Development of capital markets in Zimbabwe
The growing importance of stock markets around the world has reinforced the belief that finance is a vital ingredient for economic growth. Although there have been numerous studies analysing the role of stock markets in economic growth, most of them have focused on developed economies, and very few have focused on less-developed countries.
However, the studies on the role of the stock market in economic growth have typically excluded Zimbabwe, which is somewhat distinct from other less-developed countries for a range of reasons, which include economic crisis characterized by political instability, high unemployment and high inflation rate from 2000 to 2008. These conditions actually repelled the international investment community from the ZSE.
According to the IFC (1998), the proliferation of stock exchanges in Africa indicates that a number of countries, including Zimbabwe, now consider stock exchange as one of the strategies intended to develop national, and regional economies. The large amount of academic and policy research interest shown over the past decade in promoting stock market development in African countries is an indicator of its untapped contribution to economic growth potential.
The role of stock markets in economic growth processes is to help companies raise finance through the issuing of shares, and providing a secondary market for trading of those shares. Zimbabwe has been fortunate in having such a stock market for many decades. According to the World Bank (2007), there is now an overwhelming body of empirical evidence that stock market development plays a pivotal role in economic growth through the mobilization of savings, and by providing the financial resources
required for investment.
The Zimbabwe capital market is subject to oversight by the Securities and Exchange Commission (SECZ) which is the Apex Regulator of the market. The Commission’s main objective is to protect investors as they trade in listed securities. The capital market is a market for raising long term capital which is critical for fueling the productive sectors of the economy.
The market brings together investors with excess funds and companies in search for long term capital. Investment returns come in the form of dividends as and when they are paid by the companies. Returns are also in form of capital gains / losses when the share price of a company goes up or down respectively. The Zimbabwe Capital market currently has two registered Exchanges, the Zimbabwe Stock Exchange (ZSE) and the Financial Securities Exchange (FINSEC). The Zimbabwe Stock Exchange (ZSE) is the backbone of Zimbabwe’s capital market with a history dating back as far as 1896. It is one of the
oldest and highly diversified exchanges in Africa given listings spanning across all key sectors of the economy.
The Exchange automated its trading system on the 6th of July 2015 thereby bringing the manual trading system to an end. However, the Automated Trading System still remained limited to the stock brokers in terms of both, trading and real time viewing rights.
Following the gazetting of the Securities (Alternative Trading Platform) Rules, 2016, SECZ issued the first Alternative Trading Platform (ATP) license to Financial Securities Exchange Private Limited (FINSEC) in December 2016. FINSEC provides an electronic platform that formalises marginalised market segments and brings together all alternative trading activities on to a central and organised market place. The platform therefore facilitates electronic trading of a wide variety of securities and enhances financial inclusion through enabling all investors access to alternative capital market investment options that are not offered by traditional exchanges. FINSEC is a subsidiary of the Escrow Group. Old Mutual Zimbabwe Limited (OMZIL) became the first company to trade its empowerment shares on FINSEC. The shares were listed on the platform on the 1st of December 2016. Trading on FINSEC is also limited to members of the exchange only.
Zimbabwe’s capital market has always been dominated by the equities market since late 1990s. An equities market (also known as stock market) is a market where stocks of companies are issued and traded. As at 30 June 2017, the ZSE had sixty- three (63) issuers on its official list. FINSEC had one (1) listed issuer as at the same date. In order to widen the range of investment products available on the market, a debt market was recently reestablished.
A debt market is a financial market on which debt securities with a tenor of one (1) year andabove are issued, listed and traded. Such debt instruments include bonds, debentures and notes amongst others. The first debt instrument, Get Bucks Medium Term Note was listed on the Zimbabwe Stock Exchange on 26 April 2017. Local investors are split into retail (individual) and institutional investors. The institutional investor base is dominated by pension funds, insurance companies, life assurance companies, private corporations, trusts and investment companies. These investors can also be split into
local and foreign investors. Currently foreign investors are mostly in the form of fund managers. The market also has an Investor Protection Fund (IPF) which was established in 2009. The IPF is the last line of defense meant to provide an additional layer of protection to investors against losses when a market player fails. The total amount of compensation payable to each protected investor shall not exceed 10% of the assets of the Fund.
Zimbabwe’s capital markets continue to evolve and through the digitalization of trading,
the market keeps transforming and building capacity to offer a wide variety of new
products. Before its digitization, trading on the stock exchange was primarily an
exclusive activity reserved for investment professionals. The exchange itself operated
manually, with traders on the floor shouting over each other. Since digitization, it has
also featured heavily on social media, The extent to which the Zimbabwean public has been buying into shares became evident when, on May 7, Zimbabwe’s President Emmerson Mnangagwa announced measures to limit trading activity on the Zimbabwe Stock Exchange (ZSE). The exchange’s Zimbabwe
Industrial Index had climbed from 25,513 on August 31 2021 to 97,112 on April 29, 2022.
The announcement sparked an unpreceded furore on Twitter, with many of the new entrants dominating ZSE-related sites on the platform. The directive seemed to generate more heat than light. To some, it was an indirect way of restricting new entrants into the stock exchange, to retain the status quo. New measures included the imposition of higher Capital Gains Tax – a levy on the profits of the sale of property or investment such as shares– of 4 percent, up from the previous 2 percent on the disposal of shares held for less than 270 days.
According to the government, this would help contain the overpricing of stocks which it said was “fueling inflation and weakening the exchange rate.” These online communities and the launch of applications such as “C-trade” and the ZSE’s own “Direct” have made capital markets much more accessible. More and more people are using their mobile phones to pay bills and carry out other transactions and the same can be done with the capital markets industry to increase participation. Research conducted by the ZSE in
2020 indicated that participation by individual Zimbabweans in the local capital market was marginal. Some of the barriers cited include a lack of appreciation of the investment process and the perception that it is the domain and preservation of the sophisticated in society. This survey prompted the bourse to launch ZSE Direct, a product that would make access to the market straightforward even for first-time investors.
ZSE Direct came in to complement the platforms already in the market to provide more
choice for investors and increase retail participation as we drive financial inclusion. An
investor can register, fund their wallet, buy and sell securities and monitor market
performance remotely through the web portal or mobile application.
Another electronic platform, C-trade, allows users to buy and sell financial instruments such as stocks and bonds using mobile phones or laptops and gives brokers access to significant online investment traffic. According to the Securities and exchange commission of Zimbabwe (Seczim), which regulates the capital markets, retail investors trading on the ZSE through C-trade now account for more than half of the trades
happening on the local bourse. Before the launch of C-trade, it was estimated that only around 7 000 individuals were active on the local stock markets, with institutional investors dominating trades on the bourse. All this contributed to Seczim exceeding its targets for 2021, with daily stock market turnover 98 per cent above the initial target.
Given the country’s high mobile penetration rate of 90 per cent, the ecosystem is likely
to see more online trading activity, opening up capital markets even further to the
(previously) financially excluded.
Dr Keen Mhlanga is the executive chairman of Finking Financial Advisory. He can be contacted on
keenmhlanga@gmal. Com or +263719516766-eBusiness Weekly
