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Simplot Kwenda: “The DSX’s technical capacity is urgently in need re-evaluaton”

Simplot Kwenda: “The DSX’s technical capacity is urgently in need re-evaluaton”
  • Comments   -   Thursday, 13 February 2014 15:50

(Business in Cameroon) - Banking and finance expert, General Manager of Cabinet Money Links, Simpot Kwenda, examines the FMC’s latest sanctions and finds that DSX’s recovery will require intervention on the part of the authorities.

 

Business in Cameroon: The DSX has been fined 500,000 FCfa for having provided an investment service without being an investment service provider. It has also been slammed for irregular and disproportionate billing to the tune of 700 million FCfa and 735.9 million for a total of 1.4 billion FCfa for claimed centralisation, initial offering and ECMR securities listing commissions. What do you think of these sanctions?

Simplot Kwenda: My opinion is simple: the Cameroonian financial market’s technical and institutional capacity urgently needs to be re-evaluated and strengthened at both the regulatory and commercial levels.  There also needs to be more consensus about professional best practices for the sector.  There can be greater understanding in the market, within the framework of consultation we have undertaken with financial actors.

In ten years, the market context has evolved significantly. This agreement needs to be revisited and promoted with the operators. This is why its application is so problematic. Certainly, on the basis of the relevant provisions in the 99/015 Act which indicates the finite definition of those investment services which may be conducted by authorised ISPs, one can question the pertinence of the characterisation given to the centralisation and accounting of subscriptions by the company. Yet, I can’t understand how such an accumulation of charges could increase the financing costs of our market to such unacceptable levels.

 

BC: Won’t these sanctions weaken the DSX before the BVMAC, its competitor in the sub-region?

SK: Absolutely not. You have to avoid seeing everything through the same sub-regional lens as only the most uninformed have this outlook. The government knows where they are in this process and is aware of what’s left to be done to perfect the integration of both financial markets. The integration of the securities market in Central Africa is slowly making progress in the issuance of goods, Treasury bonds, and the primary placement of government-issued bonds. Bridges have gradually been created between both regulators and this allows both markets to handle their shares. However, much remains to be done. The work must continue unfailingly. The degree of overlap between our economies would make inaction suicidal. That said, the Cameroonian regulator’s actions demonstrates that it is monitoring the market and deserves to be there.   

 

BC: But won’t these sanctions lead DSX users to think twice and, in so doing, don’t they damage the stock exchange’s credibility and discourage businesses from joining?

SK: The FMC’s decisions are debatable in terms of the motives behind them, but its monitoring of activity on the financial market, including those of the stock market, is a sound indicator that the financial market is being regulated. This can only attract more investors and other users to the stock market. Indeed, the FMC’s decision takes into account the issuers interests which should not be compromised by unorthodox billing practices. This regulatory activity must not, however, be punitive. It should be supported with strong education and coordination. That is the original definition of the word “regulate” which means “to maintain balance while ensuring proper functioning”.

 

BC: Is it safe to say that these developments led the Ministry of Finance to decide in 2013 to choose the BEAC and not the DSX for its bond loan? 

SK: I’m not sure what impact this precedent had on the strategic choices of the Ministry of Finance. Besides, an attitude of resignation when faced with a dysfunctional market placed under its governance would seem to be an egregious error on its part. The incident itself alerted the monetary authority which must now do all it can to correct these institutional shortcomings and give the boost that the private sector has been waiting on for some time.  One must instead consider that it is the need to adhere firmly to orthodox debt management principles that led it to go to the BEAC to raise funds quickly, to go from the weekly variable of Treasury goods to the two-year variable of Treasury bonds to stop the gaps in its finances.  If the need for long-term investment financing were to arise, the Minister would look to the Cameroonian financial market once some order has been restored to that sector.  

 

BC: What’s the difference between the government-issued securities of the BEAC and the DSX?

SK: These markets complement each other by making our financial system a vast market offering of debt instruments that go from short to long-term. The State and the major private issuers can also find resource capital to finance their long-term investments as well as cash flow problems which would otherwise negatively impact their operations. The two markets differ in terms of their operational approaches and regulatory systems. While the stock market focuses on people, the money market focuses on institutions. On the money market, treasury asset specialists intervene on own account. On own account purchasing isn’t a typical activity done by stock exchange middlemen. It has to be properly structured. Therefore, one has to admire the activities of a multi-capacity bank in light of this double positioning process.

 

BC: What are the advantages and disadvantages of one or the other when issuing a bond?

SK: States aren’t allowed to issue debt instruments. The opening-up of the Treasury bill market to major private sector operators is yet to happen. Hence, for the State, the coexistence of both markets can only be advantageous. To stop the occasional gaps that often occur in State treasuries between the timing of deposits and withdrawals for public expenditure, the State can turn to the money market which is structured to meet only this kind of need. For the financing of government investment projects, as a matter of principle, money markets can’t be used. It is the mandate of the financial market to mobilise long-term funding to finance long-term borrowing.

 

BC: With only three listed companies, what do you think is preventing the DSX financial market from taking-off?

SK: There are some adjustments to be made. There are also a number of inadequacies accumulated over a decade that are glaringly apparent.  

 

BC: What do you think should be done to make the DSX more dynamic, competitive and able to attract more companies?

SK: It’s a complex set of issues, but there is a solution. What is needed is real will to change things. We must remember where we’re coming from. The market is the product of a strong commitment on the part of the government, which is what enabled is to go from the beginning stage to the actual launch without difficulty. If the government invests in the DSX with the same determination, there’s no reason why the Cameroon stock market won’t see a new era emerge.