideh (2008) investigated the role of financial structure in economic development in Nigeria using aggregate annual data from 1970 to 2005. The study developed a small macroeconomic model to capture the interrelationships among aggregate bank credit activities, investment behavior and economic growth given

financial structure of the economy. The study holds that a developed financial structure has no independent effect on output growth through bank credit and investment activities, but financial sector development merely allows these activities to positively respond to growth in output.

Most of the studies so far revealed focuses on relationships; studies from 2008 found a new question of concern to policy makers. The issue of causal effect of stock-growth nexus emanates here, though previous researches are not totally in agreement as to the relationship of stock market development in particular, and the general financial market with economic growth. Brasoveanu, Dragota, Catarama and Semenescu (2008) examine the correlation between capital markets development and economic growth in Romania using regression function and VAR models. The study revealed that capital market development is positively correlated with economic growth, with feed-back effect, but strongest link is from economic growth to capital market suggesting that financial development follows economic growth, economic growth determining financial institutions to change and develop.

In the work of Riman, Esso and Eyo (2008), they posed a big question as to whether there really is a link between stock market performance and economic growth in Nigeria, or are the stock market liquidity just highly correlated with some exogenous non-financial factors? Findings suggest that long run relationship exist between stock market and economic growth. The study identified a uni-directional causality that runs from stock market to economic growth but suggest that caution should be exercised in interpreting

this uni-directional causality since other non-financial exogenous variables such as have been identified to influence the direction of stock market development in Nigeria.

In the year 2009, stock-growth nexus received much research concern from Nigerian academics. Their studies view the stock-growth concern from varying aspect and do not have unifying research findings in Nigeria regarding stock market development and economic growth. The work of Ezeoha, Ogamba and Onyiuke (2009) was designed primarily to examine the nature of relationship existing between stock market development and the level of investment flows in a country with a high degree of macroeconomic instability; and whether the stock market plays a uniform role in attracting both domestic and foreign investments in such economic situation. The study shows that development in the Nigerian stock market over the years was able to spur growth in domestic private investment flows, but unable to do so in the case of foreign private investment; and that development in the country‘s banking system rather had some destabilizing effects on the flows of private investments.

Maku and Atanda (2009) further study these variables by posing a big research question: do macroeconomic indicators exert shock on the Nigerian capital market? This question aided them to examine the long-run and short-run effect of macroeconomic variables on the Nigerian capital market between 1984 and 2007. The Augmented Engle-Granger cointegration test they conducted revealed that macroeconomic variables exert significant long-run effect on stock market performance in Nigeria. Also, the employed Error

Correction Model showed that macroeconomic variable exert significant short-run shock on stock prices as a result of the stochastic error term mechanism. However, the empirical

analysis showed that the NSE all share index is more responsive to changes in exchange rate, money supply and real output. In a nutshell, the study believed that macroeconomic indicators have simultaneous significant impact on the Nigerian capital market both in the short and long-run.

Adam and Tweneboah (2009) from Ghana disagreed with Ezeoha, Ogamba and Onyiuke

(2009) on the impact of Foreign Direct Investment (or Private Foreign Investment) on stock market development. Adam and Tweneboah (2009) found that there is a long-run relationship between FDI, nominal exchange rate and stock market development in

Ghana. They posited that a shock to FDI significantly influences the development of stock market in Ghana.

Ewah, Esang and Bassey (2009) appraised the impact of capital market efficiency on economic growth in Nigeria, using time series data on capitalization, money supply, interest rate, total transaction and government development stock that ranges between

1961 to 2004. The result of the study shows that the capital market in Nigeria has the potential of growth inducing, but it has not contributed meaningfully to the economic growth of Nigeria. The study attributed the findings to the low market capitalization, low absorptive capitalization, illiquidity, misappropriation of funds among others. The study believed and suggested capital market remains one of the mainstreams in every economy that has the power to influence economic growth, hence it advised the organized private sector to invest in the capital market.

The most recent research by a Nigerian (Ogunmuyiwa 2010) on stock-growth nexus investigated the relationship as well as the channel through which investor‘s sentiment and liquidity affect growth. The study used time series data covering 1984 to 2005 in its investigation. The study found that both investor‘s sentiment and stock market liquidity

Granger-cause economic growth in Nigeria.Nowbutsing (2009) also examined the impact of stock market development on growth in Mauritius and found Stock market development positively affects economic growth in Mauritius in the short run and long run. This contribution agreed that stock market development spurs economic growth. A study from Goaied and Sassi (2010) conducted using an unbalanced panel data from 16

MENA region countries showed that there is no significant relationship between banking and growth which reinforced the idea that banks doesn‘t spur economic growth.

Tachiwou (2010) studied the impact of stock market development on growth using the regional stock exchange of the West African Sub-region (Bourse Régionale des

ValeursMobilières or BRVM) and found that stock market development positively affects economic growth in West African monetary union both in short and long run.

2.3 Critical review There are many studies discussed in the above literature which has been conducted both in Africa and other European countries with regards to the effects of stock exchange market on economic development of the country. The study is significant because when the economy of Rwanda is growing at a high rate there is need to conduct the research because it will be a benchmark for other blue chip companies to be listed in the stock exchange and also to link the variables. Stock market was recently introduced in Rwanda

and therefore offers a new venture for scholars to conduct a study in either perspective which might have an impact in development. Therefore this study will seek to find out the role of Rwanda stock exchange on the economic development in Rwanda.

Based on the discussions in the literature, it is observed that there is a strong argument that the stock exchange market affects the economic growth of the country in a positive way. Most evidently is seen on countries like South Africa Nigeria and also Kenya as indicated by (Tachiwou, 2010). Never the less, he singled out the South African market as the most performing in Africa. It was observed therefore that most of the countries with higher number of listed companies perform better as compared in terms of economic development. In our case, Rwanda with only four listed companies in the stock market and therefore there is a need to sensitize more companies to elevate their standards to be listed in the RSE in order to contribute in the economic growth of the nation. There is a gap which scholars have to capitalize through research in order to sensitize many companies in the country to invest is the stock market activities in order to open up more opportunities for the people for business development. Therefore this study identifies that there is a need to conduct much awareness in order to increase the number of companies being listed in the Rwanda stock market to be at par with countries like Kenya, Nigeria and South Africa in terms of development.

2.4 Conceptual framework Independent Variable Dependent Variable

Stock Exchange Performance Economic Development

 Creation of investment  stimulate investment opportunities for small opportunities investors  recognizing and financing  Speeding the economic productive projects development in Rwanda  mobilize domestic savings  Facilitating the government to raise  allocate capital proficiency capital for development  help to diversify risks projects

 increasing the liquidity of

financial assets

Intervening Variable Increase per capita GDP

 Good corporate governance  Creative and innovative environment  Capacity building and awareness on stock exchange business  Development of credible financial institutions

Figure 2.1 Conceptual framework

(Source: Researcher)

The conceptual framework as brought out from the literature review in this study is illustrated in the figure 2.1.The study indicates that RSE has an effect on economic development in the country. The conditions required for the development to occur include; good governance, creative and innovative environment, capacity building and sensitization of people on the procedures of trading and development of credible financial services. When this are put in place, people all over the world will seek to participate in

trading activity and therefore can lead to stimulation of investment opportunities, recognizing and financing productive projects, mobilize domestic savings, allocate capital proficiency, help to diversify risks, facilitate exchange of goods and services, increasing the liquidity of financial assets and promote wiser investment decision.

CHAPTER THREE: RESEARCH METHODOLOGY

3.0 Introduction

In this chapter the study presents the research methodology which was used to find out the role of stock exchange in the development of the economy in Rwanda. The research methodology includes the research designs, study population, sample size, sampling design, data collection tools or techniques, processing and analysis of data.

3.1 Research design

A research design is the arrangement of conditions for collection and analysis of data in a manner that aims to combine relevance to the research purpose with economy in procedure (Kothari, 2004). The study used a descriptive research design to establish the effects of stock exchange on Rwandan economic development. This design was used because the study sought to establish the impact of stock market on the economic performance of Rwanda. The study also sought to collect both qualitative and quantitative data.

3.2 Target population The study targeted the brokerage firms who trade at the Rwanda stock Exchange, senior management team of Rwanda stock Exchange and the three main listed companies in the stock market which are Bank of Kigali, Bralirwa Company and KCB bank Rwanda. Only the senior managers of those companies were involved in the study. The total number of targeted respondents were 110 who are directly involved in RSE activities.

3.3 Sampling design The term sampling design refers to that part of the research plan that indicates how data are to be selected for observation. Sampling designs are divided into two broad areas:

Probability designs and non-probability design (Donald, 2006). In non-probability, the purposive sampling design was used together with convenient sampling methods. In probability design stratified method and simple random methods were applied.

3.3.1 Sample size This refers to the number of items to be selected from the universe to constitute a sample.

The size of sample should neither be excessively large, nor too small. It should be optimum (Kothari, 2004). The sample size that was selected provided the study with a desired degree of accuracy in order to analyze the role of stock exchange on economic development. To determine the sample size, the study appliedSolvinsformulae. The sampling error was 8% in order to attain a desired or a recognizable level of accuracy.

Formulae: n = N/ (1 + N·e²)

= 110/ (1+110*0.08*0.08)

= 110/1+0.704

= 110/1.704

= 64.55 ≈ 65

Therefore, the sample size according to Solvins formulae was 65 respondents.

3.3.2 Sampling technique First, the study used stratified method to group the respondents in each individual intuitions targeted. The study categorized the brokers and the management team of RSE as one group because they could be easily sampled in the market and others were grouped accordingly in their respective institutions. Only those who are concern with investment and decision making werealso targeted as shown in Table 3.1 below.

Table 3.1: Sample frame

Population size Sample size design

Respondent Rwanda stock Senior managers at 10 Convenient 12 exchange RSE sampling

Brokers trading at 10 Simple random Rwanda stock 20 sampling exchange Bralirwa company 15 Purposive Senior managers 20 sampling Bank of Kigali Simple random Senior managers 27 sampling 15

Investment staff 5 Purposive

sampling KCB bank 15 Simple random Investment staff 25 sampling

TOTAL 110 65 respondents

Source: Researcher

Convenient sampling was used to get the respondents from senior management of RSE because they are considered to have similar information regarding the performance of stock market. Simple random sampling was used to collect information from the brokers because they are operate separately and independently and it is rare to stay in the market for long and therefore are found randomly. Purposive sampling was used to collect the information from the senior managers of BLARILWA and investment staff in BK because their shares seem to be higher than KCB bank.

3.4 Data collection methods This refers to gathering specific information aimed at proving or refuting some facts

(Donald, 2006). The study used both primary and secondary sources of data.

3.4.1 Primary sources Primary data is information gathered directly from respondents. This is through questionnaires, interviews, focused group discussions, observation and experimental studies (Donald, 2006). This was obtained from the respondents who comprise of data entrants, accounting team, procurement, and top level and lower level management. To obtain data from the respondents, the study used both open and closed ended questionnaires which were distributed to the respondents who were selected using purposive technique. The study used questionnaires and interviews to obtain up-to-date information.

3.4.2 Questionnaires Questionnaires are commonly used to obtain important information about the population.

Each item in the questionnaire is developed to address a specific objective/research question or hypothesis of the study (Mugenda and Mugenda, 2007). The study used questionnaires because it is easy to fill, takes less time to respond and can be administered to a large population at the same time. Questionnaire for was made in such way only the closed-ended questions were developed and presented to selected respondents. The questionnaires were translated in both Kinyarwanda and English in order to facilitate easy understanding particularly to those individuals who would wish to respond in either of the languages well. Further still, they were written in very simple languages which respondents can read and understand without assistance.

3.4.3 Secondary data Secondary data means data that are ready available - this is data which have already been collected and analyzed by someone else (Kothari, 2004). This was obtained from periodical reports and company profile, book reviews and journals, business magazines, other publications surfacing internet on specific websites and Publications of central, state and local governments. Also trade journals, magazines, and reports prepared by research scholars, universities, and economists. Using this technique, the study reviewed in-depth literature and relate it to the research topic. All these materials were used to ensure that it had a direct relationship with stock market and economy development.

3.4.4 Reliability of the study Reliability is a measure of the degree to which a research instrument yields consistent results or data after repeated trials; yet validity is the accuracy and meaningfulness of inferences which are based on research results (Mugenda and Mugenda, 1999).

Reliability was done by measuring the relevance of the tools like questionnaires and this was achieved through a pilot study where the study first test the questionnaires with at least twenty members from the main respondents in RSE before going into data collection. Based on the results from the pilot study, it was possible to ascertain the reliability of the data collection tools by checking the consistency on how the respondents gave their answers.

3.4.5 Validity of the study For validity test, the study used content validity, criterion validity, construct validity, and expert validity. With content validity, the study tried to see that the items on the test represent the items the study was intended to cover. For criterion validity, the study compared the study against known standards. Lastly, for expert validity, the supervisor in 33

the area of study was widely consulted. Construct validity was done to ensure that questionnaires were valid. After this exercise the answered questionnaires were collected and checked for completeness.

3.5 Data processing and analysis After data are obtained through questionnaires, interviews, andsecondary sources, they need to be edited. The data coded, and a categorization scheme was set up. The data was then keyed in, and SPSS software program was used to analyze them. According to

Kothari, (2004), when a mass of data has been assembled, it becomes necessary to arrange the same in some kind of concise and logical order. This procedure is referred to as tabulation and it’s the process of summarizing raw data and displaying the same in compact form for further analysis. Uma, (2006) opined that data have to be edited, especially when they relate to responses to open-ended questions of interviews and questionnaires, or unstructured observations. Editing was done carefully by scrutinizing the completeness and accuracy of data that was collected in questionnaires. More also, coding was done for easy identification of data. According to Kothari, (2004) coding refers to the process of assigning numerals or other symbols to answers so that responses can be put into a limited number of categories or classes. Through coding, the collected raw data was transferred into symbols especially numerical for easy tabulation and counting.

3.6 Data analysis After data collection, the raw data was evaluated in order to assess the worth of the information obtained by analyzing and presenting in a more organized and systematic

way. Triangulation of the findings of qualitative and quantitative data was vital to arriving at logical conclusions about the results.

3.6.1 Quantitative data analysis Quantitative data was entered into appropriate analysis programme, preferably statistical package for social sciences (SPSS) from which analysis was done using proportions

(percentages), rates and descriptive statistics. Descriptive statistics were used to estimate the frequencies and percentages were used to make inferences. Quantitative data were presented in tablesand narratives.

3.6.2 Qualitative data analysis Qualitative data was entered into a compilation sheet from which themes were identified.

Each theme was transferred into a master sheet from which final analysis were made in relation to objectives of this study. Qualitative data was presented in form of narratives with precisely reporting so that some strong feelings of respondents can be reported as they are.

3.7 Ethical considerations This study was conducted academically by sticking to the objectives of the study. The study avoided bias in developing the methodology of data collection, data analysis, data and interpretation. This study will not be disclosed to any unauthorized person at expense of financial interests that may affect research. The study was conducted while observing honestly in reporting the data, results, methods and procedures, and publication status.

The studydid not fabricate, falsify, or misrepresent data.

CHAPTER FOUR: RESULTS AND DISCUSSION

4.1 Introduction This chapter presents the findings collected from the respondents during the data collection exercise. The study presents the information in tables for easy understanding.

Thereafter, the data was interpreted using simple English to enable the reader to understand without difficulties. Correlations were also made to establish the relationship between various variables and the interpretations were made as well. The researcher distributed 65 questionnaire but 58 were effectively filled and were used for analysis.

This indicates that there was 89% response rate.

4.1.1 Demographic information of the respondents

Table 4.1 Gender of the respondents Frequency Percent

Male 39 67.2

Female 19 32.8

Total 58 100.0

(Source: Primary Data)

The study indicates that 67.2% of the respondents were male and 32.8% were female.

This implies that average, majority of those who work with RSE market are male and therefore the nature of work seems to attract male gender as compared to the female counterparts. The nature of work requires a lot of time in terms of marketing and networking.

Table 4.2 Level of education Frequency Percent

Bachelor’s degree level 48 82.8

MBA level 10 17.2

Total 58 100.0

(Source: Primary Data)

Figure 4.1: Level of education (Source: Primary Data)

The study shows that 82.8% had bachelor’s degree level of education and 17.2% had masters in business administration. None of them had secondary education or Phd. This implies that in average the employees who work with RSE have high level of education

and are knowledgeable about the stock market transactions. Their level of comprehensiveness is important in making transactions and advising clients basing on the trends of the market.

Table 4.3 Occupation of the respondents Frequency Percent

Manager 16 27.6

Stock broker 16 27.6

Investment advisor officer 26 44.8

Total 58 100.0

(Source: Primary Data)

Figure 4.2: Occupation of the respondents (Source: Primary Data)

The study shows that the study sampled 44.8% respondents stock investment advisory officers, 27.7% managers and another 27.6% stock brokers. This implies that in average the study obtained information from the necessary sources and therefore the credibility of the data is confirmed to be reliable.

Table 4.4 Level of experience serving in similar position Frequency Percent

Less than 1 year 6 10.3

1-3 years 16 27.6

4-7 years 27 46.6

8-10 years 8 13.8

More than 11 years 1 1.7

Total 58 100.0

(Source: Primary Data)

Figure 4.3: Level of experience serving in similar position (Source: Primary Data)

The study show that 46.6% of the respondents have experience of 4-7 years 27.6% have experience of 1-3 years, 13.8% said that they have experience of 8-10 years, 10.3% have experience less than 1 years and 1.7% said that they have experience more than 11 years in their respective fields. This implies that in average majority of the respondents have high experience judging from the number of years they have served in their respective capacities. It also means that the employee turnover in this sector is low because majority of the employees who started working in RSE are still there.

4.2 Contributions of stock exchange market in creating investment opportunities for small investors

Table 4.5 Raising capital Frequency Percent

Strongly disagree 2 3.4

Disagree 9 15.5

Undecided 10 17.2

Agree 12 20.7

Strongly agree 25 43.1

Total 58 100.0

(Source: Primary Data)

While seeking to find out the contributions of stock exchange market in creating investment opportunities for small investors, the study indicates that 43.1% of the respondents strongly agreed 20.7% normally agreed, 17.2% were undecided, 15.5% disagreed and 3.4% strongly agreed that it contributes in raising capital. They indicated that enormous sums could be raised on the capital market without the limitations associated with bank financing.

Figure 4.4: Raising capital (Source: Primary Data)

Table 4.6 Liquidity with Employees Frequency Percent

Disagree 11 19.0

Undecided 14 24.1

Agree 14 24.1

Strongly agree 19 32.8

Total 58 100.0

(Source: Primary Data)

The study also shows that 32.8% of the respondents strongly agreed, 24.1% normally agreed, another 24.1% were undecided, and 19.0% disagreed that it contribute in enabling

employees liquidity. They cited that in some of the enterprises, employees could be offered incentive through stock options. Equity markets do provide liquidity needed by firms for short-to- medium term financial needs and these are instrument in the development of an economy as investors are able to access funds. Stock market may also affect economic activities through the creation of liquidity. Liquid equity market makes available savings for profitable investment that requires long-term commitment of capital. Hitherto, investors are often reluctant to relinquish control of their savings for long periods.

Figure 4.5: Liquidity with Employees (Source: Primary Data)

Table 4.7 Liquidity for Investors Frequency Percent

Disagree 13 22.4

Agree 22 37.9

Strongly agree 23 39.7

Total 58 100.0

(Source: Primary Data)

Figure 4.6: Liquidity for Investors (Source: Primary Data)

The study also shows that another contribution is to facilitate liquidity for investors. They said that creating a public market for a stock, raising funds on the capital market through stock exchange listing result in liquidity for investors. The statistics indicates that 39.7%

of the respondents strongly agreed 37.9% normally agreed and 22.4% disagreed with the statement. The stock market plays a major role as an economic institution which enhances the efficiency in capital formation and allocation. It enables both corporations and the government to raise long-term capital which enables them to finance new projects and expand other operations.

Table 4.8 Increase Marketability of Shares Frequency Percent

Disagree 8 13.8

Undecided 6 10.3

Agree 25 43.1

Strongly agree 19 32.8

Total 58 100.0

(Source: Primary Data)

Figure 4.7: Increase Marketability of Shares (Source: Primary Data)

According to the study 43.1% normally agreed, 32.8% strongly agreed, 13.8% disagreed and 10.3% were undecided whether stock exchange market contributes in creating investment opportunities for small investors by increasing marketability of shares. This means that as economics continue to develop, additional funds are therefore needed to meet the rapid expansion and the stock market therefore serves as an appropriate tool in the mobilization and allocation of savings among competing uses which are critical to the growth and efficiency of the economy. It is this light that the stock exchange market acts as a barometer for economic performance in the sense that it assists to allocate the necessary capital needed for the consistent growth of an economy

Table 4.9 Sustainability Frequency Percent

Strongly disagree 1 1.7

Disagree 2 3.4

Undecided 1 1.7

Agree 8 13.8

Strongly agree 46 79.3

Total 58 100.0

(Source: Primary Data)

Figure 4.8: Sustainability (Source: Primary Data)

The study shows that 79.3% of the respondents strongly agreed that stock exchange market contribute in creating investment opportunities for small investors through sustainability. The general trend from the Rwanda equity market shows sluggishness and nonperformance of some securities listed by Kenya commercial bank and Nation Media group. The only performing securities on the Rwanda equity market are that of bank of

Kigali and Bralirwa. It is vital for developing countries to integrate their equity markets if they are to become liquid and attractive for investors and this is what will develop their economies.

Table 4.10 Gaining Public Confidence Frequency Percent

Disagree 5 8.6

Agree 38 65.5

Strongly agree 15 25.9

Total 58 100.0

(Source: Primary Data)

Figure 4.9: Gaining Public Confidence (Source: Primary Data)

The study establishes that 65.5% of the respondents normally agreed and 25.9% strongly agreed that stock exchange market contributes in creating investment opportunities for small investors to gain public confidence. Rwanda is a developing country which is

hungry for investments through setting up of new businesses and expanding already existing businesses in the country. Capital markets act as a good source of business funding if they are well developed. People need to be sensitized to understand the importance of RSE in order to participate in large numbers. Currently, the level of participation is still low and more needs to be done in order to improve public confidence.

Table 4.11 Sharing Risk and Retaining Control Frequency Percent

Strongly disagree 4 6.9

Disagree 2 3.4

Undecided 6 10.3

Agree 18 31.0

Strongly agree 28 48.3

Total 58 100.0

(Source: Primary Data)

Figure 4.10: Sharing Risk and Retaining Control (Source: Primary Data)

The study indicates that majority of the respondents who were more than 79.3% agreed either strongly (48.3%) and normally (31.0%) that stock exchange market contributes in creating investment opportunities for small investors by sharing risk and retaining control. Stock markets serve as a tool for trading, pooling and diversifying risks. The ability of stock markets to provide risk diversification services may prompt long run growth via changes in savings rates and resource allocation. The proponents of positive relationships between stock market development and economic growth hinged their argument on the fact that the stock market aids economic growth and development through the mobilization and allocation of savings, risk diversification, liquidity creating ability and corporate governance improvement among others.

Table 4.12 Expansion and Modernization Frequency Percent

Strongly disagree 2 3.4

Disagree 4 6.9

Undecided 4 6.9

Agree 26 44.8

Strongly agree 22 37.9

Total 58 100.0

(Source: Primary Data)

The study found that 44.8% of the respondents agreed normally and 37.9% agreed strongly that one of the contributions of stock exchange market in creating investment opportunities for small investors leads to expansion of modernization. This means that proceeds from the issue can be used for expansion and modernization of the company.

The financial stock market facilitates higher investments and the allocation of capital, and indirectly the economic growth. Sometimes investors avoid investing directly to the companies because they cannot easily withdraw their money whenever they want. Stock market liquidity is significantly related to current and future rates of economic growth, capital accumulation, and productivity improvements, even after controlling for economic, political and other factors.

4.3 Effects of trading companies on economic development in Rwanda

Table 4.13 Increase the National output and income. Frequency Percent

Strongly disagree 2 3.4

Disagree 3 5.2

Undecided 3 5.2

Agree 23 39.7

Strongly agree 27 46.6

Total 58 100.0

(Source: Primary Data)

Figure 4.11: Increase the National output and income (Source: Primary Data)

The study established that majority of the respondents who were more than 86% agreed that one of the effects of trading companies in RSE on economic development in Rwanda is to increase the national output and income. Specifically, 46.6% of them strongly agreed, and 39.7% agreed normally with the variable. In principle, the stock market is expected to accelerate economic growth by providing a boost to domestic savings and increasing the quantity and the quality of investment. The stock market is expected to encourage savings by providing individuals with an additional financial instrument that may better meet their risk preferences and liquidity needs. Better savings mobilization may increase the savings rate.

Table 4.14 Increase per capita income Frequency Percent

Disagree 8 13.8

Agree 27 46.6

Strongly agree 23 39.7

Total 58 100.0

(Source: Primary Data)

The study indicates that more than 86% of the respondents agreed that companies in RSE contributes to the economy of Rwanda by increasing per capita income of the country whereby 46.6% agreed normally with this variable and 39.7% strongly agreed. Stock markets also provide an avenue for growing companies to raise capital at lower cost. In addition, companies in countries with developed stock markets are less dependent on bank financing, which can reduce the risk of a credit crunch. Stock markets therefore are

able to positively influence economic growth through encouraging savings amongst individuals and providing avenues for firm financing.

Table 4.15 Improve human skill and labour productivity. Frequency Percent

Strongly disagree 2 3.4

Disagree 2 3.4

Undecided 6 10.3

Agree 19 32.8

Strongly agree 29 50.0

Total 58 100.0

(Source: Primary Data)

Figure 4.12: Improve human skill and labour productivity (Source: Primary Data)

The study indicates that more than 82% of the respondents agreed that RSE listed companies contributes to the economy of Rwanda by improving human skill and labour productivity whereby 50% strongly agreed and 32.8% agreed normally with this variable.

Stock market liquidity is expected to reduce the downside risk and costs of investing in projects that do not pay off for a long time. With a liquid market, the initial investors do not lose access to their savings for the duration of the investment project because they can easily, quickly, and cheaply, sell their stake in the company. Thus, more liquid stock markets could ease investment in long term, potentially more profitable projects, thereby improving the allocation of capital and enhancing prospects for long-term growth.

Table 4.16 Increase the country’s GDP Frequency Percent

Disagree 7 12.1

Undecided 1 1.7

Agree 15 25.9

Strongly agree 35 60.3

Total 58 100.0

(Source: Primary Data)

The study indicates that 60.3% of the respondents strongly agreed and 25.9% agreed normally that companies in RSE contribute to the country’s economy by increasing the

GDP. The stock market affects gross domestic product (GDP) primarily by influencing financial conditions and consumer confidence. When stocks are in a bull market, there tends to be a great deal of optimism surrounding the economy and the prospects of various stocks. High valuations allow companies to borrow more money at cheaper rates,

allowing them to expand operations, invest in new projects, and hire more workers. All of these activities boost GDP. In this environment, consumers are more likely to spend money and make major purchases, such as houses or automobiles. With stock prices in bull mode, they have more wealth and optimism about future prospects. This confidence spills over into increased spending, which leads to increased sales and earnings for corporations, further boosting GDP. When stock prices are low, it negatively affects GDP through the same channels. Companies are forced to cut costs and workers. Businesses find it difficult to find new sources of financing, and existing debt loads become more onerous. Due to these factors and the pessimistic climate, investing in new projects is unlikely. These have a negative effect on GDP.

Table 4.17Increase employment rate Frequency Percent

Undecided 4 6.9

Agree 19 32.8

Strongly agree 35 60.3

Total 58 100.0

(Source: Primary Data)

Figure 4.13: Increase employment rate (Source: Primary Data)

The study shows that more than 83% of the respondents stated that RSE listed companies contribute to the country’s economy by increasing employment rate whereby 60.3% strongly agreed and 32.8% agreed normally with this variable. Although it doesn’t facilitate direct employment, it offers an avenue in which people can be able to accumulate capital to start different types of businesses and hence creating employment opportunities indirectly.

Table 4.18 Correlations between the contributions of RSE and its effects Effects RSE Increase Increase Improve Increase the per human skill the National capita and labour country’s Contributions of output income productivity GDP RSE and income. Raising capital Pearson .632** .727** .533** .609** Correlation Sig. (2-tailed) .000 .000 .000 .000 N 58 58 58 58 Liquidity with Pearson .505** .529** .631** .403** Employees Correlation Sig. (2-tailed) .000 .000 .000 .002 N 58 58 58 58 Liquidity for Pearson .695** .870** .420** .062 Investors Correlation Sig. (2-tailed) .000 .000 .001 .645 N 58 58 58 58 Increase Pearson .343** .349** .412** .685** Marketability Correlation of Shares Sig. (2-tailed) .008 .007 .001 .000 N 58 58 58 58 Sustainability Pearson .087 .052 .094 .146 Correlation Sig. (2-tailed) .515 .696 .482 .274 N 58 58 58 58 Gaining Public Pearson .537** .795** .176 .074 Confidence Correlation Sig. (2-tailed) .000 .000 .187 .582 N 58 58 58 58 Sharing Risk Pearson .581** .375** .860** .255 and Retaining Correlation Control Sig. (2-tailed) .000 .004 .000 .054 N 58 58 58 58 Expansion and Pearson .634** .730** .324* .165 Modernization Correlation Sig. (2-tailed) .000 .000 .013 .217 N 58 58 58 58 **. Correlation is significant at the 0.01 level (2-tailed). (Source: Primary Data)

The a strong correlations between the contribution of RSE such as raising capital and its effects on increase the national output and income, increase per capita income, improve human skill and labour productivity and increase the country’s GDP as indicated by a

Pearson correlation value of .632** , .727**, .533** and.609** and p-value of .000 respectively.

The study also shows that there is a significant correlations between the contribution of

RSE in facilitating that there is liquidity with employees and its effects on increase the national output and income, increase per capita income, improve human skill and labour productivity and increase the country’s GDP as indicated by a Pearson correlation value of .505**, .529**, .631**and.403**and p-value less than .005 respectively.

Similarly, liquidity for investors has correlating effect on increase the national output and income, increase per capita income, improve human skill and labour productivity as indicated by the Pearson correlation values of .695**, .870**and .420** and p-value less than .005 respectively.

The contribution of RSE in increasing marketability of shares of the company has a strong correlation on improve human skill and labour productivity and increase the country’s GDP as indicated by a Pearson correlation value of .412** and .685**and p- value less than .005 respectively.

The study also revealed that there is no significant correlation between sustainability of

RSE with various effects used for the correlations such as increase the national output and income, increase per capita income, improve human skill and labour productivity and increase the country’s GDP as indicated by their p-values which are less than .005.

There is also a strong correlation between RSE ability to share risk and retaining control and its effects on increase the national output and income, increase per capita income and improve human skill and labour productivity as indicated by their p-values which are less than .005 respectively.

Lastly, the study shows that there are correlations between the contributions of RSE in enabling companies to undergo through the process of expansion and modernization and its effects on increase the national output and income, increase per capita income as indicated by a strong Pearson values which are almost 1 (which indicates perfect correlation between variables) and a p-value which is less than .005 showing the level of significance.

4.4 Ways in which stock exchange markets facilitate the government to raise capital for development projects

Table 4.19More capital projects can be completed as more resources are available for government capital expenditure. Frequency Percent

Disagree 6 10.3

Undecided 3 5.2

Agree 23 39.7

Strongly agree 26 44.8

Total 58 100.0

(Source: Primary Data)

Figure 4.14: More capital projects can be completed as more resources are available for government capital expenditure (Source: Primary Data)

The study indicates that 44.8% of the respondents strongly agreed and 39.7% agreed normally that RSE market facilitate the government to raise capital for development projects in that more capital projects can be completed as more resources are available for government capital expenditure.

Table 4.20There will be better accountability for use of funds as statutory financial market. Frequency Percent

Strongly disagree 1 1.7

Disagree 4 6.9

Undecided 1 1.7

Agree 24 41.4

Strongly agree 28 48.3

Total 58 100.0

(Source: Primary Data)

The study shows that more than 89% of the respondents agreed either normally or strongly that there will be better accountability for use of funds as statutory financial market. The transparent and ‘liquid’ nature of the public stock markets fosters good decision-making, healthy corporate governance, investor confidence and trust. The listed property sector reduces ‘information–based contagion’ (a key contributor towards systemic risk) by reducing the likelihood of opaque market bubbles and subsequent market shocks. It enhances the accountability of its managers – the directors and employees of the company, to its investors (the shareholders). As part of regulated stock markets, listed property companies provide high levels of disclosure and information.

Table 4.21 Rising of funds from the capital market will release government subvention for purely social project. Frequency Percent

Disagree 7 12.1

Undecided 1 1.7

Agree 21 36.2

Strongly agree 29 50.0

Total 58 100.0

(Source: Primary Data)

The study shows that 50% of the respondents strongly agreed that one way which stock exchange markets facilitate the government to raise capital for development projects is that funds raised from the capital market can be released to the government subvention for purely social project. Additionally, 36.2% of the respondents agreed normally, 12.1% disagreed and 1.7% were undecided. Moreover, savings mobilization has a direct impact on capital accumulation and it can also enhance resource allocation and technological innovation. Thus since stock markets help improve the effective mobilization of resources, they enable better technologies to be adopted, thereby encouraging growth.

Figure 4.15: Rising of funds from the capital market will release government subvention for purely social project (Source: Primary Data)

CHAPTER FIVE: SUMMARY, CONCLUSION AND RECOMMENDATIONS

5.1 Introduction This chapter presents the summary of the book particularly by giving the brief summary of the data analyzed in chapter four, provides a conclusion remarks and recommendation of the study. Also the study provides suggestions for further studies.

5.2 Contributions of stock exchange market in creating investment opportunities for small investors The equity market in Rwanda is young and it is conducted under the auspices of Rwanda stock exchange that is regulated by the capital markets advisory council (CMAC) of

Rwanda (CMA, 2013). The stock exchange is privately owned by stakeholders with the

Rwanda government owning only 20 percent, stock brokers having 60 percent and 20 percent by other stakeholders (RSE, 2013). Up until recently when Uchumi supermarket,

Equity group holdings limited and Crystal telecommunication joined the group of listed companies, there were only four firms that have listed on the equity market in Rwanda since the inception of the Rwanda stock exchange in 2005 and their performance has not been impressive for some firms like KCB and MNG.

However, majority of the respondents who were more than majority agreed that RSE may contribute in creating investment opportunities for small investors raising capital, majority of the respondents indicated that it facilitates liquidity amongemployeesin some of the enterprises, employees could be offered incentive through stock options, majority also agreed that it facilitate liquidity for investors, majority of them also agreed that it increase marketability of shares of small companies, and majority agreed that stock exchange market contribute in creating investment opportunities for small investors

through sustainability. The only performing securities on the Rwanda equity market are that of bank of Kigali and Bralirwa. It is vital for developing countries to integrate their equity markets if they are to become liquid and attractive for investors and this is what will develop their economies (Agyei-Ampomah, 2011). Despite these observations majority of the respondents also believe that stock exchange market contributes in creating investment opportunities for small investors to gain public confidence, majority agreed either that stock exchange market contributes in creating investment opportunities for small investors by sharing risk and retaining control. The study found that majority agreed strongly that one of the contributions of stock exchange market in creating investment opportunities for small investors leads to expansion of modernization. This means that proceeds from the issue can be used for expansion and modernization of the company.

5.3 Effects of trading companies on economic development in Rwanda The study established that majority of the respondents agreed that one of the effects of trading companies in RSE on economic development in Rwanda is to increase the national output and income. Additionally, most of them also agreed that companies in

RSE contributes to the economy of Rwanda by increasing per capita income of the country whereby majority of them agreed normally with this variable while minority strongly agreed. The study indicates that most of the respondents agreed that RSE listed companies contributes to the economy of Rwanda by improving human skill and labour productivity whereby majority strongly agreed and the minority agreed normally with this variable. The study indicates that majority of the respondents strongly agreed and minority agreed normally that companies in RSE contribute to the country’s economy by

increasing the GDP. The study shows that more than majority of the respondents stated that RSE listed companies contribute to the country’s economy by increasing employment rate whereby many of them strongly agreed and few agreed normally with this variable.

5.4 Ways in which stock exchange markets facilitate the government to raise capital for development projects The study indicates that most of therespondents agreed strongly and few agreed normally that RSE market facilitate the government to raise capital for development projects in that more capital projects can be completed as more resources are available for government capital expenditure.There will be better accountability for use of funds as statutory financial market.Rising of funds from the capital market will release government subvention for purely social project.

5.5 Conclusion The Rwanda equity market is segmented and has very few firms listed numbering only four (RSE, 2013). This market still remains under developed and therefore cannot provide enough liquidity needed by firms for their business funding needs. There is no doubt that the equity market has potential to grow and this acts as a barometer on the economic growth of a country. For the country’s equity market to grow, it must be liberalized as evidence is with countries like Kenya, and South Africa that liberalized in

1995 and 1996 respectively (ZLi, 2012). Countries in sub Saharan Africa must appreciate that economic growth has a lot to do with the development of their capital markets and one would argue that, this could be a good lesson for Rwanda (Eiling and Gerard, 2007).

The basic function of a stock exchange is the raising of funds for investment in long-term assets. While this basic function is extremely important and is the engine through which stock exchanges are driven, there are also other quite important functions. This includes:

The mobilization of savings for investment in productive enterprises as an alternative to putting savings in bank deposits, purchase of real estate and outright consumption.The growth of related financial services sector e.g. insurance, pension and provident fund schemes which nature the spirit of savings.

Check against flight of capital which takes place because of local inflation and currency depreciation.The ability of RSE to separatebetween the owners of capital andthe managers of capital which is a very important process because owners of capital may not necessarily have the expertise to manage capital investment efficiently.

Encouragement of higher standards of accounting, resource management and public disclosure which in turn affords greater efficiency in the process of capital growth.Facilitation of equity financing as opposed to debt financing. Debt financing has been the undoing of many enterprises in both developed and developing countries especially in recessionary periods.

Improvement of access to finance for new and smaller companies. This is futuristic in most developing countries because venture capital is mostly unavailable, an unfortunate situation.Encouragement of public floatation of private companies which in turn allows greater growth and increase of the supply of assets available for long term investment.

There are many other less general benefits which stock exchanges afford to. Individuals, corporate organizations and even the government, the government for example could raise long term finance locally by issuing various types of bond through the stock exchange and thus be less inclined to foreign borrowing.Stock exchanges, especially in developing countries have not always played the full role in economic development.

5.6 Recommendations The government should attempt to develop the financial sector more and one of the first steps is to have less state involvement in the system. This includes cutting back on public ownership of financial institutions and minimizing monetary financing of budget deficits.

Government should ensure clear and concise rules for investment, and provide incentives to attract capital on equity markets from the international monetary system. The deregulation and liberalization process should continue in a cautious way and more competition within the financial sector should be encouraged. This may mean a more opened approach to multinational banks and other institutions which would also benefit the industry in terms of financial innovation.

Moreover, Rwandan government should promote stock market liquidity by for instance propagating knowledge to the public of the benefits of investing in stock markets and moreover, create state‐run mutual funds so as to ensure higher liquidity on stock markets.

These incentives would promote both domestic and foreign investments to penetrate the domestic economies, and thus help draw immense benefits from these sources of capital.

5.7 Suggested further studies This study aimed to assess the contributions of Rwanda Stock Exchange on economic development in Rwanda. However, it was observed that there are other links which can

be pursued by other researcher in order to contribute to this stalk of knowledge which can facilitate the holistic approach of this phenomenon. It is therefore recommended that other researchers should focus in the following related studies:

1. To assess the impact of stock exchangeon increasing the overall per capita income

of Rwandan population.

2. To find out the contributions of stock exchangeon household development among

shareholders in Rwanda

3. Assessment of sustainability and marketability listed companies in Rwanda Stock

market.

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APPENDIX I: LETTER OF AUTHORIZATION

APPENDIX II: DATA COLLECTION LETTER

APPENDIX III: QUESTIONNAIRE FOR RSE EMPLOYEES Dear respondent,

My name is VianneyRugamba. I am astudent pursuing a Master’s degree in Business

Administration.

I am conducting a research on “the contribution of stock exchange on economic development of the country: using a case study of Rwanda Stock Exchange”.

This research study is actually in partial fulfillment of the requirement for the award of a

Master’s degree in Business Administration (MBA).

This questionnaire is intended for purely academic purpose and will enable me to gather information regarding the research topic mentioned above.

I assure you that the information provided will be treated with utmost confidentiality.

Please kindly spare some time to answer these questions by either writing in the space provided or by putting a tick in the right box of your appropriate choice.

I thank you very much for your cooperation and contribution.

Yours faithfully,

VianneyRugamba

General information 1. Indicate your gender

Male [ ]

Female [ ]

2. Indicate your level of education

Secondary level [ ]

Bachelor’s degree level [ ]

MBA level [ ]

PhD level [ ]

3. What is your occupation

Manager [ ]

Stock broker [ ]

Investment officer [ ]

4. Indicate your level of experience serving in similar position

Less than 1 year [ ]

1-3 years [ ]

4-7 years [ ]

8-10 years [ ]

More than 11 years [ ]

SECTION B: (CONTRIBUTIONS OF STOCK EXCHANGE MARKET IN

CREATING INVESTMENT OPPORTUNITIES FOR SMALL INVESTORS)

Indicate your level of agreement or disagreement with the following statements in the table while responding to the ways which stock exchange market in creating investment opportunities for small investors.

(1=Strongly Disagree; 2= Disagree; 3= Undecided; 4= Agree; 5= Strongly Agree)

Contributions of RSE 1 2 3 4 5 a Raising capital:

Enormous sums could be raised on the capital market without the

limitations associated with bank financing. b Liquidity with Employees:

For enterprises, employees could be offered incentive through

stock options. c Liquidity for Investors:

Creating a public market for a stock, raising funds on the

capital market through stock exchange listing result in liquidity for

investors d Increase Marketability of Shares:

Quotation on the stock exchange increase marketability of the

shares. e Sustainability:

For an enterprise, the survival and the continuity of a company

based on the exchange is guaranteed after the death of its founders

f Gaining Public Confidence:

A company quoted on the exchange enjoys greater confidence

from its investors and the banks. g Sharing Risk and Retaining Control:

There is opportunity for existing shareholders to share part of their

investment risks while still retaining control of the company h Expansion and Modernization:

Proceeds from the issue can be used for expansion and

modernization of the company.

SECTION C: (EFFECTS OF TRADING COMPANIES ON ECONOMIC

DEVELOPMENT IN RWANDA)

Indicate your level of agreement or disagreement with the following statements in the table while responding to the effects of trading companies on economic development in

Rwanda.

(1=Strongly Disagree; 2= Disagree; 3= Undecided; 4= Agree; 5= Strongly Agree)

Effects of RSE on Economy 1 2 3 4 5 a Increase the National output and income. b Increase per capita income c Improve human skill and labour productivity. d Increase the country’s GDP e Increase employment rate

SECTION D: (WAYS IN WHICH STOCK EXCHANGE MARKETS FACILITATE

THE GOVERNMENT TO RAISE CAPITAL FOR DEVELOPMENT PROJECTS)

Facilitation of RSE 1 2 3 4 5 a More capital projects can be completed as more resources are

available for government capital expenditure. b There will be better accountability for use of funds as statutory

financial market. c Rising of funds from the capital market will release government

subvention for purely social project.