New LuSE boss aims for Zambia's first ETF this year

In this interview with Capital Markets Africa, Nicholas Kabaso shares his vision for the Lusaka Securities Exchange.

Nicholas Kabaso is the new CEO of the Lusaka Securities Exchange (LuSE). Prior to joining the LuSE, he served as CEO of ABC Asset Management, a local fund management business. From 2020-2022, Nicholas served as President of the Capital Markets Association of Zambia. He is a member of the Chartered Institute for Securities & Investment.

Nicholas Kabaso, CEO, Lusaka Securities Exchange

Chipo Muwowo: You're a month into your role as LuSE CEO? What has been your top priority since you joined?

Nicholas Kabaso: My first month has been exciting and a unique opportunity to assure the market that LuSE is open for business. I've spent a lot of time assessing with my team how we can improve the brand and help us not only drive market capitalisation but also improve market liquidity. We are currently working on new products and services that we anticipate will attract liquidity to the market. Technology remains a key ingredient to enabling these aspirations. It will be top on our agenda over the medium term.

Chipo Muwowo: Although the LuSE slid down the African performance rankings in 2023, it was the continent's best performing stock exchange in 2021 and 2022. What factors do you think will sustain positive, widespread market growth over the medium to long term?

Nicholas Kabaso: A well-developed local capital market plays a crucial role in the financing of sustainable economic growth and the maintenance of financial stability. To this end, we must do everything to support the growth of the LuSE. There's no doubt that our market has great potential for growth. This can be seen from the low market capitalisation-to-GDP ratio which currently sits under 10%. That is why as part of the approved Capital Markets Master Plan, we seek to attain frontier market status as quickly as possible. To achieve this, we seek to roll out the following: (i) new products to deepen our markets (ii) improve the LuSE brand and increase its visibility (iii) attract new listings via IPOs, and (iv) enhance the use of technology to aid our outreach and customer experience. 

By deepening our market via more products, we can help facilitate access to financing in local currency that helps local issuers and investors better manage inflation and exchange rate risks.

Chipo Muwowo: The exchange has just celebrated its first green bond listing. In your view, what's the likely pipeline for Zambian green bonds over the short to medium term?  

Nicholas Kabaso: To start with, this achievement by Copperbelt Energy Corporation is a great stride for the LuSE. Sustainable financing remains central to the medium-term goals of the exchange, and we are happy to see these goals being realised. Is there a pipeline? I would say there is great potential to issue more green bonds.

Zambia’s current energy demand far outweighs the current energy supply. So there is plenty of opportunity to invest in energy infrastructure.

Generating power from new, energy efficient sources is a great step to helping us supplement the use of hydropower and conserve our resources. Further, we have great potential for carbon credits that can easily be traded as market instruments. The electrical vehicle opportunity gives further room to green our economy.

Chipo Muwowo: 2024 will likely see Zambia's first REIT (real estate investment trust) come to market. What other new products are actively being worked on right now?

Nicholas Kabaso: This year we hope to have the first exchange-traded fund (ETF) launch in our market. We are also finalising the regulatory framework to launch the first retail bond. All these efforts are meant to attract capital to our market and allow the exchange to be socially inclusive.

Chipo Muwowo: What are some of the key challenges to achieving this goal?

Nicholas Kabaso: The capacity of the local market to absorb the capital demands within a reasonable amount of time is likely to be a unique challenge.

We acknowledge that Zambia’s per capita net pension assets remain low, which implies limited capital absorption capacity.

We also anticipate that knowledge gaps among retail clients will pose obstacles towards realising the full value of the capitalisation we require on some of the retail specific products.

On the macroeconomic front, the continued attraction of high-yielding fixed income instruments such as government bonds redirects capital away from equities. A weak local currency also poses risks when trying to attract foreign portfolio participants to our market.

Lastly, finding the right technological platforms to drive our various initiatives will be key for the LuSE.

Chipo Muwowo: Prior to joining the LuSE, you worked as the CEO of a local asset management firm. How would you describe the Zambian fund management industry's engagement with the country's capital markets?   

Nicholas Kabaso: I have no doubt that asset management is the future of Zambian financial markets.

We are currently sitting on huge financial potential that is reflected in the over 20% annual growth in industry assets under management over the last five years.

This is a clear reflection of how the burgeoning middle class is increasingly financially savvy. They want to make their money work for them. This development positions the asset management industry as the next big thing and an anchor for the future of our financial markets. 

Chipo Muwowo: Government and institutional investors dominate trade volumes on the exchange. In what ways is the LuSE planning to increase capital market participation by local retail investors?

Nicholas Kabaso: The answer lies partly in resolving some of the challenges I mentioned earlier. Investors are seeking convenience in the way they conduct their investment transactions. If we tap into this opportunity by using technology, I see increased volumes from retail investors. And I must mention that we have as a response to this, deployed the LuSE mobile application that allows people to invest at any time and anywhere. This initiative is for us a key driver that will activate the retail investors.

Further, we have started engagements with a select group of institutional investors seeking their support to start trading off some of their investments to create greater liquidity within the market.

We are positive that this will excite increased participation and drive a fair valuation for share prices.

Chipo Muwowo: In your view, what needs to be done to increase the number of company listings on the LuSE?  

Nicholas Kabaso: I think we need to sell the story right! We have a great value proposition in the existence of the exchange that has not been sold effectively. Hence, we see listings dragging.

Entities need to appreciate that equity is a cheap source of funding for growth than using the traditional debt financing route.

If this fact is sold right, any rationale business owner will see a justifiable business case for listing than using debt. On the other hand, we as an exchange need to appreciate that we are running a business. As a consequence, we must be effective business partners that hold the hands of entities as they come to market whilst at the same time doing our regulatory role of protecting investors. An inability to balance this fact will cause lost market confidence and consequently cause a drag on listings.


© Capital Markets Africa, 2024

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