Concord Times (Freetown)
2 October 2008
Documents made available by the Bank of Sierra Leone said the country was working towards the establishment of a formal Capital Market, an effort that was being spearheaded by the Stock Exchange Technical Committee, SETC.
According to the bank's guide to Sierra Leone's interim stock trading facility a capital market has already been developed to strengthen the financial sector by developing a sustainable market for long term and risk capital.
"In addition to other preparatory work, the immediate focus of the SETC is the institution of a stock trading facility as soon as possible. This stock trading facility is expected to develop into a full-fledged stock exchange," according to the bank.
Capital markets provide both the government and the private sector with access to the types of long-term investment capital necessary to achieve accelerated economic growth. Sitting at the heart of the capital markets is the stock exchange, which provides the link between businesses, which need money, and investors, both individual and institutional, with money to invest.
However, the government, and therefore the nation as a whole, could only benefit from the stock exchange if it could be able to raise money to invest in the country's infrastructure and public services, as well as private business ventures.
Critics fear that the establishment of a full-fledged formal stock exchange could be a time consuming and technically demanding process.
However, the bank said there are already in existence a few public companies in Sierra Leone, with shares being traded informally on an over-the-counter (OTC) basis at the discount houses.
In recognition of the situation, the SETC decided to establish an interim stock trading facility. "This facility will provide a regulatory framework for the existing share transactions consistent with international financial practice, and create a structure for more widespread trading of shares."
How does the Stock Exchange help Businesses grow?
Access to capital is essential for a business to grow. During the early stages of a business' development only small amounts of money may be needed, and this might be adequately covered by reinvesting profits, by borrowing money from friends and family, or through bank loans.
But a successful business will eventually need to invest larger amounts of money to grow. Friends and family are unlikely to be of help with the amounts of money needed, and banks may be unwilling to lend enough for a long term, or may charge high levels of interest which reduces the benefit of the loan and leaves the company with a long-term debt. Banks will also ask for collateral which entrepreneurs may not be able to provide.
Thus, the government faces similar problems, and on a much larger scale, when finding the money to invest in the country's social and economic infrastructure- roads, hospitals, power and water.
Also borrowing abroad creates foreign debt, so it is preferable to find domestic sources of funding. The Stock Market offers both businesses and government a very effective way of accessing these higher levels of investment by being able to raise cash from the public or from institutions such as insurance companies.
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