An analysis of the role of financial custodians in promoting portfolio Investment in Zimbabwe

Abstract

This study was motivated by the need to explore the role of financial custodians in attracting foreign portfolio investment to Zimbabwe. This study comes on the backdrop of a series of economic policies that have been adopted to attract foreign direct investment but with very limited success. This study seeks to explore the role of financial custodians in attracting investment into Zimbabwe through foreign portfolio investment as opposed to focusing on foreign direct investment, an approach which has failed to yield the desired results. The aim of the research is to assess how an effective custodian services delivery system, its risk mitigation role in securities’ trading and role in global integration can contribute to the mobilisation of foreign portfolio investment in an economy. This study used a cross sectional qualitative approach to gain in-depth knowledge through in-depth key informant interviews with 15 key informants selected from the “four wheels” of portfolio investment namely custodians, asset management firms, and stockbroking firms and settlements banks. Interviewer administered semi-structured and predominantly open ended questions were used for data collection. The interviews were audio recorded and transcribed verbatim before being analysed using a qualitative data analysis method called template analysis which uses a priori themes obtained from literature review as the initial phase for a series of data coding and thematic analysis. It involves an iterative process which results in the identification of themes and sub-themes relating to the role of financial custodians. Iterative data analysis is conducted to come up with additional sub-themes which helps build cause-effect relationships between themes and sub-themes thereby resulting in a progressive accumulation of new insights. This approach is suitable in concept building in creating an environment where the benefits of financial custodians can be harnessed effectively to attract foreign portfolio investment. The results indicated that by focusing on improving custodial service attractiveness, enhancing risk mitigation mechanisms, creating linkages with global custodians and eradicating information asymmetry in the market it is possible to attract foreign portfolio investment. The study therefore concludes to uphold the proposition that custodian role can be harnessed to promote foreign portfolio investment in Zimbabwe. It is recommended therefore that priority be given to the pooling of resources to build information technology infrastructures to link Zimbabwe with the global market as well as linking regional blocks while also expanding custodial service offerings to take advantage of emerging opportunities.