Bekaert, Geert, and Campbell R. Harvey, 1998, “Capital Markets: An Engine for Economic Growth,” Brown Journal of World Affairs, (Winter/Spring), pp. 33–53.
Calamanti, Andrea, 1983, The Securities Market and Underdevelopment: The Stock Exchange in Ivory Coast, Morocco, Tunisia (Milan: Finafrica-Cariplo).
Fair, Donald E., ed., 1986, “Shifting Frontiers in Financial Markets,” Financial and Monetary Policy Studies, Vol. 12 (Dordrecht: Martinus Nijhoff).
Grossman, Sanford G., and Joseph Stiglitz, 1976, “Information and Competitive Price Systems,” American Economic Review, Vol. 66, No. 2 pp. 246–53.
Isimbabi, Michael J., 1997, “Stock Markets, Foreign Investment, and Economic Growth in Africa,” SAIS Review, (US), Vol. 17 (Summer-Fall), pp. 141–52.
Jefferis, Keith R., and Charles C. Okeahalam, 2000, “The Impact of Economic Fundamentals on Stock Markets in Southern Africa,” Development Southern Africa, Vol. 17, No. 1 (March), pp. 23–51.
Kim, E. Han, and Vijay Singal, 2000, “Stock Markets Openings: Experience of Emerging Economies,” Journal of Business, Vol. 73, Issue 1 (January), pp. 25–66.
Levine, Ross, 1997, “Financial Development and Economic Growth: Views and Agenda,” Journal of Economic Literature, Vol. 35, (June), pp. 688–726.
Loayza, Norman, Ross Levine, and Thorsten Beck, 2000, “Finance and the Sources of Growth,” Journal of Financial Economics, Vol. 58, pp. 261–300.
Merton, Robert C, and Zvi Suresh, 1995, “A Conceptual Framework for Analyzing the Financial Environment,” The Global Financial System - A Functional Perspective (Cambridge, Massachusetts: Harvard Business School Press).
Miningweb (Johannesburg), vrious issues, 1994 to 2002.
Mondo Visione, 2000 and 2001, Bridge Handbook of World Stocks Derivative and Commodity Exchanges (Welwys Garden City, England: Mondo Visione).
Mwenda, Kenneth Kaoma, 2000, The Dynamics of Market Integration: African Stock Exchanges in the New Millenium (United States: Brown Walker Press).
Mwenda, Kenneth Kaoma, 2001, Zambia’s Stock Exchange and Privatisation: Programme Corporate Finance law in Emerging Markets (Lewiston, New York: The Edwin Mellen Press, Ltda).
Pangaea Partners LuSE, 1997 and 1999, Year-End Market Report (London: Pangae Partners), also available via the Internet at www.pangaeapartners.com/19(99)(97)ye.htm.
Post, The, (Lusaka), various issues 1994 to 2002.
Popiel, Paul A., 1994, “Financial Systems in Sub-Saharan Africa,” World Bank Discussion Papers 260, Africa Technical Department Series (Washington: World Bank).
Rajan, Raghuram G., and Luigi Zingales, 1998, “Financial Dependence and Growth,” American Economic Review, Vol. 88, No. 3, pp. 559–586.
Singh, Ajit, 1999, “Should Africa Promote Stock Market Capitalism?” Journal of International Development, Vol. 11, (May-June), pp. 343–65.
Times of Zambia, The,, (Ndola), various issues, 1994 to 2002.
Heloisa Marone is a Ph.D. candidate in economics at Columbia University. This paper was part of her 2002 summer internship project at the African Department in the IMF. She would like to thank Thorsten Beck, Francis Daniels, Kahwa Douoguih, Mark Ellyne, Shahabuddin M. Hossain, Robert Knapp, Ladslous Mwansa, Kenneth Kaoma Mwenda, Situmbeko Mubano, Tushar Poddar, Ramana Ramawswamy, Leander Schneider, and Robert Sharer for useful comments and suggestions.
In other words, the study assesses the importance of the LuSE in the processes of resource allocation, economic growth, and privatization, and its role in mobilizing domestic savings and attracting private foreign investment.
Some family-based companies may prefer raising funds through borrowing from banks or internal cash generation. Domestically owned companies may also be uncomfortable with offering shares to foreign shareholders.
Calamanti (1983) stresses that in the countries she studied small and medium-sized investors typically face serious constraints on their access to stock markets because they are less likely to live near the main financial centers, where the stock exchange, banks, and brokers are located.
Markets are liquid if transactions of a large size can be made instantaneously and continuously without moving the price significantly.
There are no specific criteria for companies to qualify for the AIM. Once admitted to the AIM, a company has certain ongoing disclosure requirements, and it needs to retain a nominated adviser at all times. Ordinarily, once a company has been on the AIM for two years, it will have the opportunity to seek admittance to the main market by using a special expedited procedure (http://www.londonstockexchange.com).
Domestic investors tend to have more limited access to international capital markets than foreign investors do.
The following is an illustration of the hurdles a potential investor might face in attempting to obtain information on the Lusaka Stock Exchange (LuSE) and its listed companies: while in May 2002 a large amount of data on trading activity was available on the LuSE webpage (http://www.luse.zamnet.zm), this page has not been accessible between the end of May 2002 and the time of writing (September 2002).
Given the small number of trades, the low frequency of the reports, and the small number of listed companies, it is very likely that government grants play a major role in the funding of the LuSE’s operational costs.
Five requirements must be met before firms can distribute equity or debt to the public. First, the applicant company (issuer) must be incorporated in Zambia as a public company. Second, the securities must be registered under Part V of the Securities Act 1993. Third, the applicant company should have a trading record of at least three years under one management. The exchange may accept a shorter period in exceptional cases. Fourth, there must be an adequate market in the securities and sufficient public interest in the business of the issuer. Finally, there must be an open market in the securities. This is determined by either of the following decision rules: the minimum percentage of securities in public hands must be 20 percent, with a minimum of 100 shareholders, or the greater value of the issuer’s market value or shareholders’ funds must be not less than K 2,000 million, with not less than 2,000,000 shares held by a minimum of 1,000 shareholders. The securities for which listing is sought must be freely transferable.
As an illustration, in Hong Kong SAR, Japan, the United Kingdom, and the United States, the total value of shares traded was, respectively, 42.5 percent, 95.6 percent, and 202.9 percent of the GDP in 1999 (http://www.worldbank.org/data/wdi2001/pdfs/tab5_3.pdf).
After a change in ownership, the new majority shareholder has to send out a mandatory buying offer to give the minority shareholders a chance to sell their shares (personal communication with Situmbake Mubano, dealer at the LuSE, August 2002).
“The market [LuSE] despite the stellar performance has several short-comings. First and foremost, the market has an inadequate supply of shares. There is a critical shortage of stock which results in thin market trading. This has been of great concerns to the investors who want to buy in large quantities.” (Pangaea Partners, 1997 LuSE).
The Post (Lusaka), January 15, 2002. “Lusaka Stock Exchange Asks Government to Suspend Corporate Tax or Reduce It.”
Like in any other developing country, the Zambian informal sector is estimated to be substantial. More than 70 percent of the employed population is estimated to work in the informal sector (International Labor Organization, http://www.ilo.org; see also The Times of Zambia (Ndola), October 9, 1999, “Small Industries Key to Zambia’s Growth”).
Compare, for instance, The Times of Zambia (Ndola), February 1, 1999 (“Why Local Traders Cannot Penetrate Global Market?”) and the example of a recent successful venture- capital operation, Microlink. An Internet provider in Zambia, Microlink is partly financed by a US$300,000 Norwegian Development Agency (NORSAD) loan after being assisted on a business plan by the Africa Project Development Facility (APDF). Microlink’s chair, Ben Shoko, said that the company was looking forward to floating its shares on the stock exchange once it had been consolidated (The Post (Lusaka), November 9, 2001, “Developing Countries Have No Choice over E-Commerce.”)
According to IMF staff estimates, the total assets of all banks are approximately 26 percent of the estimated GDP for the year 2000.
Underwriting is a commitment by the underwriter to subscribe for that portion of shares not bought by the public.
“The number of trades decreased dramatically in 1999. There were a total of 1,922 trades over the course of the year, down by 49 percent from 1998. This was primarily due to limited buyers in the market throughout the year. …While turnover increased to K 33 billion, up by a staggering 296 percent over 1998, K 29.5 billion, or 89 percent of the increase, came from a single trade. In May 1999, South African Breweries (SAB) purchased Anglo American’s 45 percent shareholding in Zambian Breweries Pic.” (Pangaea Partners, 1999).
Personal communication with Mr. Situmbake Mubano, dealer at the LuSE (August 2002).
Majority shareholders trade shares that are not publicly available (the value of these shares corresponds to around 90 percent of the value of the company). The deals (amount and price) are negotiated before the trading takes place on the LuSE (e.g., Zambia Sugar, in 2001). Transactions of shares of companies listed on the LuSE must by law be realized at the LuSE, even if the exchange does not play any role as an intermediary.
As of end-2000, these three companies alone make up approximately 83 percent of total market capitalization (Mondo Visione, 2001).
The Times of Zambia, February 5, 1999, “Mine Jobs Up For Grabs.” The privatization of some of the parastatals did not contribute to the government revenue as much as to the cut of expenses. This was in part because some privatization deals were in fact not straight divestments of government assets; rather, they were structured to include elements of asset swaps. For instance, the Zambian government agreed to sell the Nchanga and Konkola Copper Division and the Nampundwe pyrite mine to the South African-based industrial conglomerate Anglo-American Corporation (AAC) in October 1999 for US$90 million (US$30 million in cash plus US$60 million to be paid over three years). In a related deal, the AAC agreed to sell to the government its 27.3 percent stake in its subsidiary, the Zambia Copper Investments (ZCI), for US$30 million.
Interview with Mr. Peter Yuyi, manager, securities brokerage, emerging markets’ securities, Lusaka, December 18, 1996 (Appendix E in Mwenda (2000)).
Citibank’s Country Treasurer Ignatius Chicha said “the price of most foodstuffs and fresh farm and processed products are slowly going up as suppliers and traders make adjustments to reflect rising costs of inputs,” The Post (Lusaka), July 8, 2002, “Inflation Target of 13% Getting Out of Government’s Grasp.”
The full extent of the HIV/AIDS pandemic in Zambia is not fully known as statistics are not reliable. At the end of 1999, it was estimated that 20 percent of adults were living with HIV/AIDS (U.S. Census Bureau, Joint UN Program on HIV/AIDS (UNAIDS), Population Reference Bureau, and World Health Organization).
While they are apparently quite attractive, treasury bills require a minimum amount for investment, which limits domestic direct participation in this market. Banks are the main holders of treasury bills, and this explains their high profit margins: lending to the government is well rewarded while borrowing from the public is very cheap (deposit rates are very low).
“Analysts said later that it was extremely unlikely that any other company would like to take over, even if some more low cost loans or grants were available”. (Miningweb (Johannesburg), January 24, 2002, “Anglo Warns of More Copper Pain”)
‘If Anglo or any other member pull out of Zambia, the government would have to take up their shares, but does it have the money to do that?’ (Citibank’s Zambia Country Treasurer Ignatius Chicha, UN Integrated Regional Information Networks, January 25, 2002, “Copper Blow.”)
However, according to the World Bank and the IMF staff estimates, the SEC appears as a debtor in the LuSE 2001 Annual Report, an unsatisfactory position for a regulator.
One could argue, however, that the increase in trading activity in August 1994 was in fact due to the flotation of shares of the ZCCM (Zambia Consolidated Cooper Mines Ltd.) in September 1994 (Mwenda, 2001, p. 287). The collapse of the Meridien group in 1995 might have lowered overall trading activity by negatively affecting investor confidence rather than through the channel suggested by Mate, i.e. that there was a decrease in the volume of savings channeled into the exchange because of the collapse of a collective investment scheme. The figure below shows the number of shares traded and the trading value on the LuSE from early 1994 to mid- 1995:
Ibid., August 20, 1999, “Minister Kalumba Issues Directive.”
The success of unit trusts in Zimbabwe could, however, be a result of the relatively high savings rate as the figure below illustrates. The savings rate in Zimbabwe (excluding grants) is significantly higher than in Zambia, and this is especially pronounced for the period after 1990 (World Bank, African Indicators).
The volume of money directed to these exchanges may not necessarily increase, given that most of the major shareholders are foreign investors who already have access to all these independent markets.
Costs could also increase, given that a regional stock market would be larger that national ones and would require a more efficient telecommunications system.