African leaders often fail to understand the role that their countries’ stock exchanges can play in funding economic development, and unwittingly implement policies which thwart the very prosperity they are trying to create.
This has emerged during a debate by the heads of several African stock exchanges at a three-day capital markets workshop in Johannesburg organised by the United Nations Economic Commission for Africa (Uneca) and co-sponsored by Rand Merchant Bank.
“We’re battling with the issue of awareness,” said Lloyd Ching’ambo, CEO of the Lusaka Stock Exchange. “Unless government understands the value of the stock exchange, you won’t get development. Yet that same government worries about poverty and borrows so much money that they crowd out the private sector.”
He said that the banking sector was too expensive to fund economic development, and regretted that African governments tend to find IMF and World Bank funding attractive.
Kibuga Kariithi, CEO of the Nairobi Stock Exchange, criticised IMF and World Bank policy regimes, saying they had raised the cost of capital in African countries.
“We’ve got to convince African policy makers to reduce the cost of capital and create low-interest rate regimes. Once that’s in place, the private sector will come in and produce products and services.”
Kenya had large amounts of surplus capacity — about $3-billion — sloshing about the banking system, earning small returns and seeking structured deals, he said. “We don’t need FDI [Foreign Direct Investment]. We just need our own people to invest in our own markets. That’s when foreigners will start investing.”
Simon Rutega, CEO of the Ugandan Securities Exchange, said his government had run a deficit, and was then surprised to learn how it had hurt private-sector investment. “Uganda is rich. Everything is there. Most of our problems have been due to poor policies by our leaders.”
Jussub Nurmamade, CEO of the Mozambique Stock Exchange, said the lack of understanding of the role of stock exchanges in promoting development was compounded by the fact that much of his country’s population was illiterate.
Emmanuel Munyukwi, CEO of the Zimbabwe Stock Exchange, said his country’s policies had resulted in runaway inflation, soaring unemployment, a destroyed farm sector and shortages of everything.
The resulting negative real interest rates in the country and lack of suitable investment opportunities had, perversely, resulted in a rush of capital into the tock exchange. He said the exchange had seen eight new listings last year, and three this year. Its market capitalisation had grown by 700% in the past eight months.
“We’re simply taking advantage of the distortions in our economy by working with investment bankers and certain politicians who understand,” he said, adding that Zimbabwe will eventually get back to where it once was.
“Change will come. You can’t stop it. We’re positioning ourselves for it.” – I-Net Bridge