Zambia, a landlocked country located in southern central Africa, is slightly larger than Texas. Its capital city, Lusaka, is Zambia's largest city and functions as the country's financial center and is home to its only stock exchange.

In Zambia concerted efforts have been made toward compliance with Group of 30 (G30) requirements and general international investment standards in the establishment of the Zambian capital market. This is evidenced by the existence of a central depository, electronic trading, T+3 rolling settlement, and the netting of broker trades. However, a number of clearing, settlement, and registration risks still remain which will require the attention of regulators, the stock exchange, and development agencies involved in the Zambian capital market.

The Lusaka Stock Exchange (LuSE) was established in December 1993 and trading commenced in February 1994. The LuSE has been incorporated as a private limited liability company owned by its member brokers. The current capitalization of the LuSE is ZMK 420 million (USD 339,000). The LuSE is self-regulated although the SEC does approve stock exchange and listing rules. All equities are immobilized at the Zambian Central Depository which operates as an arm of the LuSE. Shares deposited with the central depository are registered in the LuSE's nominee name which creates potential investment risk as there is no clear legal distinction made between investor shares registered in the LuSE nominee name and the LuSE's own assets. To mitigate this risk, a proposal has been drafted detailing legislative amendments which provide for the separation of the LuSE's assets from the foreign-owned shares registered in its nominee name. In addition, the central depository is expected to be incorporated as a separate legal entity.

Although an impressive privatization schedule was developed and the formation of a privatization committee has taken place, there are only three listed and five unlisted companies currently traded on the LuSE. In order to encourage companies to list on the LuSE, the government has created various tax incentives-for example, the corporate tax for listed companies has been reduced to 30 percent from 35 percent. All trading in listed securities must take place on the LuSE and unlisted securities may be traded on the LuSE if they are registered with the SEC and the Registrar of Companies. Foreigners are permitted to trade unlisted securities on the LuSE only.

Contributing to Zambia's appeal is its lack of foreign ownership limits and the ability of foreign investors to trade in all market sectors. However, all foreign investor trades must settle through the LuSE.

Zimbabwe is a landlocked southern African country and is slightly larger than Montana. Zimbabwe's largest city, Harare, is home to the country's only stock exchange. Zimbabwe boasts Africa's second largest stock exchange behind only South Africa and is expected to show the most growth of any African market this year.

The Zimbabwe Stock Exchange (ZSE), in its present form, was established in 1974 as part of the Stock Exchange Act. The ZSE is fashioned after the London Stock Exchange (LSE). The ZSE is regulated by both the Ministry of Finance and by its own stock exchange committee. The market capitalization of the ZSE is approximately USD 2.3 billion with 66 listed stocks.

On the continent, Zimbabwe is second only to South Africa in terms of its ability to attract foreign investment. Because its stock exchange has been operating for a relatively long time, many of the trade settlement and clearing risks have been eliminated. As a further enticement to invest, the foreign ownership limit in any one company has been raised to 35 percent from 25 percent. However, no individual investor may own more than 5 percent of a company's issued share capital. If the foreign ownership limit has been exceeded, foreign investors are required to sell the shares. Furthermore, foreign investors may only invest in stocks listed on the ZSE.

Rolling settlement is in place in Zimbabwe; however, actual settlement is negotiable but must be completed within 60 days of trade execution. According to market practice, foreign investors' trades usually settle on T+5. Trades settle versus bank checks which clear next day.

With the tenth largest stock exchange in the world, South Africa remains the regional giant. The Johannesburg Stock Exchange (JSE) was established in 1887. As Africa's largest stock exchange, the JSE's market capitalization exceeds USD 300 billion.

Although the JSE is self-regulated, all its rules must be approved by the Registrar of Stock Exchanges. The Ministry of Finance is ultimately responsible for all activities in South Africa's financial markets. The South African Reserve Bank (SARB) and the Financial Services Board (FSB), governed by the Ministry of Finance, oversee the banking industry and all stock exchanges. The FSB is responsible for stock exchange activity, while the SARB oversees local banks.

Until June 1996, all trading on the JSE was conducted by open outcry. In March of 1996, the JSE commenced the implementation of its new screen-based trading system, the Johannesburg Equity Trading (JET) System which replaced open outcry in June 1996.

Although there is no central depository for equities, one has been established for gilts. The Central Depository Limited (CDL) was established in 1993 under the Safe Deposit of Securities Act of 1992. All securities listed with the Bond Market Association (BMA) are immobilized at the CDL. Trading in gilts is screen and telephone based. The JSE has announced that equities will also be rolled into the central depository, but has yet to pinpoint an implementation date.

As in most African countries, liquidity is poor in South Africa. This is exacerbated by exchange control regulations governing local investors. These regulations prohibit local institutional investors from investing outside of South Africa. Although there has been much speculation about the removal of these regulations, no definitive indications have been made. Liberalization of exchange controls on local investors will likely be gradual.

The local currency is the South African rand (ZAR). In March 1995, the formerly two-tiered currency system incorporating a financial and commercial rand was abolished. The elimination of the financial rand removed any limitations on capital movement by non-residents. In addition, the rand is now more volatile and susceptible to extreme fluctuations caused by local political and economic events. The value of the rand has dropped significantly since the beginning of 1996, but this is expected to steady over the coming months due to a number of stabilizing political and economic factors.

Having once been governed by South Africa, Namibia gained its independence in 1990.

Similar to both Zimbabwe and Swaziland, Namibia's economy is closely tied to that of South Africa. As a member of the Common Monetary Area (CMA), Namibia's currency, the Namibian dollar (NAD), is linked to and ranks on par with the South African rand (ZAR).

In 1992, an amendment to the South African Stock Exchange Act of 1985 established the Namibian Stock Exchange (NSE). There are no government-mandated foreign ownership limits in the market except in the banking sector where the foreign ownership limit is 15 percent. However, companies are permitted to restrict foreign ownership in their company by-laws. The market capitalization on the NSE in 1995 was NAD 72.2 billion (USD 16.4 billion) which includes the dual-listed stocks from the Johannesberg Stock Exchange (JSE). Annual trading volume is NAD 230 million (USD 52.5 million). There are currently 29 listed issues on the NSE including Namibia Breweries and CIC Holdings which were listed in April and May of 1996, followed by the new dual listing of Fedsure holdings in June. The Namibian Stock Exchange remains closely tied to the JSE as most companies are dual-listed. An attraction for foreigners is the fact that there is no marketable securities tax (MST) or stamp duty on trades in listed securities conducted on the NSE, unlike the JSE which levies a .5 percent MST on all trades.

Equities, corporate and government bonds, bankers acceptances, treasury bills, and negotiable certificates of deposit are available in Namibia. Foreign investors are permitted to purchase all instruments in the market; however, all foreign investor trades must be conducted through the NSE.

A fully screen-based trading system is in place in Namibia; however, it is currently not used to its full capacity. Brokers input orders on their terminals, followed by telephone prematching with the broker counterparty. One of the brokers manually matches the orders on the system. Provisions exist in the stock exchange regulations for a T+1 rolling settlement period; however, currently only local individual investors settle on T+1, while foreign and institutional investor trades in Namibian companies typically settle on T+7. Provisions for buy-ins are part of the stock exchange's regulations, but have yet to be exercised in the market.

Swaziland is an embryonic market that has not yet received significant foreign attention. There is no established stock market in Swaziland. Swaziland operates as a share market and is modeled after the former Botswana share market. Currently, Swaziland Stockbroker Ltd. (SSL) manages the share market. SSL is the only broker in the market.

Foreigners must apply for approval from the Central Bank prior to each investment. This is expected to change in the near future, to require that foreign investors obtain approval only prior to initial investment.

Although no formal securities law exists at this time, the Ministry of Finance has established a committee to work in conjunction with the United States Agency for International Development (USAid) to draft the legislation by the end of 1996.

Foreign investors may invest in equities and government bonds listed with the Swaziland Stockbrokers Ltd. Foreigners may also invest in treasury bills. No foreign ownership limit exists, however companies are permitted to restrict foreign ownership in their by-laws.

Africa's "final" frontier holds much promise for foreign investors. Foreign investor interest will likely contribute to continued progress in these markets and their move toward meeting international trading standards and market practice. Should you wish to learn more about these markets, please contact Brown Brothers Harriman & Co.