Article for Samsung Magazine, October 1997
Stock markets, for most people, conjure up images of cavernous rooms filled with frantic people waving papers and shouting. At the New York Stock Exchange, by the time the bell rings to signal the end of the trading day, the floor will be littered with trade tickets, and an average of 500 million shares will have changed hands. That’s what most people think about when they think of a stock market.
But travel down the main street in Lusaka, the capital of Zambia. There, between a tie-stall and a haberdasher, up a flight of stairs, sits an office containing a couple of desks, one photocopier, and some personal computers: the trading room of Zambia’s bourse, or stock exchange. Zambian traders don’t have to contend with quite the same volume as their counterparts in New York—there are only five listed stocks, after all…
When a business needs capital to expand, it has two ways of raising it—by selling bonds (in effect, taking out a loan with the public) or by selling stocks (selling equity in the company). Bondholders have a pretty good certainty that they will be paid back a fixed amount—the principal of their loan and the agreed-upon interest (depending on how risky the bond is); stockholders have no guarantee of making any money from their investment—in fact, they may lose their principal if the company’s shares go down—but they also have an unlimited potential for profit. As owners of the company, they are entitled to a share of the company’s annual profit (those are the stock’s dividends) and they may also benefit as the value of the company grows, and the price of the stocks they hold increases.
Stock exchanges enhance public confidence in a market. Many countries feel they will not be taken seriously as a player in the global economy until they have a stock exchange. So even when they have only a few stocks to trade (the Mauritius exchange, early in 1997, traded only one), many countries see the stock exchange as a powerful symbol of their economic potential…