NEW GAMBIA: STOCK EXCHANGE MARKET NEEDED TO REVIVE THE SICK ECONOMY
The Gambian economy has suffered serious injuries over the years and right now is in intensive care. The emptying of government coffers at such an alarming rate by the ex-president and the mountain of debts he left behind have exacerbated the widening of the deficit gap which further compounded by the prolonged lack of funds for both domestic and foreign investments. IMF has just approved $16.1 million RCF for Gambia on 26 June 2017. This might sound modest, but it demonstrates how sick the Gambia’s economy is. The RCF, as an urgent economic prescription, is meant to provide rapid financial support to low-income countries facing urgent financing needs. This will only treat the symptoms and not to cure the real disease facing the country.
One important economic imperative is the lack of an organized and regulated market to mobilize savings for domestic investments which is restricting the expansionary role the private sector can play as the engine of economic growth especially in the critical economic sectors such as agriculture, tourism, infrastructure, trade and industry. A stock exchange is needed to allow government and the private businesses to access and raise capital for expansion through the sale of shares and bonds to the investing public at prices governed by the forces of demand and supply.
Stock exchanges basically serve as (1) primary markets where corporations, governments, municipalities, and other incorporated bodies can raise capital by channeling savings of the investors into productive ventures; and (2) secondary markets where investors can sell their securities to other investors for cash, thus reducing the risk of investment and maintaining liquidity in the system. The movement of share prices and in general of the stock indexes can be useful indicator of the general trend in the economy.
Rational allocation of resources
When people withdraw their savings from the banks and invest in shares it usually leads to rational allocation of resources because funds, which could have been consumed, or kept idle deposits with banks, are mobilized and redirected to help companies or small businesses finance their operational activities. This may promote business activity benefiting several critical economic sectors. Similarly, government needs money to finance infrastructural development or pay some of its outstanding debt obligations, it can easily raise the necessary funds from the stock markets thus creating wider investment opportunities for the public. It can also shift the financing of deficit away from the Central Bank contributing to the ballooning national debt
What stock exchange can do for our economy?
The creation of a stock exchange in the Gambia will do the following:-
- Provide alternative sources of capital away from the commercial banks where interest charges are the highest in the region.
- Force the banks to cut down the interest charged on loans or end up losing out to the market.
- Provide the necessary impetus for growth and expansion in our economy,
- Mobilize and pool savings from the private banks
- Improving access to capital that can benefit small to medium size businesses
- Produce information on possible investments so that resources can be channeled to their most productive use,
- Facilitate trading and ease the exchange of goods and services.
Despite the increase in the number of commercial banks in the country, evidence still suggests that interest charged on loans in the country are still higher than those in the sub-region. In Senegal and Mali, banks are charging as low as 2% on loans that share similar risk profile as those in this country. So, risk is not the determinant factor here. This therefore begs the question as to why interests are so unrealistically high in the Gambia. The answer is lack of a functioning stock exchange to provide alternative financing and investment opportunities to investors and businesses. The process of accessing credits from the banks is so tight and bureaucratic with stiff requirements that left any smart scholar to think how on earth the banks ended up having such a large number of dud loans in their books.
Commodity exchange will benefit farmers
The stock exchange provides the opportunity for small investors to own shares of the same companies as large investors. By having a wide and varied scope of owners, companies generally tend to improve management practices and efficiency to satisfy the demands of these shareholders. The commodities traded in the exchange will impact on smallholder farmers who make the regular journey to the weekly lumos not knowing the price they will get and the quality of produce they have. They can even sell their produce without making the journey on donkey carts by simply using mobile phones. Electronic trading is now the name of the game in the exchanges.
While steps have been taken to tighten macroeconomic policies and rebuild confidence in the economy, there is the urgent need to shift, not only the financing of government deficit by the central bank through weekly T-bills auctions, but also to provide the opportunity to various form of businesses and companies that are in dire need to raise funds for expansion without resorting to commercial banks for funding at exorbitant rates.
As we continue our journey towards building a new Gambia, we should seriously provide all the means necessary to ameliorate economic activity through the private sector. The creation of various portfolio with overlapping responsibilities to promote investments such as an Advisor for investment, Ambassador-at-large in charge of investment, a PS for investments and the modus operandi of GIEPA is a clear demonstration of this new government readiness to attract foreign investment and create the environment necessary to spur economic activity and facilitate the exchange of goods and services
Having a national stock exchange is the best way to achieve all our investment objectives and make our country become one of the most economically progressive in the region. It is people and businesses that are the source of a nation’s prosperity and Gambia possessed the panoply of means and resources to move the country out of intensive care if only we stick to our economic goals and develop our private sector.
Written by: Dr. Alieu Faal