(JollofNews) -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.
By Dr. Alieu Faal
Thought provoking!
We need to study the cases in Nigeria and USA. In Nigeria two banks Oceanic Bank and Bank PHB under the leadership of Cecilia Ibru and Francis Atuche brought the Nigeria economy to her knees by stock market manipulation and partly from poor institutions and greed. In USA, we all know the case of Lehman Brothers. Although there was good and strong institutions and regulations these guys found ways to securitize worthless mortgages and wreck unimaginable havoc on the market. The USA was on a death bed, thanks to the wisdom, bravery and intelligence of Barack Obama the US economy survived. The point here is that poor Gambia needs a simple solution to its economic problems. First we must STOP stealing, second we must spend responsibly and cut cost, third we must feed and educate or people by engaging in sustainable agriculture practices and building of infrastructure. These will create jobs. Now once we have FOOD, JOBS and EDUCATION, we can talk about wealth creation, STOCK MARKET and other vehicles to ensure the prosperity of our children.
God Bless The Gambia.
At last someone who knows all the answers>>>it’s just common sense based upon factual reality of modern economics.
My Esteemed compliments Dr Faal. Really !!! I doubt very much that anyone in the Gambian government would have the faintest clue about what is the meaning or the substance of your educated and experienced economic thesis.
I think those are the exception rather than the norm. Gambia has one of the highest interest rates and the commercial banks don’t care about the survival of the small business owners who lack the required collateral to access loans. If these businesses can have alternative financing arrangements of course they grow. Access to affordable capital is the answer. I support the idea of an exchange.
Imagine a businessman visiting the country to invest. He saw in the government website the one -stop -window for investors at the Justice Ministry. Before he can go there, he was told to get in touch with the Special Advisor to the President on matters of investment. But before meeting him, he must pass through the Permanent Secretary in charge of investment at the office of the VP Overseer, before going to the PS Investments he decided to stop by GIEPA to assess the available investments and the accompanying tax concessions for his planned investment project. By the time he finished all his appointments his time was up to join his return flight out of the country. With a national exchange, he will be able to follow the stock indices without setting his foot in the country and make a decision. Then sitting at the comfort of his office or home,he can closely monitor the stock movements 24 hours.
Dr Sarr, Barack Obama had absolutely no influence on the outcome or the partial recovery from the 2007/8 banking crash. Capitalism which is like water, found its own level, allied the Emerging and Global markets who were able to fund the bad debt and offer sustainable economic opportunities to replenish the dangerous liquidity crisis. Those businesses that were ill equipped with sufficient back up stocks and funds went to the wall. Others could negotiate government bailouts using taxpayers money held by The Treasury. Then there were the companies that bought bad debt for a fraction of it’s value and pursued defaulting clients, offering long term recovery loans especially on property { sub prime mortgages}
At the end of this day which is still showing midnight, it was the taxpayer who not only bailed out the economy, but still suffer from social welfare cuts and public sector pay freezes. Meanwhile most bankers earn as much as they did before. The consequences for government is reflected in the changing mood of the electorate and the diverse voting patterns from citizens who feel much grievance.
Those businesses who were ill equipped with>> INsufficient back up stocks and funds went to the wall>>Sorry for TyPO error. should read” insufficient”>
Mr. Scales, you speak for me. Thank you.
Thankyou Alex>> I accept that responsibility.
It is most likely that only awaresness of the international trend which is not possible without Education either informative or learned academic standards.
With the literacy rate of the Gambian, extra time and resources will be needed to spur the venture.
Dr.Faal tried to bring to light what a well informed society or literally seasoned populace could implement, and it’s worth trying, because it’s viable and tends to control the strong arms tactics of the economic heavyweights.
It’s sound insights for economic advancements proposal; an inclusion in the write-up for example of the “exorbitant interests rates” being charged by Gambian local banks could’ve additionally help one to understand the issues much better; generally, it’s brilliant idea overall; one can’t afford to miss the vibrant roles the ambassadors at large positions could effectively facilitate in the economic aspirations as noted by the author; just one simple example (as you requested earlier Mike) of the efforts of the current government in endeavours to turn things around for better; taking care of the EVIL MANIPULATIVE kanilai KILLER DEVIL FIEFDOM messes…
Mike, it’s positivity in provoking thoughts & debates on innovative societal advancements in anyhow EXCEPT through TRIBALISM…
Please stay clear of tribal animosity inducements at all costs & times; whosoever does so can’t be of any help but only be an enemy to the Gambia…
Good day to all; thank you
Mr Bah/ The situation for businessmen in the Gambia that you describe so well>>>is very familiar to me. Back then, everything was controlled by either The President or The Vice President. Those offices under that authority were unable to make decisions for fear of reprisal from above. The common approach was through an advocate who claimed he or they could get an audience with the power brokers, in exchange for some coins. There was quite an industry from so many advisors. Problem was they they were for the most part>> fraudsters. I have no idea if the Barrow government have changed this situation ?
Bajaw>> I have always said tribalism is a dead duck in Gambia. I agree to make any such reference is dangerous and unhelpful. If I have given any such impression, then I apologize. You know me better than that. The common view is that the APRC were/are Jola and the UDP were Mandinka. Although this is not universal on either part. But if there are those online who see the Foni situation as a form of ethnic/tribal tension, government by its action must be totally impartial in the way it deals with the situation. I share the same view on the pursuit of Jammeh’s assets. This does not need to be placed so high profile, but should be an investigation with a conclusion made public, when and if there is any evidence of malpractice. Why fan any such reaction or flame ? This was encouraged by the last administration and is still a hangover for many. To ignore or remain silent should not be any test for a truly impartial democratic government. The remedy lays solely in the Barrow government’s hands. Government or civil service appointments can and should only be based upon merit and not any other criteria.
>>as with the application of The Law, notwithstanding The Constitution would appear to contain some bias which benefitted the Executive and stifled some freedoms.
AS for Dr Faal>> I do not share the view that government/ economic reform is beyond Gambians due to lack of education. Gambia does have some of the smartest business people and highly intelligent university accomplished and educated individuals who are more than capable of laying solid foundations for rapid social and economic recovery. I just do not see them leading or guiding this present government.
A stock exchange is a brilliant idea and I applauded PDOIS, being the ONLY party I’m aware of, for committing to the creation of a stock exchange in their 2016 manifesto. Of course, like any economic/financial initiative, there are risks involved, but these can be reduced through appropriate measures that regulate behaviour and protect investors’ capitals and stockholders’ interests.
Perhaps the greatest advantage would be tapping into the huge dispora financial potential for forex by creating a secure avenue for direct investments into the economy.
Currently, many who could not visit the country, for one reason or the other, are deterred from investing in the country, due to the high risks of mismanagement by families or trusted “partners”.
It is not uncommon for a dad, uncle or brother of someone living abroad to start living the high life (often marrying new wives or dating several girls) when their son, nephew or brother sends money for investment in property or business.
A properly managed stock exchange would provide secure investment opportunities for such people, whilst creating a financial resource pool for both the public and private sectors to access much needed funds for development and expansion. It is brilliant and the potential benefits are worth taking the risks.
Agreed; But the horse must not be lead by the cart. A credit score based authority first accompanied by a top down restructuring of the Banks and lending mechanisms and criteria>>allied to small business grants advice and hands on guidance to create those new economic shoots, that can use the stock exchange to gain finance to expand rapidly.
I thank Dr Faal for his piece on the glories of a stock exchange in an economy like The Gambia.
Having said that, however, and in light of the largely enthusiastic response from the readership, it is my considered opinion that setting up a well-functioning stock exchange in The Gambia at this moment in time is pre-mature lest we as a nation put the cart before the horse.
Here are the reasons:
We as a nation lack the requisite industrial base and the level of financial literacy among the populace is too low for it to be a success. The latter shall inter alias go a long way towards preventing the sort of manipulations that Dr Sarr pointed at in her comments above. Note, Africans are world champions in cutting corners wherever possible, hence such and exchange should by no means be an exception to this fact of life on the continent. However, such manipulations on the stock exchange have historically far more devastating and deadly effects on whole economies and individuals than price manipulations on any other markets on the globe. Besides, participant on such markets need access to accurate market information so to speak at the speed of light. How is that possible in The Gambia where reliable energy supplies are but luxuries for the few in the year of the Lord 2017 – rather than something taken for granted like in the other continents of the world? To boot, highly specialized skills not least in the fields of finance and mathematics are needed to man such exchanges; these teams of highly trained Gambians have to be trained first. Record keeping tradition: The NA and other interested parties (public and private) need to take measures aimed at promoting a culture of record-keeping (book-keeping if you will) by all types of business enterprises. This in turn makes it easy for both the tax authorities and investors to assess business records for their respective ends. Last, but not least, tailor-made legislative measures that indeed are” fit for purpose”, not least in preventing fraudulent practices and enhancing the quality of information that business enterprises put before potential investors.
I wish I had the time to dwell on these and related topics but all in all the points raised above must be highly prioritized in the coming years before Dr Faal’s dreams in this regard can be brought into fruition.
Thank you guys your contributions are wonderful. I only hope those concerned are listening.
Below is a message I got from Mr. Patrick Young, the founder of Exchange Invest, a world renowned newsletter…
Dear Dr Faal,
I read with interest your article (“New Gambia: Stock Exchange Market Needed To Revive The Sick Economy”).
As a builder of exchanges, I wholeheartedly agree & have added your article to “Exchange Invest” today – the world’s bourse newsletter.
Have a great day,
Patrick
7:20 AM
Today
Patrick Young is now a connection.
Dr. Alieu Faal sent the following message at 3:12 PM
Thank you Patrick we keep betting on the wrong horse. Gambia is one of few countries in Africa still not having an exchange. Perhaps your expertise will be highly needed here.
Great to be in touch.
Rgds
3:12 PM
Compose a message to your conversation with Patrick Young
The participative economy can be a good support to boost the economy, the stock exchange can play un excellent role.
If The Gambia is really serious about setting up a stock exchange? This is the way to go, P2P (Peer to Peer) trading on the block chain, Which is decentralised, take a look at this video of Mr Reggie Middleton, he just cut a deal with the Jamaican stock exchange, which will come alive 31August
https://youtu.be/yv5fRBlTke4 plus Reggie has another 3 or 4 more stock exchanges in the pipeline.
Introducing
Mr Reggie Middleton.
https://youtu.be/_sJ0p8u1tsQ