IN MOST economies, growth goes hand in hand with improving investment opportunities on the capital market. But not in Slovakia, where financial market players are desperate for securities to invest in despite 6-percent GDP growth.
Robert Kopál, director of the Securities Brokerage Association, said that the inefficiency of capital market institutions and the unwillingness of the state to enrich the offer of securities traded on the stock exchange were the main reasons the capital market was so lethargic.
The capital market normally serves as an alternative to banks for companies looking for financing. However, this can only work if capital market institutions are efficient.
"Even though bond interest rates are low in Slovakia, if a company issues its bonds on the Slovak capital market, after all the fees are factored in, it costs more to issue bonds than to take a loan from a bank. As a result, the number of bond issues from corporate clients is decreasing," Kopál told The Slovak Spectator.
Apart from few corporate bond issues, opportunities to invest in corporate stocks on the Slovak market are scarce as well.
"Unfortunately, the cabinet in Slovakia has not privatized a single strategic company through the capital market. All over the world, strategic utility companies are the largest issuers on capital markets. And if large companies are there, smaller companies are encouraged to be there as well," Kopál explained.
He added that neighbouring countries like Hungary, Poland, and the Czech Republic provide good examples of how to use a capital market as a tool of privatisation. Stock exchanges are now booming in these countries as a result, he said.
Kopál is convinced that Slovakia's dysfunctional capital market has a direct negative impact on individuals as well as corporations.
About 1.2 million Slovaks have so far signed up to save for their pensions in private accounts in the capitalization or so called "second pillar" of the new pension system. Private pension fund management companies are obliged by law to invest 30 percent of the volume of savings on the local capital market.
"This is counterproductive as there is nothing to invest in except for state bonds, which are not only not very lucrative, they are also not a long-term savings tool. People will get lower returns comparing to if the capital market was working normally," Kopál said.
Given the moribund capital market, corporations have little chance of raising funding for new projects besides through the banks.
"A standard capital market enables companies to find resources quickly and cheaply. It is not possible to finance everything through bank loans," Kopál added. "The capital market can help launch projects that otherwise would not have a chance. Without the capital market, Microsoft might not have existed, for example."
The Securities Brokerage Association would welcome it if the state floated at least 10 to 15 percent minority stakes in companies where it still holds a majority, such as SPP and Transpetrol, on the capital market.
"Even these minority shares would be interesting for investors and would help the market itself. If you look at the most developed countries in the world, the state of their capital markets reflects the state of their economies, and is at the same time an engine for further growth," Kopál said.
10. Apr 2006 at 0:00 | Marta Ďurianová