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Albert Norumedzo In the Money
Capital is no doubt the lifeblood of economic progression in any economic setup. Without it, exploitable profitable projects with potential to add to the economic growth trajectory will remain confined to the blueprint.  The architecture of Zimbabwe’s capital markets is anchored on two main factors, namely public equity and debt. The equities market (Zimbabwe Stock

Exchange) is approximately a $5 billion market which turns over an average of $40 million per month; economic performance has, however, limited trading to a few counters that have realigned their business models in line with the operating environment.

The debt market in other economies usually forms the larger proportion of capital markets due to its diversity in financial product offering and ingenuity.
This, of course, is not the case with Zimbabwe’s capital market, where the debt market is very much dormant, with a few Bond issues at infrequent intervals.

Activity on the debt front is mainly through term loans advanced to borrowers by financial institutions and as at June 30, 2014 total loans were at $3,7 billion, with 79,8 percent of disbursements going towards companies in various industries, while the remaining 21 percent went to individuals.
As the country embarks on the path to recovery, the role of capital and capital markets cannot be over emphasised.

A well-developed and functional capital market is a catalyst for economic growth and recovery efforts.
In a market where foreign direct and portfolio investments account for an insignificant portion of Gross Domestic Product (approximately 6 percent), the setting up of financial avenues to attract much needed capital injection becomes not only imperative, but a dire necessity.

Capital markets will be at the forefront of the economic revival thrust as they open avenues to investor pockets in the form of Portfolio Investors, Private Equity funds, Foreign Pension Funds and Asset Managers, among others.

Capital markets will play a resounding role in the country’s recovery story. What makes Zimbabwe’s capital markets attractive to investors is the dollar denomination.
The United States dollar has been and is still growing strong against many regional currencies, which makes the local capital markets a destination of choice for many investors. The limited transaction costs relative to other markets also plays in the country’s favour.

The recent liberalisation of exchange control regulations by the Reserve Bank of Zimbabwe will also go a long way in attracting foreign participation in the local capital markets.
Recent strides made in the modernisation of the local equity market are also a step in the right direction as far as capital market development is concerned and to date 18 counters are already on the electronic trading platform, with more to follow suit within a year. Modernisation of the equities market will encourage participation from various investor pools, as the level of confidence and efficiency increases on the local bourse.

The development of the equities market is setting the pace for the gravitation of the capital markets towards world class standards, which can compete with the likes of Johannesburg Stock Exchange.

Automation of the equities market will bring about increased volumes and value as the market catches up to modern trends.
Among other things, capital markets will play an immense role in capital mobilisation and efficient allocation towards productive sectors.

Capital markets are in themselves an industry that can grow to contribute immensely to national output.
In other developed markets like the US, Europe, Asia and South Africa, capital markets contribute immensely to overall economic output.

With enabling structural frameworks in place, capital markets capitalisation has been known to significantly outgrow GDP, notable examples of which include the US (market cap to GDP-114 percent), UK-122,7 percent, South Africa-160 percent, to mention but a few, and these are huge economies; the US $16,8 trillion, UK $2,5 trillion, South Africa $350 billion.

However, to speak of capital market potential in isolation without looking at problems that have incapacitated local capital markets and reduced them to a mere shadow of their full potential would be a gross injustice.

The local capital markets are reeling from investor apathy due to lack of clarity on key investment policies.
A noteworthy concern for any investors is the exit strategy after they have invested. In other words, what are the exit strategies and what risks, regulatory or otherwise will one face where they want to move out.

Investment thrives on framework certainty; without it, no amount of perceived return can induce the slightest bit of investment.
There is need to harmonise investment policy and empowerment laws so that they speak to the prevailing economic challenges; investment thrives on consistency on the playing field. Clearly defined economic policies will help investors define and pass judgment on the risk and return profile of any investments

Perceived country risk, despite signs of improving, has weighed down the capital market’s performance. The spectrum of investors waiting to explore African markets like Zimbabwe is broad, from emerging to developed markets.

Investor enthusiasm over Zimbabwe’s capital markets is gathering pace. The onus, however, remains on Government to guarantee transparency and certainty of policy on capital markets if they are to live up to their full potential.

Albert Norumedzo is an Equity and Alternative Investment analyst. Feedback: [email protected]