BY SHAME MAKOSHORI
CAPITAL markets guru, Tafadzwa Chinamo (TC) will soon be leaving the top chair at the Securities and Exchange Commission of Zimbabwe after about a decade as chief executive officer. This week, our Business Editor Shame Makoshori (SM) talked to Chinamo about his experience at the helm of Zimbabwe’s capital market, and his plans for the future. Below are excerpts of the discussion:
SM: You have been chief executive officer of SecZim for about a decade. How has the experience been?
TC:. Very fulfilling. When I joined the SEC my chairman at the time, Willia Bonyongwe, told me that the position would define the rest of my life and I have a unique opportunity to determine the course of the securities industry for years to come. Looking back, I understand what she meant.
SM: When you came into office, you were concerned about disclosure levels in corporate reporting. Are you still concerned as you leave?
TC: I still am. Financial reporting quality is at the centre of a well-functioning capital market. Low financial reporting quality impedes assessment of earnings quality and impedes valuations. The standards we set in 2014 have largely been ignored due to our limited regulatory authority over listed companies. When the SEC Act was crafted, the commission was given power over all market intermediaries except the most crucial, issuers of securities or listed companies, on the understanding that the ZSE (Zimbabwe Stock Exchange) would perform the function. We were therefore forced to implement this via the ZSE and expecting a private company to enforce unpopular regulations on other private companies just doesn’t work. The solution is amendments to the SEC Act, which would give the commission regulatory authority over issuers. This is the best practice which all concerned now accept should be the norm here as well.
SM: Why did Seczim introduce quarterly reporting for listed companies?
TC: It speaks to the importance of information investors need to make decisions. The more frequent that information is made available the better. More so, for us in Zimbabwe whose economic environment is ever changing, six months is a long time for an investor to wait without knowing the performance of the company they are invested in. Regular trading updates without full financials which some listed companies give are helpful. Doing so ensures that price sensitive information is well managed and does not become a catalyst for insider trading. It’s a pity that not all listed companies do it.
SM: Since 2017, there have been reforms to address investors’ concerns in Zimbabwe but the ZSE listing drought has continued. Why has there been this listing drought?
TC: Yes, we have had a listing drought for the simple reason that we have had no IPOs. It’s a double-edged sword if you consider the companies that have delisted. I hear several reasons for the drought. These include low valuations, onerous listing requirements, raising capital in local currency instead of foreign currency and lack of tax incentives. There is some truth in all of them and the solution revolves around stabilising the economy, educating investors and potential issuers and vigorous campaigning by exchanges to draw listings. We speak of investor education but equally important is addressing the ignorance of the workings of capital markets on the part of potential issuers, ie, private sector companies. This education is not just the responsibility of SEC but exchanges and the corporate advisory sector.
SM: With the ZSE struggling to attract new listings, you licensed a new exchange, the VFEX. What informed this decision?
- We licensed Victoria Falls Stock Exchange (VFEX) because an application was put before us that met all the requirements for the registration of an exchange. In justifying the establishment of the exchange, the promoters sought to address the raising of capital in local currency instead of foreign currency I mentioned earlier. They also see the potential for companies and the government to not only raise equity capital but USD debt capital in the form of bonds.
SM: Developments on VFEX have exonerated the sceptics. Another listing drought has hit that bourse.
TC: I think it’s too early to pass judgement on the VFEX after less than a year of operation. It’s natural to compare it to the hive of activity that is the ZSE. But remember the ZSE is over 100 years old, and I am sure it wasn’t always smooth sailing. As VFEX finds its feet it must overcome the dilemma of what investors who hold shares listed there would do with the proceeds should they sell. Ideally, they would want to invest in other preferably liquid USD assets for which there are currently limited options. As more counters list and as we establish a USD money market trading will improve. As for why companies are not listing, it’s a chicken and egg situation. Companies prefer to list on a liquid exchange that has depth and liquidity, and depth is a result of many listings. Also listing on VFEX is limited to companies that generate most of their revenue in foreign currency. All these point to traction which will be gained over time, lest we judge ourselves too harshly too soon.
SM: Do you see the government vision of turning Victoria Falls into a financial centre being achieved within the next decade, why?
TC: Success depends on us attaining macroeconomic stability. If we continue on this path to recovery, within a decade, I believe it is possible. As much as Victoria Falls will be a separate financial jurisdiction, you can’t totally extricate it from Zimbabwe. So, what happens on the mainland will have a bearing on the offshore financial hub.
SM: Last year, the Zimbabwe Stock Exchange was closed. What lessons came out of this bold decision?
TC: Closure under any circumstances is disruptive and unsettling for the whole capital markets ecosystem. The clear lesson is consultation is key, professional respect is mandatory, that resolution should be swift and market players must be kept informed of what will happen next.
SM: Did you approve the closure?
TC: The decision was beyond the commission’s control.
SM: How did it feel for you personally, when it emerged that the closure cost investors ZW$240 billion in two months?
TC: I don’t think that’s an accurate figure and would be interested to know how it was computed. When the exchange reopened valuations were more or less at the pre-closure levels. I do agree that revenue generated from trading by market players including the commission, was lost but the number is smaller than your estimate.
SM: Your plan has been to broaden the capital markets. What progress have you made?
TC: Investor education, especially for us in the developing world, is vital for capital markets development. Our philosophy is that given the complex and risky nature of securities investing information and knowledge are essential. We don’t believe in sugar-coating the subject and so we published a comprehensive handbook, Investment 101, to give investors the full story. The book which is available in audio form is downloadable from our website and social media platforms. We also produced a radio drama, Ayoba Mkoba, and an educational video drama, A Grain of Fortune, chronicling how aspiring entrepreneurs can grow their businesses by accessing funding from capital markets.
I am glad to say investor education has been a success and over the years household investments in securities has grown from the pre-hyperinflation peak.
SM: Please assist us, what is the benefit of a stock exchange to a herd boy in the village?
TC: The stock market is one of the most vital components of a free-market economy. It allows companies to raise money by offering stock shares and corporate bonds. It lets common investors participate in the financial achievements of the companies, make profits through capital gains, and earn money through dividends, although losses are also possible. While institutional investors and professional money managers do enjoy some privileges owing to their deep pockets, better knowledge and higher risk-taking abilities, the stock market attempts to offer a level playing field to common individuals.
The stock market works as a platform through which savings and investments of individuals are channelled into productive investment proposals. In the long term, it helps in capital formation and economic growth for the country. Through our investor education drive the goal is to give access to all Zimbabweans. Unit trusts for example allow anyone to participate.
SM: We have seen several companies delaying publishing financial statements because Seczim has not approved them. Generally, what have been the shortcomings?
TC: Again, our limited role in regulating issuers sometimes relegates us to bystanders on such matters. Once this has been addressed through the SEC Act amendments the commission will be better placed to enforce rules and sanctions violators.
SM: Do you think the statements coming out of companies are reflecting the state of affairs, given the hyperinflationary environment?
TC: Hyperinflation accounting, while necessary according to accounting standards, is difficult to understand for most investors. One would prefer a situation where financial performance trends can be analysed going back to when a company first reported as a listed entity. Due to hyperinflation accounting this ability is lost and with it the true picture of how a listed company has performed over time. The future looks promising. We need to build on the solid foundation the commission has set in establishing a sound and conducive regulatory environment. Investor confidence continues to improve and with sustained investor education the markets will deepen and broaden. I would like to see a return of an active money market supported by a risk-free rate we can all agree on.
SM: Where are you going from here?
TC: The past 10 years have broadened my perception of the investments industry. I see things in a way I could not have imagined had I remained an asset manager. My involvement with Sadc regulators through CISNA (Committee of Insurance, Securities and Non-Banking Authorities) which I chaired for six years further widened my horizon. I have developed interest in financial education, regional integration and capital markets development, financial analysis and research, crypto assets, ecommerce, corporate finance, and many more. It is my intention to pursue one or a combination of these in one form or another.