More incentives needed for domestic capital market

NANCY MWAPE, Livingstone
CAPITAL Markets Association has appealed to Government to provide an incentive framework for companies listed on the Lusaka Securities Exchange (LuSE) that will act as a safeguard and compel responsive corporate citizenry.
Speaking at the capital market Indaba here, association president Muchindu Kasongola proposed for the consideration of preferential public procurement incentives to fuel the desired growth in the domestic capital markets that will see more shares and bonds being used to raise long-term and medium-term financing.
Mr Kasongola said such incentives would positively reinforce the attainment of the objectives of both Government and the private sector.
He said the capital market has failed to take its rightful place in the economic development agenda due to supply-side challenges associated with structures of key institutional investors that should be the drivers of the primary and secondary markets.
“To a large extent, the challenges related to the domestic markets today are also associated with limited understanding of the role of capital markets in the financial sector,” he said.
He also attributed the low levels of equity activity on the capital market to the lack of liquidity and low turnover.
Mr Kasongola said it is unfortunate that capital has become synonymous with the ability to access short-term financing through commercial banks that charge exorbitant interest rates and request stringent or unattainable collateral.
“Although direct foreign investment funding has assisted in overcoming the challenges of high interest rates, short tenures and lack of flexibility, these funding lines are largely foreign currency-denominated, presenting a new challenge of foreign currency risk in the balance sheets of borrowing entities,” he said.
Mr Kasongola said the market has in the recent past seen multi-national financial institutions come to the capital market to issue local currency bonds to support local funding.
He also noted increased appetite in government bond securities auctions in the recent past owing to a stable exchange rate and high yields.

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