‘Trade on domestic capital markets’
FINANCE minister Mthuli Ncube has encouraged business stakeholders to participate in trading on the domestic capital markets to raise funds for the industrialisation of the economy in Zimbabwe.
Under the (2021 -2025) National Development Strategy 1 (NDS 1), industrial transformation should anchor broad transformation by moving Zimbabwe’s economy up the value chain.
At the International Business Conference held at the Zimbabwe International Trade Fair last week, Ncube emphasised the importance of capital markets in accessing finance for industrialisation.
“Given the outlook of an anticipated persistent tightening of global financial conditions and likely sharper contractionary effects from the synchronous central bank rate hikes,
Zimbabwe is no exception and it is high time we embrace the importance of capital markets as a stimulant for industrialisation,” he said.
Currently there are three registered exchanges in the country’s capital market: the Zimbabwe Stock Exchange (ZSE) with 57 listed companies, the Victoria Falls Stock Exchange (VFEX) with 11 listed securities, and the Financial Securities Exchange (FINSEC).
The ZSE is a local-currency bourse trading in the Zimbabwe dollar and VFEX is a foreign currency bourse trading in the United State dollar.
The two stock markets are venues where buyers and sellers meet to exchange equity shares of public corporation.
While FINSEC is a platform that facilitates electronic trading of a wide variety of securities and enhances financial inclusion through enabling all investors access to alternative investment options that are not offered by traditional exchanges.
Ncube said the trading on either of these domestic capital markets would not only help finance industrialisation but also serve as an alternative source of funding that complements bank financing for companies or entities in need of funding.
“Capital markets can offer better pricing and longer maturities, as well as access to a wider investor base. They can also offer funding for riskier activities that would traditionally not be served by the banking sector, and by doing so contribute significantly to innovation in an economy,” said the Finance minister.
He also stressed how capital markets promote Private-Public Partnerships (PPPs) and provided access to a wide range of investors who are willing to invest in companies that show potential for growth, thereby encouraging participation of the private sector in productive investments.
“This enables companies to raise capital at a lower cost than traditional bank loans, which has become expensive and restrictive in terms of repayment terms and collateral requirements,” the minister said.
He added that capital markets provided an avenue for equity capital raising from pensions funds and insurance companies.
“Government through the Insurance and Pensions Commission and the ministry of Finance and Economic Development supports this through the issuance of Prescribed Asset Status, Liquid Asset Status as incentives for capital raising,” he added.
The Finance minister said capital markets also provided companies with a platform to enhance their visibility and reputation, which could attract more investors and customers.
Further, he said companies could consolidate and create larger and more efficient companies that enjoy economies of scale, improved efficiency, and increased competitiveness, essential for industrialisation. This would be possible through capital market facilitated mergers and acquisitions.
Of the three capital markets, the ZSE is the most active recording a market capitalisation of ZW$2.04 trillion in December 2022 an increase of 54.5% compared to ZW$1.32 trillion in December 2021. Its turnover increased by 158% to ZW$27.8 billion in 2022, up from ZW$17.6 billion in the same period the previous year.
VFEX recorded a 118% increase in market capitalisation in December 2022, to US$566 million, from US$260 million in December 2021, having been established in September 2021.