STATEMENT BY THE RT HON PRIME MINISTER

 

DR B.SIBUSISO DLAMINI

 

AT THE CAPITAL MARKETS INDABA

 

AT ROYAL VILLAS, EZULWINI

 

THURSDAY 8 SEPTEMBER 2016

 

Honourable Minister for Finance

Governor of the Central Bank of Swaziland

Chief Executive Officer of the Financial Services Regulatory

Authority

Guest Speaker – Dr Odundo, CEO of Retirement Benefits of

Kenya

Industry Representative – Mr S’thofeni Ginindza

Representatives of the Media

Distinguished Guests

Ladies and Gentlemen

The buying and selling of what are commonly known as “stocks and shares” are to the man, or woman, in the street the definition of what is a country’s “capital market.” It is, of course, much more complex than that. We have heard that, and more, today from the previous speakers who have delivered eloquently and informatively. The correct term is of course in the plural – capital markets – and we have today been informed about the individual markets within that set.

But whichever term is used, it is not a subject about which you will hear a great deal of informed discussion in a typical social, or indeed professional, gathering. It is an area, of which only a relatively small number of people will have an expert knowledge. But it is an important one. The capital markets of Swaziland are conspicuous by their under-development. They have remained in their infancy for too long and I commend the organisers of today’s indaba for bringing together our experts, as well as giving them and myself the opportunity, through the media, to inform and share thoughts with the Nation.

A healthy market, whatever its product or services, can only thrive where buyers and sellers - or in the case of capital markets, investors and users of capital - have an optimal supply of resources and a willingness to trade.

That is what we lack in Swaziland in respect of our capital markets. For too long we have seen the surplus liquidity in Swaziland find its way outside the country. Capital markets have an important role in the development of an economy. They channel savings and investment from suppliers of capital, such as individuals and institutional investors, to users of capital, such as businesses and governments. If substantial resources within that economy are finding their way elsewhere a valuable opportunity is being lost.   That is the position faced by Swaziland until recently.

One of the steps that Government has taken in order to help develop capital markets has been the 50% local asset requirement for Collective Investment Schemes. The latter is primarily the group of unit trusts and mutual funds available to investors in Swaziland, which are required to publish regularly in the media. Prior to the Securities Act of 2010, these regulated financial institutions would collect funds in Swaziland and pass them through to other countries to achieve the desired financial returns. The requirement to invest locally a proportion of the funds, that have been received locally, is clearly a valuable new component in stimulating the development of a thriving capital market.

But it will not necessarily achieve the desired outcome. If the funds received merely go into the money markets in the form of fixed deposits, the banking institutions can simply send them abroad for investment. A local capital market is not developed and the objective of the legislation defeated. We look to the Central Bank of Swaziland to ensure that this does not happen.

On the other hand we need broad and flourishing capital markets to meet the additional demand for local investment. We have learned that capital, or financial markets, in a country are made up basically of primary and secondary markets. The primary market is all about the one-off issue of shares and bonds to institutions and individuals. The issue of bonds through the issue of Treasury Bills is an important source of funds for our Government. But the issue of shares, whether in the primary market or the secondary market – the latter being our Swaziland Stock Exchange (SSX) - has been minimal. And, when I say “minimal,” I mean in terms of giving individuals and institutions access to a broad range of investments, and creating a market of willing buyers and sellers. This has limited the opportunity for our people to invest in the big companies and those parastatals with the potential for privatisation.

In the secondary market, instead of a share or bond being issued just once, it can be traded many times. The stock market is the third most liquid element in the economy, the first two being cash and the commercial banks.   While the primary market is the key opportunity for the private sector to raise money for expansion or convert privately owned shares into bankable money, the secondary market – the Stock Exchange – is where shares and bonds can be traded many times by private individuals and institutional investors, at prices determined by the forces of supply and demand.

But for our SSX to work effectively and meet the growing investment requirements it must have a far greater number of quoted investments and a market of willing buyers and sellers. At the present time, it has only seven equity investments publicly listed, and not necessarily available for trade.

Our regulator, the Financial Services Regulatory Authority, whom we thank for organising today’s Indaba, has been given the mandate to spearhead the development of the SSX into a vibrant and liquid exchange. There is a need to proactively draw companies into the equities market, promoting to privately held companies the advantages of an SSX listing of their shares, and helping to introduce new financial instruments into the market. We need to work together to lower transaction costs so that more of the Swazi population can participate in this retail side of our financial market, the goal being to achieve a high volume of ready buyers and sellers of shares.

The absence of market makers is a challenge and I urge all concerned, especially the FSRA and the SSX, to come up with the proposals for growing the capital markets to serve investors and users of funds in a setting of strength and stability, helping to build up the confidence and critical mass in those markets. Automating its operations under the supervision of the FSRA will assist in this process, providing greater speed and investor protection.

His Majesty’s Government sees the role of the FSRA as hugely important, and we challenge this regulator – itself in its infancy – to keep abreast of capital markets development in the region, be speedy in the processing of product licensing applications, and diligently execute its mandate of regulating and supervising the industry. I urge the Authority to educate our people in financial literacy, helping them to avoid these dreadful schemes such as “Sharemax” and the notorious “MMM.”

Government will, in turn, play its part in maintaining macro-economic stability and providing the FSRA with the tools, especially in the area of legislation, to properly regulate the non-banking sector of the economy, this being its specific responsibility.

Thank you for inviting me to this important, indeed, seminal indaba today, and I share with you all the desire for a future capital markets sector of real substance, vibrancy and stability.

Thank you.