Conference tackles restrictive legislation on capital markets

ZSE chief executive officer Justin Bgoni

THE Zimbabwe Independent together with the Zimbabwe Stock Exchange (ZSE) and the Securities and Exchange Commission of Zimbabwe (SecZim) this week hosted the inaugural capital markets conference, which sought to find ways to resolve the pressing issues bedevilling the capital markets. Key issues that arose during the conference were stringent and inconsistent policies, liquidity issues, continuous suspension of PPC and Old Mutual from the ZSE, the need for the market to be innovative, technology, and opportunities in the carbon credit market, among others. Our senior business reporter, Melody Chikono (MC) spoke to ZSE chief executive officer Justin Bgoni (JB, pictured) who stressed on the need for collaboration between the capital markets and the government for the greater good of the economy. Below are the experts of the interview.

MC: Can you take us through the inaugural capital markets conference, why it was converged and what came out of it?

JB: What we wanted to discuss was the key challenges facing the industry and what can be done about it. One of the key things that came out was that we needed a closer relationship with the government.  And, we are fortunate that the guest of honour, the Honourable deputy minister of Finance (David Mnangagwa), also made it very clear that the government is keen to have a strong working relationship with the capital markets. And we are also very keen to have a strong working relationship with the government, so that means we are on the same page. What’s required now is to take action.

That was the key deliverable that came out, that both sides are keen to work together and going forward, that is what’s going to happen. We are very happy with the Capital Markets Association coming through, because now there is one voice from our side as capital markets and the government now knows who to speak to when they have got something to talk about.

MC: So, you have launched the Capital Markets Association. Can you take us though what it is about?

JB: Let me start with what constitutes the capital markets. The capital markets are all the major players in capital markets. It is the exchanges, depositories, stockbrokers, custodians, asset managers, and transfer secretaries. So, all the major players that are in the capital markets. And what we want to do is we want to do an association similar to what the CZI (Confederation of Zimbabwe Industries) has done to manufacturing.

It does several things.

The first thing that it does is it helps in terms of research, so you would research on matters that pertain to the capital markets. The second thing is it lobbies. Whenever there is a policy that it wants, that is beneficial to the members or something that the government does that is not beneficial to the members, they lobby as one voice. So, that is an important component of what they do.

Then, also, there is an element of professional development as well. When you are in a market like this, you can start teaching members on the best practice of what to do and that is going to be a major part of what is going to happen as well. I think those are the main things of what is going to happen.

MC: You have said there are ‘glaring’ challenges in the market. What are some of them?

JB: One of the main challenges that have been facing the industry is the issue of restrictive legislation around the capital markets. There was an issue of high capital gains withholding tax on the exchange, the trading of shares on the market. There was an issue of investing period where if you sell before 180 days, you will get charged higher taxes. What all this has done is made it unattractive to trade. It made the capital markets unattractive. It means that people are not interested in investing there.

And also, companies are not interested in listing and raising money on the exchange. So, it is one of the things that we have been working on very hard to get out of and we are glad that we seem to be getting traction on it.

This conference also helped highlight that issue, so we believe that we will get relief over the next few days, if not next few weeks. Another one is that the government has not been raising its debt through the capital markets so we are trying to get government to come through the capital markets to raise debt.

That helps very much because normally for the debt market to work, you want the government to start then the private sector will follow.

We are talking to government. It is something that the government is listening to. So, we hope to get relief over the next few weeks as well.

MC: You touched on liquidity. Can you expand on that?

JB: The issue that I was talking about in terms of the restrictive legislation affects liquidity. If the government is saying you should not trade within six months, people won’t come and trade because when you want to invest on the market, you never know when you need the money. Thus, if I tell you that when you invest in this product, you will only get your money after six months you no longer want to invest in that product because what happens if you need your money within the six months?

I think things like that have affected liquidity on the market. We believe if that goes away, a lot of liquidity will come back to the market. There was a time when the market had gone up quite a lot, almost getting to 1 000 trades a day. It has come down quite a lot now to about 80 to 100 trades a day.

We believe all of this happened, you can see, when those restrictive legislations came through. That was when you saw liquidity coming down. We believe that will help (with liquidity) if (restrictive legislation) goes away.

MC: So, what are your expectations?

JB: We believe we have done a decent job on new products and new listings. We have ETFs (exchange traded funds), we have REITs (real estate investment trusts) now. I think if this (restrictive legislation) goes away, we believe that liquidity will come back.

MC: You raised concern over looming qualified audit opinions. What are the issues?

JB: One of the most important things that you need as an investor is information on how a company is performing. Do you want that information to be true? Do you want it to be the correct information? If financial statements are qualified, the auditor is not agreeing with management on the quality of the financial information. As an investor, do you trust the financial information?  There is doubt in your mind. The more we have of this, the more doubt people have, the less people want to invest. A lot of that has been because of the changes on the currency.

And this year, what we are worried about is that the first four months of the year were in Zimbabwe dollars (ZWL), and the last eight months will be in ZIG. How is that going to be sorted out? How are they going to add the numbers when there is ZIG and ZWL, which are two different currencies?

MC: You indicated that you are working on migrating to at least T+1 (settlement date of security transactions) in terms of settlement cycles?

JB: At the moment, we are on T+3. What happens is that if you buy shares today, you get those shares in three days’ time. If you sell shares today, you will get the money in three days’ time. People are unhappy because they have to wait three days. All over the world, people are moving closer and closer to say, instead of T+3, they are on T+2 or T+1.

What I was saying was that if you look at young people, the markets that they like playing in, like CFTs (commodity futures trading), like cryptocurrency are instant. You buy your shares; you get them straight away.

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