By Maimbolwa Mulikelela -
DESPITE Zambia’s economic challenges, local capital market has continued to contribute significantly to the country’s overall financial sector.
It remains one of the most resilient and is poised to be one of the top destinations for domestic and global businesses to expand and invest into.
As global economy moves for imminent recovery, Zambia has shown extraordinary strength to bounce back with greater stability and sustainability.
Raising capital is a strategic priority across Zambia and the role of capital markets should assume far greater importance and urgency.
Regardless of the major developments scored in the sector, the debt market still needs to be developed to invite capital inflows needed for massive infrastructure development.
It is worth noting that the challenges in the countrys macroeconomic environment affected the performance of the capital markets.
According to Securities and Exchange Commission (SEC) chief executive officer Philip Chitalu, the capital markets over the short term period of 12 months experienced a rather poor performance.
This is so because of very low activities, failing share prices, failing index and declining market capitalisation.
For example, the market capitalisation in Kwacha terms including Shoprite declined from K65, 395 million as at March 31, 2016, representing a three per cent decrease.
He explains that the decrease in market capitalisation during that period was due to the fall in share prices of some of the listed entities.
The decline in share prices has made companies listed on the Lusaka Stock Exchange (LuSE) cheap and vulnerable to takeovers by other foreign companies.
However for investors with a long-term view, Lusaka Securities Exchange All Share Index (LASI) has continued to outperform the consumer price index and other asset classes making a case for investing in LuSE companies.
Mr Chitalu says the fall in prices also presents an opportunity to pick up shares at cheap prices and if held for a long term can yield good returns in terms of capital appreciation.
He notes that macroeconomic variables have also had an effect on the performance of the capital market.
However we have seen in recent months some of these macroeconomic variables slowly moving in a favourable direction which is likely to have a positive impact on the Capital Market.
For example we have seen stability in the exchange rate and a drop in annual inflation rate from a peak of 22.9 per cent in February 2016 to 12.5 per cent in October 2016 which is now projected to be single digit by the end of the year, Mr Chitalu says.
These are some of the indictors which domestic and foreign investors constantly keep track of when making investment decisions.
For instance, foreign investors contribute a significant portion of trading activities on LuSE and therefore stability in the exchange rate is of particular interest to them.
It is for this reason that, Government through the 2017 budget has committed through an Economic Recovery Programme, Zambia Plus which is aimed at ensuring sustained and inclusive growth over the medium term.
Finance Minister Felix Mutati during his address to Parliament on November 11, 2016 under the macro economic objectives, polices and strategies for 2017 committed to maintaining the domestic borrowing to no more than two per cent of Gross Domestic Product (GDP).
This is a welcome move and Mr Chitalu applauded the minister for proposing such a bold move.
This will make funds available to be lent to the private sector and this includes corporate raising funds through the capital market at a lower cost.
He further indicated that the Securities Bill is in the final stages of enactment and once enacted into law it will bring a number of changes making Zambias legal framework compliant with the Global Standard setter for Securities Regulators requirements and emerging trends in securities regulations.
With regard to trading turnover, Mr Chitalu says the market turnover on an annual basis decreased by 66 per cent from K 734,562,284 as at October 31, 2015 to K251, 853,352 as at October 31, 2016.
The reduction can be attributed to the fact that the turnover as October 31, 2015 was high because of the sale of 15, 850, 908 shares for ZCCM-Investment Holding to NAPSA.
This is part of the scaling down by ZCCM-IH in order to comply with the LuSE free float which requires 25 per cent of the issued share capital to be in public hands.
The sale yielded a turnover of K 570,632,688 which was 78 per cent of the total turnover of K 734,562,284 recorded as at October 31, 2015.
On the other hand, SEC chairperson Chintu Mulendema says the commission approved a new strategic plan for the period 2015-2018.
With the lessons learnt from the review of the 2012-2015 strategic plan performance, the commission will ensure that the capital markets delivered on its pivotal role of channelling savings to long term investment areas.
We have continued to advance the development of the governance structures of the market.
While the Ministry of Finance has been supportive of ensuring the Securities Act was updated through the approval of the enactment of the Securities Bill of 2016, we at the commission will see that new changes within the Act work to further strengthen the needed corporate structures in the market, Mr Mulendema says.
In conclusion, the effective mobilisation of financial resources is critical prerequisite for economic growth and an efficient and competitive capital market is an important pre condition for the mobilisation of financial resources.