By Tanu Jalloh
After so many technical details were considered with a view to creating a stock exchange, which seems to be doing well in Ivory Coast and Nigeria in the sub region, Sierra Leone launched the securities and business platform on July 17, 2009. That was ten years after the decision first came up in 1999.
In 2001 a technical committee was formed but it lacked the necessary expertise, and while it was obvious that there were no strong financial institutions at the time, the plans stalled. This setback, to replace what was then the interim stock trading facility, was to last for complete six years before an amendment to the Other Financial Services Act 2007 caused the legal guarantee for a stock exchange to be set up and registered as a company limited by guarantee.
The stock exchange was “launched” in 2007 by the Sierra Leone Peoples Party government, but despite promises to quickly replace the interim trading facility within a few months, it languished. The Americans had observed that the formalisation of the exchange was a promising step forward, but it would probably be several years before it could operate without external support.
Expectations were high that the creation of the stock exchange would represent a significant step forward for the country’s financial sector. In the words of former Bank Governor Dr. James Rogers at the inauguration of the Sierra Leone Stock Exchange on 27 July 2007, “as we inaugurate the Sierra Leone Stock Exchange we note with pride and confidence that we have achieved a significant milestone in the development of our financial system.”
It was meant to serve as a regulated market suitable enough to help create liquidity in shares. It was to generate greater transparency by regularly publishing vital information about companies listed on the official list of the exchange. It was also to have the responsibility for both the primary and secondary markets, and to ensure that all investors conduct their businesses according to the rules and regulations.
For those of us still learning the rudiments of business and economics, a stock exchange is a form of a trusted platform that provides services for market intercessors known as stock brokers and traders who have agreed to float their stocks, bonds and securities for business purposes. In other words, when you are thinking about entering in the stock market, you will need a qualified stock broker to trade and invest.
By the way stock, in this context, means the original capital invested in the stock exchange while a bond is a formal contract to repay borrowed money with interest at fixed intervals; monthly or annually as may be agreed on the coupon or interest. Finally, a security is generally a negotiable financial instrument representing financial value, which could be broadly categorised into debt securities (such as banknotes, bonds and debentures); equity securities, e.g., common stocks; and derivative contracts, such as forwards, futures, options and swaps.
The company or other entity issuing the security is called the issuer. Like all countries operating stock exchange markets, Sierra Leone’s regulatory structure determines what qualifies as a security. Securities traded on a stock exchange include shares issued by companies, unit trusts, derivatives, pooled investment products and bonds.
The idea was a novelty, thus the Sierra Leone Stock Exchange received significant support from the Commonwealth, the Central Bank of Sierra Leone, the Nigerian-based West African Institute of Financial and Economic Management (WIFEM), and the Nigeria Stock Exchange. At present only one company, the Sierra Leone Rokel Commercial Bank (previously Barclays Bank), is listed. Two brokerage companies are operating with three traders apiece. Though a modest start, some observers have said that countries like Tanzania and Malawi started with only a few companies listed in their exchange, yet they developed tremendously in a short time. Nigeria, whose model seems to be adopted here in Sierra Leone, started with less than 7, but now has approximately 315 listed in its stock exchange.
Meanwhile, when we come to discuss the Sierra Leone stock exchange in our subsequent publications, we would endeavor to explore and contextualise jots in the innings. That, I reckon, we must appreciate if there must be any patronage of what was clearly a ‘stranger concept,’ at the time it was meant to kickoff in the country. In particular we would look at the regalia of office of the Director General of the exchange; the Securities Act which was under review as at 2009; the sole dealers for the formal exchange and the challenges generally.
For now let’s try to get a grasp of the concept as it were, and possibly some general understanding that could help us appreciate the operations of the stock exchange in Sierra Leone, a country whose markets are still looking for large scale investments that can entrust its stock exchange with their securities.
It might interest you to know that while there was continuous fall in the prices of Nigerian stocks, the Sierra Leone Stock Exchange indicated interest to cooperate and partner with the Nigerian Stock Exchange (NSE) in the area of capacity building and manpower development. While this might be too much for the skeptic Sierra Leonean to accept at first glance, the expert in the business had long launched his sensitisation campaign.
In his analysis titled: “Sierra Leone: The Sierra Leone Stock Exchange: Understanding Capital Markets Part 2,” and published by Concord Times of 15 December 2008, Executive Director of the Sierra Leone Stock Exchange, Dr. Mohammed Jalloh argued that understanding the operations of the capital market was fundamental to a country’s development. From an empirical perspective, King and Levine (1993a) show that the level of a country’s financial intermediation is a good predictor of its long run rates of economic growth, capital accumulation and productivity improvement.
He pointed out that by spurring the savings rate and increasing the availability of loanable funds for investment, facilitating and encouraging the inflows of foreign capital, optimising the allocation of capital between competing uses; financial sector development can boost long run growth. An efficiently functioning domestic financial market can better position a country’s competitiveness in the markets for global capital.
While his explanations attempted to broaden the scope of the examinations around stock exchange in the first place, they could have been contrived to occasion an endorsement from the list of benefactors – the Commonwealth, the Central Bank of Sierra Leone, the Nigerian-based West African Institute of Financial and Economic Management (WIFEM), and the Nigeria Stock Exchange.
He posited that with a view to accelerating private sector development, the Stock Exchange was being set up to meet the increasing financial needs to stimulate economic growth in the country.
I will close with his “The much needed growth for this country can, however, be achievable if the general public understands the mechanics of the Capital Market which offers an opportunity for long-term development.”
In that regard, Dr. Mohamed Jalloh was devoting some of his time to educating the general public on some critical issues that pertain to the operations of the Capital Market. However, he succeeded to provide some answers on some of the numerous concerns on how a company’s securities can be listed on the Sierra Leone Stock Exchange.