Financial Market Dealers Association (Fimda) held its annual lake conference at Sunbird Nkopola Lodge in Mangochi from October 13 to 16. The Nation Editor AUBREY MCHULU engaged Fimda president Leslie Fatch on the conference and emerging issues. Excerpts:
Q: The conference was held under the theme ‘The role of financial markets in attainment of the First 10-Year Implementation Plan-1Pillar 1: Agricultural productivity and commercialisation’ under the Malawi 2063. How relevant was this theme for financial market dealers?
A: As financial market players, it is relevant for us to take part in conversations that contribute to the development of this economy. We understand our role as intermediaries who can help channel the resources into right sectors for the development of the Malawi economy. So, looking at the developmental agenda for the economy, we thought it wise to invite ourselves to the table and contextualise the development objectives of the country in line with our industry as financial markets.
We, therefore, looked at the Malawi 2063 as the blueprint to the country’s economic development objectives and decided to brainstorm on how the financial markets can help in channeling capital into the agricultural sector being the basis for the first pillar of the Malawi 2063 implementation plan.
Q: How do you summarise participants’ reaction and contributions to the conference theme and presentations?
A: The theme seemed to have drawn the relevant debate among the financial players. Looking at the diverse topics presented, the conference highlighted the need to raise capital for agricultural productivity and commercialisation as well as the means and avenues how such capital can be raised. More importantly, the questions raised by participants and ensuing debate in trying to locate how financial markets can contribute to the agricultural sector as the backbone to our economy meets the objective that Fimda set out; to let financial markets dealers brainstorm on their contribution to the pillar. Other presentations highlighted experiences from other markets on economic factors that would affect or hinder economic growth, one of which was the alignment on currency rates.
Just to highlight the importance of the conference and the theme, this year we had a record attendance for the past five to seven years at 138 delegates from both the financial sector and the corporate world compared to 113 last year. This highlights the interest that the theme drew, as well as the interest in the contribution Fimda is making to the industry.
Q: Moving forward, as Fimda, what gaps do you see in the product offering on the financial market, especially in terms of funding agriculture and how do you plan to fill it?
A: Of late, we have seen special interest from organisations in the financial sector coming up with products, other than credit from banks, that are targeted at raising funding for the agricultural sector and the assistance that local development financial institutions (DFIs) are providing to the sector to promote production. Unlike normal lending, we believe the financial markets have the potential to structure financial market products that would serve. There is great potential for the market to deepen the instruments available on the market with special focus on helping the agricultural and industrial sector raise capital for production. We understand the risks associated with an unstructured agriculture industry but through dialogue with relevant stakeholder, we should be able to structure the agricultural sector to enable it to interact smoothly with the financial markets. We have seen how other markets have established structures such as commodity exchanges where agri-or commodity based financial markets instruments such as commodity futures etc are traded, which provides a chance for the agricultural sector to interact directly with the financial markets.
Q: Fimda comprises dealers in the financial market. Can you briefly outline the role of dealers in the financial markets, what do they do?
A: Financial markets dealers are involved in trading financial market instruments such as money market products [such as wholesale term deposits, commercial papers etc], fixed income products [such as Treasury Bills, Treasury and corporate bonds], capital market instruments such as listed equity/shares and foreign currency. As a professional mother body for financial market dealers, Fimda is currently made up of dealers from banks, fund managers, equity brokers, investment management firms, asset managers and many others. Through these instruments, the dealers intermediate and help in channelling funds to different sectors of the economy. We are currently working on expanding the scope for the association and would love to include corporate treasuries, and other sectors of the financial sector such as forex bureaus and many others.
Q: Foreign exchange has been a challenge for some time, but the situation has worsened in the past three years. To address the situation, we have seen authorities, notably the Reserve Bank of Malawi, devaluing the kwacha. Between January and October this year, the kwacha has lost 14 percent in line with market fundamentals. What is Fimda’s take on these efforts?
A: From previous conversations, we have highlighted the challenges present in the economy due to forex supply and demand dynamics. In the meantime, monetary authorities can only address the challenges using short- and medium-term solutions such as employment of monetary policy to control demand. However, the authorities can only do so much as we have seen with the recent devaluation. We believe there is more the authorities can do; and we have questioned the exchange rate management we use in Malawi which we believe is not the best approach.
Besides the highlighted challenges, as a nation, we need efforts by all stakeholders from policy makers, the central bank, financial institutions, the private sector and consumers in ensuring we manage our appetite for foreign currency, and also try to find import substitute products, while working on long- term structural issues to address the supply of foreign currency.
Q: The spread between the TT (telegraphic transfer) and cash rates widened further this year as expectations of kwacha depreciation became entrenched over time and thus, increased speculative tendencies. What needs to be done to address speculative tendencies?
A: The differences are evidence of the supply challenges. Since solutions on the supply side are long term, the central bank will continue to use short to medium term solutions to manage the situation. We have long seen calls for devaluation which the central bank had no choice but to implement, despite the highlighted impact it has on the economy. Besides the devaluation, the central bank has tried to work on improving the circulation of hard currency in the market through the enforcement of interbank trading and mandatory surrender of export proceeds as temporary measures.
On the other hand, the tight monetary policy stance by the central bank to curb inflation can also assist in taming the demand for hard currency and speculation. As highlighted above, however, we believe the speculation is fuelled by the exchange rate management system we use which makes the official rate a bit non-responsive to market forces. Since the supply issues remain despite the efforts so far, we will continue to see the gap widening as the underlying challenge, which is forex supply, remains.
We do hope though that the recent measures introduced by the central bank as well as the Minister of Finance will help in addressing the problem in the short term as we continue to look for long term solutions to the challenge at hand.
Q: What would be your concluding remarks?
A: We are happy with the progress we have made so far and the engagements we have undertaken with the relevant stakeholders to ensure the financial market is used as a tool and contributes to the development agenda for the country. As regards the conference for this year, it would not be a success without the support of the presenters, the participants, the sponsors and partners and the media.