CAPITAL MARKETS IN ZAMBIA Post economic reforms in the early 90s, the Government of Zambia set up the Lusaka Stock Exchange (LuSE) for developing the financial and capital market in order to support and enhance private sector initiative. It was also aimed at attracting foreign investments by promising higher returns. Divesting government ownership in many of the dysfunctional companies and increasing the ownership by citizens and private players through a fair and transparent process is another important reason for setting up the exchange. International Finance Corporation (IFC), World Bank and UNDP helped set up LuSE and it was opened on 21st Feb 1994. The Securities Act No 38 of 1993 regulates the Zambian capital markets and ensures adequate investor protection and supports the operation of a free, orderly, fair and secure and properly informed securities market. There were many impressive efforts that were undertaken to promote the capital markets in Zambia and its commonly referred to as the ‘Zambian Model’ and was implemented in developing the capital markets of the other Southern, Western and Central African countries in the late 1990s. Some of the main features of the Zambian Model were:
No capital gains taxes
There were no restrictions on foreign investment and foreigners may invest on the Exchange on similar terms as Zambians.
LuSE gave companies incentives to list by providing income and property transfer tax benefits.
Syllabus on capital markets in secondary schools, 1999.
Workshops were conducted and the staffs were trained and study tours conducted.
The details provided below stand testimony to the fact that the ‘Zambian Model’ was indeed a success. As can be seen in the charts, the year end Market Capitalization in 2007 and the index peaked in March 2008. Since then it’s been downhill all along and both the peak as well as the boom has been the result of global phenomenon. ZCCM-IH refers to Zambia Consolidated Copper Mine Investment Holding is an investments holdings company and has the majority of its investments held in the copper mining sector of Zambia. The Company’s shareholders are the Government of the Republic of Zambia (GRZ) with 87.6% shareholding and private equity holders with 12.4%. Minority shareholders are spread throughout the world in various locations. A case in point to the overwhelming dependence on Copper as the investment vehicle is the Capital Markets trend in 2003-04. In the eight month period from mid-2003 to early 2004, world copper prices rose by 87% which could be due to the mining disaster at the Grasberg mine in Indonesia, the fourth largest copper-producing country in the world. Incidentally, Grasberg mine was third largest copper mine in the world. Also, 2008 saw the crash in the world commodity prices and it’s abundantly reflected in the Capital Market indices which reinforce the economic dependence on Copper. It is to be noted that most of the Copper investments related stocks are not very much overvalued and the PE ratios in general are very attractive. This is a good time for investments in the Zambian Capital Markets which would generate long term investments as soon as the economy starts booming again and Copper as the major electrical and energy transmission related commodity will be in much demand. Thus, this is a right time to invest in Zambia and cash rich Chinese are doing precisely that – with a long term view. One of the main reasons for setting up the Capital Markets exchange LuSE is to increase the foreign investments in Zambia and LuSE has certainly contributed to that. The below table provides the details of foreign investments in Zambia. Over the past few years from 2005 saw foreign investments rising due to increase in the global economy in general and the commodity price increase in particular. 2008 saw massive outflows from Zambia and again its global economy and commodity prices trend. The table below provides details of foreign investments in the Zambian capital markets.
The trade related details of the Zambian secondary marketst in 2008 are given below:
What is to be noted is that though the foreign activity have been very less in numbers (12%), the volumes and turnover have been massive – in fact even more than the domestic players. Thus, it can be inferred that there was massive outflows from the markets from foreign players in $ terms, many of them being high value trades. Source: http://www.uneca.org/ and http://www.luse.co.zm/