Absolutely, the creation of a capital market is good for Liberia because of the following reasons: the creation of new industries, the expansion of existing ones, jobs, reduction of capital flight and access to foreign and domestic capital.
Let us examine why companies offer the sale of shares or the issuance of debt securities to the public. Businesses usually evolve, over time, from one-man operations (sole proprietorships) to partnerships and ultimately to full-fledged corporations. Corporations traditionally meet their short-term cash requirements by borrowing from banks. When corporations need long-term financing, they may sell ownership interests in the company (common stocks and preferred stocks) to the public or borrow from the public by selling bonds (debt).
Stocks are purchased by individuals and institutions as investments to make additional money on the money invested. Besides common stocks, there are many other investment vehicles such as money market instruments, real estate or precious metals, but the buying of common stocks or shares offers a great number of advantages such as the ease of safeguarding purchased securities, the speed at which these shares can be bought and sold and the ability to determine your investment exact market value in a matter of minutes.
Among the many reasons given for the creation of the Liberian capital markets, assuming for a moment that the security of the country has improved dramatically, and that we have a stable market with a growing economy, if investors feel that they can get a bang for their buck as opposed to the mere two or three percent they could earn on a bank savings account, their money would find its way in the Liberian capital markets.
Another advantage of creating the Liberian capital markets is that an individual’s dream could be realized as a result of venture capital finding its way into our markets. Venture capital, or VC as it is also known, comes from institutional investors and high net worth individuals who are willing to gamble their capital on a good idea. This provision of capital allows the venture capitalist to take an equity position in a company that is formed as a result of the good idea that has translated into goods or services. In most cases, the owner of a good idea may not have the capital, thus becoming a candidate for venture capital financing. Another form of this arrangement is that the venture capitalist could bring both the capital and expertise to start and grow the company for a lion’s share of the business (equity).
We understand that our laws allow for the repatriation of income; however, if the would-be investor believes that he/she can a get a higher return on his/her investment in Liberia than elsewhere, he/she would invest in Liberia, thus discouraging the flight of capital from our markets. Capital flight is a function of disincentive. It occurs only because people do not see an alternative investment vehicle or vehicles that would give them a higher return on their investments.
The advent of the Liberian capital markets, albeit inevitable, would translate into the creation of the securities industry and provide enormous employment opportunities and a change in our curriculum at institutions of higher learning to include an in-depth study of investment and the capital markets. This new curriculum might focus on the volatility of the market and a measurement of the risk and return associated with a given asset or security or an investment portfolio.
This nascent industry cannot be compared to one that has existed for over 217 years, the New York Stock Exchange. However, since we modeled after the United States, we can conclude that the evolving of our capital markets would resemble that of the United States, and if it does, these might likely be the employment opportunities, those working on the exchange floor, the floor brokers, the two-dollar brokers, competitive traders, competitive market makers, the bond brokers and the specialists. These are the people who make trading possible on a daily basis to buyers and sellers of securities on the exchange, where orders are executed by the minute. Other employment opportunities might include the investment bank and the brokerage firm with these back offices operation – the Order Department, the P&S (Purchase and Sales Department), the Margin Department, the Stock Record Department, the Accounting Department, the Dividend Department and the Proxy Department.
If you have bought or are contemplating buying shares, beware that the buying of shares is a risky business, and do not invest money you cannot afford to lose. If you need help in your investment decision, always seek the advice of an expert. Having the right information about the company and knowing how to interpret it are more important than any other factors that you might hear of. Always ask for the company’s Annual Report.
About the writer
Armaso Bawn is professor of Accounting at AME University. He earned an MBA from the Graduate School of Business, Public Administration and Information Sciences, Long Island University; a Master Degree in Management Information System, Keller Graduate School of Management, Devry University. He managed an investment portfolio for a New York-based Real Estate Co-operative and specialized in Spread Trading. He can be reached on 06-589571
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Updated: February 8, 2010 - 11:35pm
Absolutely, the creation of a capital market is good for Liberia because of the following reasons: the creation of new industries, the expansion of existing ones, jobs, reduction of capital flight and access to foreign and domestic capital.
Let us examine why companies offer the sale of shares or the issuance of debt securities to the public. Businesses usually evolve, over time, from one-man operations (sole proprietorships) to partnerships and ultimately to full-fledged corporations. Corporations traditionally meet their short-term cash requirements by borrowing from banks. When corporations need long-term financing, they may sell ownership interests in the company (common stocks and preferred stocks) to the public or borrow from the public by selling bonds (debt).
Stocks are purchased by individuals and institutions as investments to make additional money on the money invested. Besides common stocks, there are many other investment vehicles such as money market instruments, real estate or precious metals, but the buying of common stocks or shares offers a great number of advantages such as the ease of safeguarding purchased securities, the speed at which these shares can be bought and sold and the ability to determine your investment exact market value in a matter of minutes.
Among the many reasons given for the creation of the Liberian capital markets, assuming for a moment that the security of the country has improved dramatically, and that we have a stable market with a growing economy, if investors feel that they can get a bang for their buck as opposed to the mere two or three percent they could earn on a bank savings account, their money would find its way in the Liberian capital markets.
Another advantage of creating the Liberian capital markets is that an individual’s dream could be realized as a result of venture capital finding its way into our markets. Venture capital, or VC as it is also known, comes from institutional investors and high net worth individuals who are willing to gamble their capital on a good idea. This provision of capital allows the venture capitalist to take an equity position in a company that is formed as a result of the good idea that has translated into goods or services. In most cases, the owner of a good idea may not have the capital, thus becoming a candidate for venture capital financing. Another form of this arrangement is that the venture capitalist could bring both the capital and expertise to start and grow the company for a lion’s share of the business (equity).
We understand that our laws allow for the repatriation of income; however, if the would-be investor believes that he/she can a get a higher return on his/her investment in Liberia than elsewhere, he/she would invest in Liberia, thus discouraging the flight of capital from our markets. Capital flight is a function of disincentive. It occurs only because people do not see an alternative investment vehicle or vehicles that would give them a higher return on their investments.
The advent of the Liberian capital markets, albeit inevitable, would translate into the creation of the securities industry and provide enormous employment opportunities and a change in our curriculum at institutions of higher learning to include an in-depth study of investment and the capital markets. This new curriculum might focus on the volatility of the market and a measurement of the risk and return associated with a given asset or security or an investment portfolio.
This nascent industry cannot be compared to one that has existed for over 217 years, the New York Stock Exchange. However, since we modeled after the United States, we can conclude that the evolving of our capital markets would resemble that of the United States, and if it does, these might likely be the employment opportunities, those working on the exchange floor, the floor brokers, the two-dollar brokers, competitive traders, competitive market makers, the bond brokers and the specialists. These are the people who make trading possible on a daily basis to buyers and sellers of securities on the exchange, where orders are executed by the minute. Other employment opportunities might include the investment bank and the brokerage firm with these back offices operation – the Order Department, the P&S (Purchase and Sales Department), the Margin Department, the Stock Record Department, the Accounting Department, the Dividend Department and the Proxy Department.
If you have bought or are contemplating buying shares, beware that the buying of shares is a risky business, and do not invest money you cannot afford to lose. If you need help in your investment decision, always seek the advice of an expert. Having the right information about the company and knowing how to interpret it are more important than any other factors that you might hear of. Always ask for the company’s Annual Report.
About the writer
Armaso Bawn is professor of Accounting at AME University. He earned an MBA from the Graduate School of Business, Public Administration and Information Sciences, Long Island University; a Master Degree in Management Information System, Keller Graduate School of Management, Devry University. He managed an investment portfolio for a New York-based Real Estate Co-operative and specialized in Spread Trading. He can be reached on 06-589571