Capital markets hold immense potential for wealth creation and sustainable economic development for Zambia and citizens. Nonetheless, for the past 26 years since the first trades were conducted on the Lusaka Securities Exchange (LSE), the market has been under-used, and is yet to maximise its full potential.
Trading has been focused on equity since 1993, when the capital market was established by the Securities Act. But there is more to the capital market than shares – or equity, as they are known in economics. Moreover, the market is more than a safe haven for investment. Before moving forward, let me first breakdown the meaning of capital markets.
Capital markets are places where savings and investments are moved between suppliers of capital and those in need of capital. They are, simply put, places where companies can raise long-term capital. Examples of such places include the London Stock Exchange in the United Kingdom (UK); the New York Stock Exchange in the United States of America (USA); and the LSE here in Zambia.
Capital markets are composed of the primary and secondary market. Securities are created in the primary market and traded by investors in the secondary market. Companies and governments sell new stocks and bonds to the public for the first time in the primary market. Through an initial public offering – IPO for short. The secondary market, on the other hand, refers to the stock market such as LSE where the shares and other securities are traded.
It is generally agreed that stocks are good for long term investment rather than short term or quick profit. And remember: share prices can go down as well as up!
On the one hand, it could be argued that stocks allow for citizen participation in economic development through ownership of company shares. Proponents would further cite dividends as having potential for wealth creation in the equity market.
Moving forward, bonds could become an alternative option for wealth creation and sustainable economic development. Bonds are fixed income instruments that represents a loan made by an investor to a borrower. They are used by companies, municipalities, and governments to finance projects and operations. The Government of the Republic of Zambia has set a good example for us by raising a COVID-19 bond. This is creativity at its best!
The beauty is that there is still room for more avenues of investment on the debt market in our country. One of the unchartered waters is a green bond, which speaks directly to climate change and agriculture. The bond also extends to renewable energy. It is, therefore, the right time to start thinking about raising green bonds in Zambia that guarantee both wealth creation and sustainable development.
Wealth creation, in that yields are high as green issues are topping the global agenda today; hence, attracting more investment. Sustainable economic development in that the bond would stimulate the growth of sustainable sectors in our economy such as solar energy, or clean energy, as some prefer calling it.
With the onset of climate change, the potential of the bond market could be fully maximised, once green bonds are created. Then, and only then, can we stand and sing that wealth creation and sustainable economic development in Zambia can be a reality through the capital market.
Aside bonds, the capital market has a retail side called collective investment schemes. These are widely known as mutual funds. They are primarily a pool of money collected from various investors to invest in securities such as stocks, bonds, money markets instruments, and other assets.
Finally, where do we come in as Stanbic Bank Zambia in all this? Since we are an award-wining bank, we are the custodian of capital; we are the money house. You can look through our loan offers here:
www.stanbicbank.co.zm/zambia/personal/products-and-services/bank-with-us/borrow-for-your-needs. Thereafter, you can decide whether to invest in stocks, bonds, or mutual funds. Or alternatively, if you are a corporate, you can come to us for advice on how to use the capital markets for capital raising
All in all, the beauty with capital markets is citizen participation. They are not about them, but all of us participating in in one place, for the sake of wealth creation and sustainable economic development.
Mwila Pascal Mwenya is Regional Debt Capital Markets at Stanbic Bank Zambia
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