Q: The Lusaka Stock Exchange (LuSE) recently celebrated 20 years in business. What have been the highlights of the last two decades?
A: We are proud to have played a pivotal role in the orderly and transparent divestiture of government interest in some state-owned enterprises [SOEs] and accelerating the liberalisation of the Zambian economy. Zambian companies have also diversified their sources of financing to allow for their expansion.

The exchange has facilitated local and foreign portfolio investment and in so doing, provided an alternative investment platform helping aid in the development of investment, good corporate governance culture and wealth creation.

Q: One of the main tenets of the exchange has been to empower ordinary Zambian citizens. How has the LuSE achieved that?
A: We have worked very hard over the years to introduce and raise awareness on the very essence of ownership representation – shares. Working with the government, the Zambia Privatisation Trust Fund – a warehousing structure for shares – was created. This periodically released the government’s holding to citizens at a discount.

We release information on investing on the LuSE in seven major local languages. Some companies have also developed employee share ownership schemes to further empower workers.

Q: How is the exchange helping develop local companies?
A: The LuSE, in collaboration with stakeholders such as the Private Sector Development Reform Programme (PSDRP), the Citizens Economic Empowerment Commission, Institute of Directors in Southern Africa, the Bank of Zambia and the Securities and Exchange Commission (SEC) has developed a framework for interaction with local companies to improve their exposure to, and understanding of, some aspects of good corporate governance and practices, and in so doing, ready them to go public.

Through the Financial Sector Development Plan (FSDP) a mechanism to encourage venture capital and its linkage to the exchange is being developed to further support local business growth.

Q: One of the biggest problems the smaller African exchanges face is illiquidity. How is the LuSE combating that?
A: At the issuer level by demystifying the issues around perception of loss of control, ownership and transparency. At the institutional investor level by farming out investment services to dismantle the buy-and-hold attitude.

It is gratifying to note that the country’s largest statutory pension fund has already commenced the process of farming out its fund and is seeking professional investment advisors. Enforcing free-float requirements and a pipeline of quality listings is also critical to solving this challenge.

Q: Many observers say African exchanges should work towards a regional framework, such as the one West Africa is pursuing, not individual exchanges. What is your opinion?
A: Africa is an interesting place to do business. One quick lesson to be learnt is that the continent is diverse and so are its financial markets and requirements. The West African story has overtones to which most observers are oblivious; a single currency, central bank, common language and vibrant regional body.

Southern Africa is diverse and at varying stages of growth. However, I am beginning to see convergence in some practices and approaches. You will see great SA economic influence in Zambia, for instance. On the exchange side under CoSSE (Committee of SADC Stock Exchanges), we are agreed on benchmarking against the JSE for our listing rules. A good number of exchanges are also using the MIT System.

Integration might be better achieved through a virtual regional exchange, where there is a network of connected markets and cross-listings are encouraged.

Q: How are the LuSE and the Zambian government working together? What proposals do you have with the state to streamline the investment process?
A: Government has always supported the development of the capital market from inception. Tax incentives have been maintained across administrations and others added.

For instance, currently there is a waiver of 15% withholding tax on dividend income accruing to individuals invested in listed companies, a waiver of 10% property transfer tax on sale of listed shares, no capital gains tax and a discount on corporation income tax in the first year of listing.

There is an active process under the FSDP to also remove withholding tax payable on government bonds. There are no limits on foreign investment. In the 2014 national budget, the government introduced a waiver of withholding tax on interest income by loan stock companies listed on the LuSE.

‘We have worked very hard over the years to introduce and raise awareness on the very essence of ownership representation – shares’

Q: And the plans for SOEs to list? How is that going?
A: The government has made it policy to enhance profitability and good corporate governance in SOEs and specifically through the exchange. Some SOEs that are near market-ready have been encouraged to pursue a listing. One such company in the insurance sector has been given the go-ahead and is listing in the second quarter [Q2].

The structure for streamlining the rest of the SOEs is being developed by the government and once this process is concluded, it will provide a steady supply of listing candidates.

Q: How have other African exchanges, particularly the JSE, helped the LuSE aid development?
A: The LuSE continues to seek areas of further collaboration with the JSE. This stretches from day-to-day consultations to more strategic considerations. For example, our rules are benchmarked with the JSE and the alternative market structure is closely similar to the JSE’s. Recently a team comprising the LuSE, SEC and PSDRP undertook a visit to the JSE and agreed to an exchange sponsor/designated advisor.

We also interact with other exchanges such as that of Mauritius, and the Nairobi Securities Exchange, to share ideas or seek technical support.

Q: How is the LuSE going about diversifying its financial instruments?
A: There is a clear need to broaden the offering on the LuSE and this is a work in progress. We are collaborating in the development of the commodity exchange and there is also active work to introduce exchange traded funds. On the issue of enhancing the spot equity and fixed-income markets, there is consideration around developing derivatives.

Q: The LuSE has seen some great growth in the last few years. How will you maintain that?
A: The value offering proposition is a consultative one and we are actively engaging our stakeholders to understand their needs with the focus on repositioning the exchange for growth and continuous value addition. One key area is broadening the exchange’s shareholding and recapitalisation of the exchange as well as broadening the brokerage side by delinking ownership of the LuSE from a brokerage service provision.

‘The exchange has facilitated local and foreign portfolio investment, and in so doing, provided
an alternative investment platform’

Q: Another big problem facing African exchanges is attracting institutional investors, especially foreign investors. How does the LuSE plan to get that right?
A: This segment of our stakeholders is being re-engaged to further understand their challenges and expectations for a smoother experience on the exchange. The LuSE had a peer forum for growth companies where institutional investors shared their roles and how they invest through the exchange.

The LuSE participated in the annual pensions conference where the exchange’s performance was presented and pension funds showcased. We continue to receive representatives of foreign fund managers who do their market audits and want to learn about pending developments and challenges.

Q: It appears demutualisation is on the cards for this year. What positives will it bring for the LuSE?
A: Project Nkhunzi (meaning ‘bull’ in one of the local dialects) is aimed at associating the LuSE with a new business model that enhances its commercial performance in line with its vision of playing a pivotal role in the economic development of Zambia. The consultant engaged to co-ordinate this process commenced work in November 2013 and it is anticipated that the first phase will be concluded by the beginning of Q2 in 2014.

A visible output of this process will be the separation of brokerage from ownership and, as a result, a departure from a member-driven exchange to one owned by investors.

Q: There is talk of some big initial public offerings [IPOs] this year. Please fill us in.
A: The first quarter commenced on an exciting note with the Copperbelt Energy Corporation rights offer, which saw the company raise about ZMK0.38 billion (about $70 million) towards its expansion in the country, region and West Africa.

ZCCM Investment Holdings has also received approval from its shareholders to conduct an up to ZMK2 billion (about $333 million) restructure of its balance sheet and recapitalisation of the business. Q2 is poised to see IPOs in the insurance and financial services sectors. There are also other potential issuers in the pipeline that are expected to engage the exchange during the course of the year.

Q: A massive challenge for many African exchanges is the lack of data, particularly real-time information. How is the LuSE going about rectifying that?
A: We provide live feeds to data vendors. We intend to upgrade our system which will enable email and SMS alerts.

Q: How is your Bond Trading Membership programme going, and what do you hope to achieve with it?
A: This is aimed at improving the secondary trading of fixed-income instruments and facilitating the efficiency and transparency that obtains in the equity market to bonds. It allows for SEC-licensed financial sector dealers to be able to trade bonds on their account and that of clients. This initiative is alongside the national efforts to improve the debt market in government as well as corporate bonds.

By John Rossouw
Image: David Maclennan