Challenges facing Malawi Stock Exchange

The Malawi Confederation of Chambers of Commerce and Industry (MCCCI) says there are a number of reasons why local firms are failing to access cheap capital through listing on the Malawi Stock Exchange (MSE).

The development comes at a time when the local stock market, which has 13 listed companies, has not seen any new listings since 2008.

Over the past nine years, the market has seen two companies, namely Packaging Industries Limited and Britam, delisting from the bourse.

While acknowledging that raising capital through the stock exchange is a cheap way of recapitalisation or increasing capital base, MCCCI Chief Executive Officer, Chancellor Kaferapanjira, said the majority of local businesses are family owned and, as such, they do not want to dilute their shareholding and lose their influence or power by listing on the stock exchange.

“This is very fundamental as these companies do not necessarily want to expand quickly as well. It is not in their interest because such expansion would require external capital.

“Secondly, there is also some equivalent of Islamic financing in most Malawian owned businesses. According to our database, the majority of Malawian owned businesses ar e owned by Malawians of Islamic faith and these businesses lend capital to each other in line with Islamic banking principles. Consequently, they do not see the need to list on the stock exchange,” Kaferapanjira said.

He further said listing requires a lot of transparency, including transparency on financial dealings, which prompts some of the companies to keep to themselves.

Kaferapanjira added that the majority of businesses in Malawi serve the domestic market and recent economic impact on disposable incomes has resulted in a market that is not expanding to the extent of requiring expansion of existing businesses.

“One would easily mistake the increase in imports as a reflection of higher disposable incomes in Malawi. These imports have established their brands in Malawi and some of them take place between related companies.

“As such, there would not necessarily be an opportunity to require expansion of existing businesses,” Kaferapanjira said.

He noted that making exporting a priority could be key for Malawi to have many listed companies.

“Policies must encourage exporting but, beyond that, as potential policy impacts have limits, in this early stage of development, government must really create instruments that reduce export risks,” he said.

This, according to Kaferapanjira, would ensure that the majority of Malawian-owned businesses seek expansion and therefore look for cheap capital that can be raised through listing at the stock exchange.

Old Mutual Investment Group Managing Director, Mark Mikwamba, proposed the implementation of deliberate tax incentives to attract firms to invest in the local market.

Mikwamba said government may not lose revenue through the tax incentives as they would result in many shareholders paying more in tax from dividends.

Indigenous Businesses Association of Malawi president, Mike Mlombwa, said making information available to the potential firms in a language they understand, could be key in boosting the numbers of listed companies.

He observed that, sometimes, the language used in investment is not conducive enough to convince company owners to list their firms.

MSE Chairman, Augustine Chithenga, said his firm has been disseminating information on the benefits of listing on the market but that the listing drought could be attributed to fear of the unknown.

“We see a number of potential companies which could raise cheap capital to boost their enterprises in Malawi but we don’t know what they fear,” Chithenga said.

Reserve Bank of Malawi Governor, Dalitso Kabambe, said listing many firms on the MSE could help Malawi avoid an asset bubble next year.

“It is estimated that, by next year, the country will have a combined total of Pension and Life Insurance funds to the tune of K1.4 trillion, against a total equity at the Malawi Stock Exchange of K762 billion.

“This, if not addressed by listing more companies on the Malawi Stock Exchange, will likely cause sub-optimal asset allocation, liquidity issues and an asset bubble. We have to avoid this at all cost and the development of a stock market is a sure way of meeting the objective,” Kabambe said.

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