Capital markets primed for increased FDI

14 Sep, 2014 - 06:09 0 Views
Capital markets primed for increased FDI ABAN CHIRUME

The Sunday Mail

ABAN CHIRUME

ABAN CHIRUME

By Africa Moyo

MARKET WATCHERS say the on-going reform of the local capital markets could ultimately prime them for increased foreign direct investment (FDI), representing a significant break from the Emmanuel Munyukwi-led era that is alleged to have stymied market reforms.

On Monday, stakeholders launched the Central Securities Depository (CSD), a platform that is expected to offer safer storage of securities, reduce incidences of abuse of share certificates and facilitate their transfer from one party to the other through an automated book entry.

The CSD was launched by Chengetedzai Depository Company, and saw Cottco, CBZ and FBC going live, with 15 more counters slated for inclusion within a month while the remainder will be integrated by the end of November.

Though the market celebrated the development last week, the Securities and Exchange Commission of Zimbabwe (SECZ) believes that such milestones, which are in line with international best practice and have since been adopted by other markets in the region, could have been achieved long back had it not been for stagnation experienced under the Emmanuel Munyukwi- led administration. Mr Munyukwi is the former chief executive officer of the Zimbabwe Stock Exchange (ZSE) who superintended the bourse for the 16-year period from 1997.

He was dismissed last year on allegations of “insubordination” and has since been replaced by Mr Alban Chirume, former CEO of SECZ. As SECZ boss, Mr Chirume is understood to have had several run-ins with Mr Munyukwi over how to institute reforms.

SECZ chief executive officer Mr Tafadzwa Chinamo told The Sunday Mail Business last week that the developments that are beginning to set in the market are particularly ground breaking especially for a market that had become disillusioned with the slow pace of reforms.

“I think part of the frustration that was always in the market is that we were not moving fast enough on things that were apparent or obvious that, surely, any exchange would do.

“Those things were not happening and that was part of the frustration, not only from the market but from us as a commission as well. How we wanted to impact or rather stimulate that change or those moves, we said that let there be, first and foremost, a board of directors that was not so much linked or tied with stockbrokers because previously the management committee of the exchange ran the exchange.

“These were brokers who were essentially the board of directors. That was the first step in all this transformation, so, when that board was appointed as an interim board, its mandate was really to get the exchange to do things that it should have always been doing,” said Mr Chinamo.

He said the issue of listing rules, which had been outdated for a long time and was causing a lot of misunderstandings with the market, together with demutualisation, needed the attention of the Mr Munyukwi-led executive, but nothing happened.

Demutualisation involves transforming the ownership of the exchange from a member institution to a private limited company.

SECZ believes stock exchanges should be private companies and not societies.

“Automation was another big issue; so, the board really championed those things and the departure of Mr Munyukwi, I think, might have been because they didn’t see eye to eye on a number of things. So, obviously the board said ‘look, let’s find someone else’ and they did.

“These things were really things that were always there that everyone was expecting that something be done about. The front end (automation) will commence immediately after (the CSD),” said Mr Chinamo.

Finance and Economic Development Minister Patrick Chinamasa recently said Cabinet has approved the demutualisation of the ZSE.

In essence, demutualisation will eventually see the stock exchange being “driven for profit and growth”, and invite the broader participation of local investors.

Mr Chinamo said the listing rules are still in draft form but the content has been agreed by the market.

“These listing rules will make a big difference in the conduct of listed companies on the stock exchange,” he said.

Analysts contend that capital market reforms will bring transparency and potentially impact on foreign direct investment.

Chengetedzai chief executive Campbell Musiwa said the key advantages of bringing a CSD to any country is the issue of efficiencies. Settlement timeframes would be reduced from the current T+7 to T+3 by June next year.

The CSD will also facilitate the trading of Treasury Bills, bonds, repos and commercial bonds.

Musiwa noted that foreign investors, in particular US pension funds, were interested in investing in a country with a CSD due to its transparency and efficiency.

At least 60 to 70 percent of the country’s trades on the ZSE are driven by foreigners.

Stock market analyst Mr Collins Rudzuna said the CSD will also allow for more transparency since all the information would be in one place, making it is easier to trace ownership.

“I imagine it will also be more secure (because) there were cases of stolen certificates and forged signatures before. It will also allow for quicker settlement, as you know time is money.

“(But) I do not think it has an effect on FDI, rather on FPI (foreign portfolio investment – a related but different thing). A more transparent and efficient market can only attract more investors. I do not think, however, that the impact will be significant,” said Mr Rudzuna.

He said automation should come soon but must not be rushed. Rather it (should) be done properly so that all stakeholders can cope with the change. Demutualisation will allow for better governance at the ZSE so it is a welcome thing. The sooner the better,” he said.

Mr Rudzuna said along with automation, the market expects fewer and smaller charges since it will be a more efficient system to encourage more trades. Meanwhile, Mr Rudzuna said while the changes to the way shares are traded are welcome, most of the challenges the ZSE faces are external. He said with the economy is in limbo, there are just not enough quality companies to list.

“About 75 percent of the value traded on the ZSE in 2013 was in five companies. Most of the other listed companies are small and struggling, some are even insolvent (Star Africa). We need to fix the economy and the exchange will blossom.

“We should get to a point where people can trade and settle shares on their phones or personal computers throughout the day. The technology exists,” said Mr Rudzuna.

Share This:

Survey


We value your opinion! Take a moment to complete our survey

This will close in 20 seconds