Online Reporter
STOCK markets play a vital role in raising capital for business fairly cheaply, the dividends usually being below the interest rates they would have to pay to bankers, and that is certainly true of Zimbabwe at the moment.
The stock exchanges then offer investors who do buy shares in limited companies and who can meet the fairly stringent accounting rules set by stock exchanges a high level of liquidity so that if they want to switch investments or simply sell out their shares they can do so easily.
So both those who want to raise capital, and those who want at least a high level of transparency when they invest and safeguards against con jobs win out.
Generally, over the medium and longer term, shares on average rise in value roughly in line with inflation although other economic factors are also important.
So they tend to be favoured by those seeking longer term investments. This usually requires a spread of investments, as rising values are averages, which means there needs to be a big enough pool for the averages to work in.
But even a modest investor can invest in shares and gain the benefits, rather than leaving ownership of large companies to the rich; that is another way of making sure more people can be included.
Since companies listed on exchanges are all limited companies, the worst that can happen if someone invests in a complete dog is to lose their investment; they cannot be asked to assume more of the debt of a bankrupt company.
That is the theory.
But over the last three decades, the Zimbabwe Stock Exchange, which uses the local currency, has seen huge fluctuations in its index and a great deal of volatility, first largely because of the high inflation and then hyperinflation from the mid-1990s to the collapse of the old Zimbabwe dollar near the end of the first decade of this century.
Even the dollarisation era saw after a modest period of stability the same tendency for volatility as people realised that a lot of the US dollars supposedly in use in the Zimbabwean economy were backed by debt rather than real dollars.
Then after dollarisation was no longer functioning we had a new Zimbabwe dollar that was also hit by manipulation and black market dealings, despite the stringent fiscal discipline exerted by the Second Republic.
Finally, last year, after the Ministry of Finance, Economic Planning and Investment Promotion and the Reserve Bank of Zimbabwe first tracked down even the most obscure creators of money supply, and this proved more complex than anyone thought, and then started building national gold and foreign exchange reserves, the new ZiG reached the sort of stability that had proved so difficult to find before.
Inflation started crashing and will shortly, after the last of the bigger monthly jumps has been purged from the statistics by time, be in single digits for the first time for a local currency for over 30 years.
This has already created a great deal of price stability and, with the rapidly growing inflows of foreign currency and the buffer of the growing gold reserves, has in turn created stable exchange rates.
The parallel rate fell sharply and is now only about a 20 percent premium at worst, roughly what one would expect when this is a convenience market and is used by those who want illegal foreign transactions, such as buying drugs.
On a more mundane level, where it is accessed by smugglers, the premium can never be more than the customs duties otherwise it is more worthwhile to be legal.
Before this stability, the ZSE had been a bit of a gamblers heaven, used by speculators and manipulators as well as those just trying to preserve value for savings.
Those playing games with interest rates and sometimes fake share values were eventually forced out, first by the imposition of real interest rates that were higher than inflation rates, and then by shares assuming their own real value based on how a company was performing.
The days when people could borrow money to play the stock market were over.
The Zimbabwe Stock Exchange index has been gradually rising, as would be expected in a growing economy, and our high growth rates mean that shares do gain real extra value in many companies that are able to increase production and revenues with a growing market.
The Government helped out with slashing capital gains taxes so investors can trade.
So the ZSE is once again a functioning capital market based on what investors see as real value of their money and, far more importantly, the economic health of the companies whose shares they wish to own.
The smaller US dollar-denominated Victoria Falls Stock Exchange, which was hampered possibly by a shortage of locally held US dollars when it came to domestic dealings, has also straightened itself out and generally is seen a suitable exchange for companies with high foreign currency earnings.
In time this will be the major exporters although others did sign on when the ZSE was unstable and volatile.
Now we have advanced plans for a third exchange for the small and medium enterprises. This will always be a specialised sort of investment with investors especially keen on those that are likely to grow so the value of their investments will rise.
Normally, in most countries, such exchanges show roughly the same sort of averages as the exchanges for the big companies, but the spread of rising and falling values in individual counters is far more pronounced.
But this new Zimbabwe Entrepreneurship Exchange (ZEEX) will give the best run smaller companies an opportunity to raise capital and in many ways is a return to what a stock exchange is supposed to be, not so much a place where shares are exchanged, but one where new listings are common and a lot of investment is into new concerns, rather than riding on the backs of those who bought the first shares in a big company.
Stability makes all this possible, and allows Zimbabwe to see stock markets for what they should be, a centrepiece of capital investment rather than a gamblers’ den.
