Calls for alternative stock market grow

By Martin Kadzere
Zimbabwe’s small to medium enterprise sector has over the years grown to become one of the country’s biggest employers, particularly given that employment within the formal industry has shrunk to low levels during the past decade.
According to estimates, the SME sector and other informal trades now employ over 80 percent of Zimbabwe’s employable population.
While there is substantial evidence that the SME sector has been significantly contributing to the economy, its growth has been largely weighed down by lack of adequate funding.
The absence of a secondary stock exchange for SMEs to help raise working capital and allow participation of other investors has also made expansion of such firms very difficult.
The world over, growth of SMEs has been openly encouraged as these are widely seen as engines for economic growth. For instance, the London Stock Exchange operates a subsidiary equities market – the Alternative Investment Market – specifically dedicated for small-sized entities to raise capital.
Countries such as India, Malaysia and South Africa boast a vibrant SME sector.
Last year, the SMEs contributed 45 percent of Indian industrial output and 40 percent of exports. They employ about 60 million people and create 1,3 million jobs every year.
The sector’s contribution to gross domestic product is expected to increase to 22 percent next year from the current 11 percent. It is against this background that Zimbabwe should seriously consider a stock market specifically for SMEs.
The secondary stock exchange would provide a platform that enables small to medium business to raise capital at low cost. It will also enhance visibility of listed firms to foreign investors.
With the current prevailing liquidity constraints, most SMEs are unable to borrow as a result of prohibitive interest rates.
“An alternative market for SMEs will certainly make it easier for SMEs to raise working capital. This has proven effective in countries such as the UK and China,” said one analyst.
Zimbabwe National Chamber of Commerce president Mr Trust Chikohora said the business representative group has already made proposals to various stakeholders for the establishment of an alternative stock market for SMEs.
“It is something that we are working on. The secondary stock market will solve funding problems in the market going forward.
“It will also be able to unlock more value for shareholders and enhance corporate governance,” said Mr Chikohora in an interview.
Securities Exchange Commission chairperson Mrs Willia Bonyongwe was supportive of the initiative.
“It is a good idea. An alternative market with relatively relaxed or appropriate regulations for that level will enable SMEs to raise capital.”
Government established the Small Enterprises Development Corporation as a development finance institution for small and medium enterprises. However, the corporation is unable to fully fulfil its mandate due to funding.
Last year the corporation received only US$2 million from the fiscus, a figure way below the demands of the sector.
The prevailing liquidity constraints have also made it difficult for financial institutions to provide long-term loans to small-sized businesses at reasonable interests rates.
Last year, ReNaissance Merchant Bank arranged a US$3 million line of credit from NORSAD to finance small to medium businesses.
There was overwhelming response as applications for funding totalled US$20 million.
Such response demonstrated the huge demand for small to medium business.