We have extracted the Chairman’s Statement from the 2018 annual report for Securities and Exchange Commission Zimbabwe:
3.1 Operating Environment
The year was yet another unpredictable one for Zimbabwe’s capital market with mounting pressures from adverse local, regional and international economic developments. On the bright side it was progressive in that the market maintained its thrust towards recognition as a notable investment Desdemona. The Commission’s mandate is continuously evolving shaped by an ever‑changing operating environment to which we must adapt.
The fact that Zimbabwe does not exist in isolation clearly means that one cannot detach the market from the widespread turmoil on international financial markets. Escalate global trade tension and retaliatory measures by major trading partners during the period under review has the potential to squeeze aggregate demand, income and capital inflows. The economic slowdown in China during the year turned out to be the slowest growth in three decades. If untamed, the slowdown can generate adverse spill over effects into Zimbabwe through lower than projected commodity prices thereby exacerbate economic imbalances. The sluggish growth and uncertain policy direction in the country’s major trading partners do not auger well for the local market. Such developments are prone together global financial conditions and capital flow reversals.
Zimbabwe’s prospects of an economic rebound therefore remain under threat for myriad for economic adversities for both within and beyond borders.The commission believes that the prevailing liquidity crisis is a manifestation of the structural deficiencies and distortions in the economy which have resultant curtailed market activity and subscription levels in most recapitalization efforts. Sustainable implementation of key structural economic reforms is critical in swaying investor perception and confidence towards broad based economic growth and development.
Like every other sector, the capital market has not been spared from the ongoing economic ordeal. Despite some improved confidence that was witnessed with the onset of the new dispensation comprising a leaner Cabinet with some technocrats of high repute, post‑electron violence witnessed on 1 August obviously put a dent to potential international re engagement. The general macroeconomic environment worsened following Government’s stance to maintain the USD to bond note parity status with no respite to the foreign currency crunch. Repatriation of stock market proceeds by foreign investors conned unabated. Average foreign participation remained generally depressed at 34% throughout the year largely comprised of recycled funds. SECZ applauds the RBZ for spearheading the establishment of a USD5 million facility that is meant to ring fence all foreign portfolio investments. Meanwhile, the Central Bank is working on modalities to operational the facility. Annual inflation shot up to an all‑me high of 42.1% since polarization thereby reviving memories of the much feared 2008 hyperinflation. Inflation broke through the SADC regional macroeconomic convergence target of 3%. Industry players resorted to a costlier black market for foreign currency which came at a premium of at least 250%.
Notwithstanding underlying challenges, market participation remained cave albeit confined to defensive stocks amid heightened uncertainty. Listing is generally a function of the underlying macroeconomic environment. There were three delistings, one new listing and a total of $22.5 million in capital raised on the market during the period under review. With ongoing market development initiatives, SECZ expects more quality and bigger listing on the stock exchanges. The market closed the year with a YoY return of 103% in sharp contrast to its regional peers most of which registered losses over the same period. However, obviously more sell needs to be done.
At regulatory level, the market sell has limited and outdated support subsidiary legislation for the Commission to effectively execute its mandate. The cost of doing business on Zimbabwe’s capital market is sell low considering that the local market remains more expensive than its regional peers simply by comparing total trading costs. A reduction in trading costs would improve the competitiveness of the market within the region. SECZ implores Government to ensure an enabling investment environment through enactment of legislation aligned to best practice.
At issuer level, the Commission is sell baling limited information disclosure and weak corporate governance standards by some listed companies. With globalization, international capital tends to flow towards good governed investment destinations. Unsurprisingly SECZ had run‑ins with some listed companies that had been at the center of some public squabbles reported in media during the year. Adequate, equitable and melt disclosure of material information is critical for informed decision making, investor protection, market integrity and growth. The expected new set of ZSE listing rules coupled with the recently published National Code on Corporate Governance should go a long way in promoting good governance and ethical standards.
A lot of companies are sell running on outdated, unsustainable business models and obsolete equipment yet the operating environment has changed. In this regard, our industry is bound to remain uncompleted given globalization where capital now flows towards profitable investment destinations. Issuers should realize that borrowed capital is expensive and should be accessed only if there is capacity to generate enough income to meet future repayments. There is need to adapt to the changing operating environment.
The market is sell characterised by shareholder apathy hence the voice of the minority is sell not being heard as the market sell lacks cave shareholder participation. It’s high me investors get to know and understand their rights and responsibilities. Investors have a right to adequate and melt provision of material information about companies they are invested in. They have the right to question decisions by company management and bring them to task on issues that mare. Boards and shareholders need to be more intrusive and probe management on all major strategic decisions for openness and transparency. All too open the secrecy surrounding how companies are being run has resulted in shareholders only getting to know of their company problems at the point of liquidation. In this regard, SECZ is planning on a Nationwide investor education and awareness campaign being part of its core mandate.
Ultimately, all stakeholders (investors, corporate, government among others) collectively contribute towards the ultimate performance of the market. Going forward, we urge market players to take advantage of the following market development initiatives:
- Upgrade of market infrastructure and systems.
- Introduction of new products and services including C‑Trade.
- Ongoing review of market legislation in line with best practice, a move that is meant to encourage the development of a free, fair and orderly capital market in Zimbabwe.
- A raft of measures to overhaul the investment legislate framework being spearheaded by the Government for ease of doing business.
3.2 Legislative and Legal Developments
Securities and Exchange Amendment Bill
Following the IOSCO preliminary assessment of SECZ draft legislation, the Commission came up with a draft Securities Amendment Bill addressing deficiencies noted by IOSCO. SECZ applied to become a signatory to the IOSCO MMoU within the framework of its application for ordinary membership in 2013. The application of SECZ was rejected on 16 June 2015. The Decision‑Making Group of IOSCO found that SECZ lacks the legal authority to conform to MMoU requirements. Pursuant to that, SECZ had to adjust and modify its laws in order to conform to IOSCO standards and came up with the Securities and Exchange Amendment bill. In December 2018, the Commission held Stakeholder engagement workshops in Harare and Bulawayo to discuss the proposed SECZ Act amendments. Comments from the market were incorporated in the Bill and has been submitted to MoFE for publication and approval in the first quarter of 2019.
The Securities Listing Rules and the Securities General Rules are sell under development and it is anticipated that they will be finalized in 2019 after the publication of the Securities and Exchange Amendments.
Noel Hayes & Anor v SECZ HC9959/18
Applicants, Noel Hayes and LHG Malta Holdings filed an application for a mandatory interdict compelling SECZ to release an investigation report, including documents and evidence related to Mr. Hayes’ complaint against FBC Holdings and Turn all for fraudulent inducement to trade in shares. The applicants argued that the Commission did not conduct a thorough investigation of his complaint and failed to produce a “proper” report and to release such report when requested to do so. SECZ opposed the application citing that the report sought by the applicant had already been availed to them earlier. The matter is sell pending before the Courts.
Martha Rukuni vs Ministry of Finance and SECZ SC 306/12
3.3 Investor Education and Awareness
In line with the Commission’s mandate measures to educate investors on the operations of capital markets witnessed several initiatives come to life and are now at varying stages of complexion. Key initiatives during the year included the weekly publication, Nationwide market awareness campaign, capital market investment video, investments research challenge which are further explained below.
Weekly Educational Insert
The insert is published every week in the national newspaper, the Herald. The educational insert is meant to provide continuous investor education and awareness to all potential and existing investors. To ensure relevance each month has a specific theme was summarized in the table below.
|January||Stock market performance indicators|
|February||Benefits associated with information disclosure|
|May||Budget for investing|
|June||Investment portfolio management|
|July ‑ August||C‑Trade online trading platform|
|September||Investment risk management|
|October||Capital market structure, functions and stakeholders|
|November ‑ December||Listing on the stock exchange|
NB: All inserts are available on the SECZ website, www.seczim.co.zw
The topics for the year were therefore centered around equipping investors with various investment skills and knowledge on market operations, approaches to securities investing and what a responsible investor should watch out for. The themes also highlighted various investment strategies based on one’s financial situation, investing goals and risk tolerance.
Capital Market Awareness Campaign
The Commission put into moon its ambitious quest to bring the capital markets to all at global scale by way of a well‑planned Nationwide investor education and awareness campaign for capital market inclusive. The goals of the campaign include, educating investors on capital market related issues, raising awareness on new products and services and showcasing the benefits of investing on the stock market. To ensure maximum reach communication is through in house sponsored seminars/ workshops and media agency services.
Capital Market Handbook
In order to promote capital market literacy, the Commission will in the coming year publish an all‑ encompassing Capital Market Handbook. The objective of the handbook is to equip the investing public with knowledge on how to become astute investors. To give the reader a complete understanding of capital markets the handbook explores the origins of markets and to their evolution the modern‑day high‑tech structures we see today.
Capital Market Investment Video
Complement the handbook, which may be daunting to some, production is almost complete of an investments video. The video, in very simple terms, follows the story of a struggling small businessman who finds success by formalizing his business and raising capital through a listing on the stock exchange. The video shall also be cut into smaller segments for easier flighting on platforms such as WhatsApp and YouTube to enable wider reach. It shall be launched together with the book.
Investments Research Challenge
During the year, SECZ sponsored the first of its kind Research challenge for university students. The challenge is being spearheaded by the Investment Professionals Association of Zimbabwe (IPAZ). A total of 8 universities participated and the National University of Science and Technology (NUST) came out as the final winner. NUST proceeded to the finals held in Switzerland on the 10‑11 April 2019. The initiative by IPAZ is meant to promote best and ethical practices in capital market equity research.
3.4 Market Development
i. Automation of Zimbabwe’s Capital Market
Financial technology (FinTech) is a key driver of innovation in the Zimbabwe capital market. The Securities and Exchange Commission (SECZ) has facilitated the introduction of improved financial services by bringing the capital markets closer to the investor through mobile and online Internet based trading of securities.
The technical committee established in 2017 tasked with delivering an environment that enables trading of listed securities via mobile and online platforms adopted a project roll out plan that would see the 16th July 2018 launch of Zimbabwe’s first Mobile and Online Trading platform, C‑Trade. The Mobile and Online trading solution involved integration of multiple facets of the existing Capital Market infrastructure and therefore prudent for SECZ to be part of the project committee to ensure the much needed co‑operation and that the end product would comply with set standards as well as adhering to market rules that include An‑Money Laundering and Investor protection.
The launch of C‑Trade has provided remote access to the market and lowered costs associated with physical engagement of securities dealers making it a key enabler for financial inclusion of marginalized groups of retail investors. Higher uptake of electronic products will be achieved through continuous investor education and awareness campaigns by SECZ and the various Securities Market Intermediaries (SMIs). The mobile and online applications give retail and institutional investors direct market access by enabling them to:
- Register and open accounts online
- Deposit funds
- Withdraw funds
- Place Securities Buy or Sell Orders
- Access Investment Portfolio and Market Data
The mobile and online trading application registered nine thousand three hundred and nineteen (9319) investors and processed a total of six thousand eight hundred and seventy‑eight (6878) buy orders and eight hundred and sixty‑four (864) sell orders by the end of December 2018.
Phase two of the online and mobile trading initiative will see the implementation of full integration between the securities depository system and the C‑Trade platforms. The integration will pave way for day trading (turnaround trading) that appeals to the more sophisticated investor.
During 2018 the commission also implemented a data center and purchased server hardware as a foundation for the introduction of a Regulatory portal that will enable ready access to SECZ by its stakeholders through digital processing of application, statutory submissions and complaints. In 2019, the SECZ expects to launch an online Regulatory portal that will introduce efficiencies beneficial to the market.
In conclusion, the introduction of market automation through financial technology has a multitude of benefits but also introduces various technology risks such as cyber intrusion risks. To ensure that the market remains stable and safe for investors the SECZ will continuously collaborate with SMIs in ensuring that there are processes in place that continuously identify, assess and treat risks that may result in the compromise of market‑data Confidentiality, Integrity and Availability.
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