New Era (Windhoek)

Namibia: Stock Exchange Vehicle for Wealth Creation

Windhoek — Many Namibians are still not aware of what the Namibian Stock Exchange (NSE) is and many people still find the financial figures on television during the financial report puzzling.

The Namibian Stock Exchange is an important vehicle for Namibia and plays a crucial role in resource mobilisation, in that it allows companies and investors to raise capital by listing on the NSX.

The NSX was established in September 1992. It is the country's main market for share transactions. Apart from shares, investors trade other negotiable instruments and fixed-interest securities regulated on the NSX.

Its primary function is to provide a market where investors can trade securities under internationally accepted norms.

The NSX is a non-profit association, licensed and regulated under the Stock Exchange Control Act of 1985, amended in 1992 and again in 2000.

It was set up to deliver services such as approving listing applications, acting as a means of surveillance of listed entities and regulating stockbrokers.

The Act also empowers the Namibia Stock Exchange to perform other functions such as clearing settlements and defining operations of trading.

NSX General Manager John Mandy says there are many reasons for establishing a stock exchange. Raising capital for particular needs is one of them.

"One advantage of raising capital through a stock exchange compared to bank loans is that no fixed interest payments have to be paid," says Mandy.

Dividends only need paying when a company declares a profit, whereas loans need servicing irrespective of whether there is profit or not. This option gives companies more freedom when experiencing difficult times in conducting their business.

By the end of 2000, the NSX Association comprised 43 associate member companies, which sponsored the establishment of the NSX by donating 10-thousand Namibia dollars.

The associate members each year elect an Executive Committee to supervise the management of NSX affairs, consisting of nine members from different business entities.

The exchange appoints subcommittees from time to time to deal with particular issues, while the listing committee meets regularly to decide upon new listings.

Namibia's GDP has grown by an average of 4,4 percent a year since the establishment of the NSX. During the period under review, Namibia's savings rate has averaged between 20 and 30 percent of GDP.

The country invests between 20 and 23 percent of the GDP. Foreign Direct Investment fluctuated between one and five percent of GDP.

However, the NSX also had to cope with the burden of inevitable "birth pangs" and teething problems. Many stock exchanges around the world are themselves profit-making companies listed on their own exchanges.

Their profits depend directly on how high the demand for their services is.

These services include the trading system, publishing information about trading, and providing sound regulation as well as investor relations. Their shares price is therefore a good indicator of their performance.

The NSX, however, is an association not-for-gain and has no share price by which to measure performance.

By 2005, the number of companies listed on the NSX increased to 36, the number of shares traded annually increased to over 221, while the value of shares traded each year rose to nearly N$ 6 billion. Overall, the index stood at 581,7 points, while market capitalisation was 723,4 points last December.

The introduction of bond trading is one of the most notable achievements of the NSX. Bond trading reached volume of 1,8 million dollars by the end of December 2005. This volume represented over 27 percent of the total nominal value of the listed bonds, consistent with the aims of the proposed Namibia Bond Association informal structure.

This includes disclosure of trade information for use in the reporting requirements of the International Financial Reporting Standards, adopted by all listed companies with effect from 1 January 2005.

Bank of Namibia economist Kennedy Kandume says the NSX should be seen as a development institution and its tasks should be to close gaps in financial intermediation by working together with venture capital funds and the new Development Bank of Namibia.

Kandume, an economist in the monetary policy, financial sector and development section of the research department spoke in his personal capacity.

"The existence of the NSX should be preserved and more local companies should list. The performance of the NSX is self explanatory," said Kandume.

" The NSX overall index stood at 983,32 on the 19 October 2007 from 727,3 points reported at the end of last year and the local index stood at 127,72 the same day up from 82.0 points reported at the end of last year," he said.

"In the case of funding through an exchange, the investors are generally in for the long haul, i.e., they do not expect immediate returns, but are rewarded through dividends based on the company's policy. This allows the company to decide whether to pay dividends or not,"

He said in that way, a company could plan its expansion path without the constraints of having to pay the bank even in the case where companies are struggling.

Another advantage of raising capital through stock exchange is the fact companies can mobilise funds from a pool of investors, and these increase local ownership.

"However a word of caution - equity instruments are generally riskier than loans from an investors perspective, shares can loose value and this may lead to capital losses for investors."

He expressed the need to facilitate, or provide options, for equity finance for companies that are too small to raise capital themselves on the JSE. These options should also help local companies to migrate to larger stock exchanges so that they are able to raise required funds.

"The NSX as an exchange is efficient and strong and has world -class technology that allows for the effective trading of shares, but the challenge that remains is to have more local listings. That is however, not in the hands of the NSX but is rather a function of the economy, whereby companies seek listing as they expand or as new ventures come on stream.

Although the association has made significant strides, there are certain areas that need strengthening, such as the expectation of the NSX to facilitate bond trading. The NSX faces challenges of educating potential investors, meaning adults with disposable incomes. In this regard, he urged the NSX to hold seminars, write articles to newspapers and train trustees of the various pension funds if it is to overcome these challenges.

He also felt there is a need for the NSX to improve its website, by appointing someone to redesign their website and make it more attractive, appropriate and refresh the contents on daily basis.

According to Kandume, if the NSX facilitates bond trading, there is a possibility for the association to turn the present challenges into opportunities. That means the NSX has to be proactive and strategically prepared as a leader on the bond secondary market.

The NSX serves a role as a development engine, tasked to close gaps in financial intermediation in the country by working together with venture capital funds and the Development Bankof Namibia.

The institution will therefore, provide options for equity finance to companies that are too small to raise capital on the Johannesburg Stock Exchange. It will also assist local companies to migrate to larger stock exchanges.

This year the Namibian Stock Exchange had a record turn-over of N$9,4 billion, a 141 percent increase on the amount recorded

in 2006.

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