The date was July 26 2017, the place was Sunbird Mount Soche in Blantyre and the subject of the symposium was the Malawi Stock Exchange (MSE).
The Nutcracker was not part of the discussion and, therefore, hopes that the deliberations were objectively critical of the MSE. It is important to be reminded that the MSE was established in 1994 to provide a link between financial raisers and financial suppliers (investors). Trading at the MSE started in November 1996. The question Malawians should be asking themselves is, what has been the impact of the MSE, 20 years down the line? This is a pertinent question in Malawi. Over the last year, this column has, at every available opportunity, bemoaned the lack of investment by Malawians due to high interest rates and high inflation rates.
There is no doubt that businesses in Malawi are in dire need of capital for expansion in order to raise output, create wealth and employment for a growing population. The Malawi Growth and Development Strategy III has also acknowledged the lack of investment that has led to the destruction of the manufacturing base in Malawi as an unwelcome distraction to the development efforts.
The question, then, is what role has the MSE played to contribute to the availability of investment funds for Malawian investors? Economic theory has it that stock exchanges are supposed to be focal points of raising cheap long-term capital and for the mobilisation of savings. Has the MSE lived up to this objective?
Has the MSE been able to improve efficiency in resource allocation through a competitive mechanism, just like the theory says? In the last 20 years, has the MSE been able to increase liquidity and provide risk capital for trail-blazing ventures of any kind in Malawi, as is the case in other countries?
In most countries, especially where the role of the stock exchange has been positive, one of the advantages of stock exchanges is that they assist in releasing idle funds for investment because they generally provide higher rates of return than alternative investments. Have the rate of returns on the MSE been higher than other investments such as treasury bills? Has the MSE given Malawians a chance to participate in ownership of businesses through the purchase of shares just like its architects envisaged?
It is The Nutcracker’s postulation that the MSE growth and contribution to economic development in Malawi has been relatively slow; the MSE has especially received a poor response from private companies wishing to raise capital. How does one explain the fact that, after 20 years of existence, the MSE has managed to list only 15 companies?
In fact, instead of the number of companies listed increasing on the MSE, by 2017, two companies had delisted, one (Packaging Industries Malawi Limited) in 2011 and the other (Britam Insurance Company Limited) in 2016. The latest MSE annual report indicates that in 2016, the MSE registered a negative return on investment of 8.53 percent (-15.70 percent in $ terms) compared to a negative return of 2.17 percent (-29.94 percent in $ terms) in 2015 and recorded a decrease in both total traded value and volume compared to the corresponding period 2015.
With this type of performance by the MSE, it leaves the country without any possible source of long-term credit for potential businesses and, in process, constraining the industrialisation efforts. A few weeks ago, when this column made a case of the National Development Bank (NDB), there were people who opposed the idea on the basis of political inference. But political interference cannot be a reason for inaction. It should be a reason for Malawians to start the debate on how the country can depoliticise developmental processes and their institutions.
This country needs to establish an NDB which will be fully, or substantially, owned by the government but should be bestowed with full operational autonomy. The NDB may be the only source of finance for green-field and brown-field investments a c r o s s m a n u f a c t u r i n g , infrastructure and other areas, as may be considered essential to propel Malawi into the utopia of development.
The advantages of such a bank are clear. The bank would plug the gap that has emerged in the institutional financing structure and would, thus, have a ready market. It is also clear that, as a specialised institution (different from the current banks) with expertise in project finance, the NDB will be able to better evaluate the loan proposals. It will also be able to attract suitable talent on ongoing basis which the commercial banks may not be able to do. Finally, the NDB can assist the faster development of the corporate bond market – which the MSE has failed to establish— through credit enhancement and partial credit guarantees.
The current situation of high interest rates in commercial banks and slow development of the MSE demands not only finding a solution in attracting FDI but also the establishment of local long-term lending to industry. Efforts to ensure that Malawi is on track in its investment-led growth are long overdue. It is time to rewind and set up term lending institutions with specialist skills dedicated to financing initiatives in manufacturing, infrastructure and high tech sectors that could transform Malawi. It is time to take stock of the stock!
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