Jos Havermans
Despite the turmoil in the world’s stock markets, it seems almost every country in the world — even the poorest — wants to have its own stock exchange. And Malawi, one of the world’s 15 least developed countries, is no exception.
After a three-year apprenticeship period, the Malawi Stock Exchange is poised to go it alone, with control passing to an all- Malawian staff. If any Malawian investors can expect to benefit from the Blantyre- based exchange it will initially be the rich, but the transition to a fully-fledged stock market will also force a previously closed system of state capitalism to open its doors and abide by global rules of transparency.
The trading room, based in the lobby of a small office building in downtown Blantyre, isn’t much to look at. The doorman, with his head peeking above a high wooden desk, and a security guard who for unknown reasons hails the rare visitors with a military salute, are the only people present most of the day. The huge copper bell, to mark the beginning and end of trading, is said to have been used just twice. But the Malawi Stock Exchange works.
Its single licensed broker is easy to find in the hallway behind the trading floor and managed to exchange $200 in cash into Malawian stocks within 24 hours. It took him another two days to produce a contract statement, but the accompanying stock certificates smoothly found their way through the Malawian postal system. An efficient e-mail service provides the new share-owner with a weekly update on his stocks’ performance.
So far, prices haven’t gone up since mid- December. But they have not gone down either. The $200 were good for 1 200 shares of Blantyre Hotel and 500 stocks of the Sucoma sugar company, two of the three companies that have been listed on the Malawi Stock Exchange since its inauguration in March 1995.
“Many people wonder why a poor country like Malawi should have a stock exchange in the first place,” says Rob Stangroom, CEO of Malawi Stockbrokers Limited, which runs the stock exchange. “But the reason for having it here is the same as in London or Frankfurt: enabling the private sector to raise capital.”
Stangroom adds that by luring foreign capital into a country short of domestic savings, the stock exchange could also be instrumental in helping to kick-start the Malawian economy.
A 31-year-old Zimbabwean, Stangroom came to Malawi three years ago to set up the stock market in Blantyre on behalf of Edwards & Company, a Harare-based broker that helped set up stock exchanges in Botswana and Namibia.
Blantyre is now trading bonds and shares and has a supervisory committee with representatives of the central bank, the government and the private sector. It is a member of the African Stock Exchange Association, an organisation attempting to harmonise the rules of all the exchanges in the Southern African region in line with the Johannesburg model.
National insurer Nico was the first company to be listed in November 1996. The price of its shares have since fallen owing to a surge in the number of insurance claims, in turn related to the sharp rise in Malawian crime rates since former dictator Dr Hastings Banda was ousted in the country’s first multi-party elections in 1994.
Last autumn’s decision to go public by sugar company Sucoma, majority-owned by South Africa’s Illovo, proved a major shot in the arm for the exchange. Although subject to cyclical setbacks, such as drought, Sucoma has a solid reputation as a stable and profitable company. Since the Sucoma listing, Malawi’s market capitalisation has mushroomed by almost nine times — to $110-million from $12,5- million.
The bourse is poised to grow further with the listing of Press Corporation Limited, Banda’s former economic powerhouse, in the first half of this year. The conglomerate houses a wide variety of companies, from supermarkets, tobacco and tea estates to clothing manufacturers.
“The presence of these two big, profit- making companies, Sucoma and Press, will set the Malawian Stock Exchange apart from other financial markets in the region,” says Stangroom. “Together, these companies represent 25 to 30% of Malawi’s gross domestic product, which means that they are of a size big enough to attract capital from all over the world.”
Despite what he describes as “very positive changes” in the last few years, Stangroom still sees the government as incapable of creating a clear and stable legal environment in which the stock market can operate. Important tax issues, such as whether to levy capital gains tax, are still unresolved.
“If we make suggestions, Ministry of Finance officials very often seem to have no clue what we’re talking about,” Stangroom says. “The result is that investors still act in a somewhat grey area. No one here, for instance, knows if or how to tax foreign investors.
“The Malawi government has good intentions, but still has a long way to go before enabling the stock exchange to become a strong and competitive market,” he adds.
The government has been keen on developing the stock market. It is hoping for beneficial effects in the long term, but, more than anything else, is well aware of the market’s lucrative short-term potential.
Faced with dwindling tax revenues and other financial problems, Malawi’s President Bakili Muluzi and his Cabinet effectively view the stock exchange as a useful vehicle to generate money for the treasury, using it as the lynchpin in their ongoing privatisation programme.
By selling state shares on the stock market, the government is raising considerable revenues, while at the same time keeping its promise to broaden the shareholding base of the country’s corporations, many of which used to be controlled by Banda and his small elite.
It is doubtful, however, whether share ownership will trickle down to the man and woman in the street, as is the government’s stated intention. According to Malawi Stockbrokers Limited, only about 2 000 to 3 000 Malawians, out of a total population of 12-million, will ever be able to afford to buy shares. Most capital must inevitably be raised abroad.
Stangroom is not embarrassed to admit that if the stock exchange benefits any individual domestic investors, it will first of all make the Malawian rich get richer. He smiles as he displays the cover of a financial report he wrote recently. It carries a bold printed quote attributed to the late Chinese leader Deng Xiaoping: “Somebody has to get rich first; otherwise, we’ll all remain poor together.”
The aphorism sums up the broker’s philosophy, one that is apparently shared by the World Bank and other foreign donors.
International Finance Corporation, a World Bank affiliate, and the Financierings Maatschappij Ontwikkelingslanden, a Dutch development bank with close ties to the Dutch Ministry for Development Co-operation, provided 40% of the $500 000 required for establishing the stock market in Blantyre.
The Western donors’ faith in stock exchanges as catalysts of economic development is further demonstrated by the European Union’s sponsorship for seminars and a publicity campaign to profile the Malawi Stock Exchange.
One of the benefits is that stock exchanges boost economic transparency. “It keeps everybody honest,” Stangroom says. “The stock exchange has strict disclosure requirements for companies that go public. The fact that listed companies are now dealing under the eyes of the general public will give nepotism or siphoning off money much less chance to occur.”