IN 2014 the Zimbabwean government cut its economic growth projections for the year by almost half to 3,1% from the initial 6,1% largely due to macro-economic challenges, which included tight liquidity and low capacity utilisation, leading to increases in retrenchments and company closures.
The problems that have negatively affected the economy at large also weighed down the country’s stock market, open to foreign investment since 1993.
The Zimbabwe Stock Exchange (ZSE) on Monday suspended the trading of shares in Zimbabwe’s hotel group Meikles Africa to allow an investigation on whether the firm overstated a debt it is owed by the central bank.
According to January 2015 figures from MMC Capital’s 2014 economic review and 2015 outlook, the negative macro-economic environment in 2014 saw total trade on the ZSE closing the year 6,8% lower at US$452,9 million relative to the prior year’s US$485,7m.
Although traded volumes increased by 6% to 3,179 million shares, the average monthly turnover dipped by 6,8 percentage points from 2013’s average of US$40,5m to US$37,7m.
The overall market capitalisation also went down by 16,84% due to share price decreases in heavyweights Delta (-27,19%), Innscor (-25%), OK Zim (-43%), TSL (-32%) and Hippo (-39%).
Earlier this month, equity research firm Inter-Horizon Securities (IH) reported that market capitalisation on the local bourse fell by 0,66% in January to close the month at a total of US$4,72 billion on the back of weaknesses in the mining index.
IH said the mining index plunged 18,94% to 58,13 points with Bindura Nickel Corporation’s performance declining by 21,88% in the period under review.
Market turnover on the ZSE also fell 44,2% in January to US$15,29m, recording daily average trades of US$0,96m.
The firm noted that in the absence of meaningful and visible catalysts, indications point to sustained pressure on consumer demand and continued liquidity constraints in 2015.
It said the largest impediment to economic growth remains ingrained in policy failures and lack of a compromise solution to the controversial indigenisation policy blamed for spooking foreign investors.
The southward movement of most indicators on the stock market raises concerns for the Zimbabwean government whose target is to average 7% in terms of economic growth between 2013 and 2015 if its latest economic blueprint, ZimAsset, is to see light of day.
Independent economist John Robertson said the stock market’s poor performance is related to the liquidity shortages and general poor financial performance of companies.
“There is no liquidity which leads to low business activity,” said Robertson. “It leads to low prices and if you try to sell your shares you make the low prices even lower. Most companies are not paying dividends and this basically has a bearing on the stock market, with people who own shares unable to sell them because there is no money.
He said the prevailing situation is a symptom of a number of problems relating to governance and the doing business environment.
“The problem in this economy is the lack of confidence which is a symptom of another problem, being the quality of our political leadership. They must be more imaginative, not driven by greed and sustained by corruption.” .
To revamp the economy and subsequently its institutions such as the stock market, Zimbabwe needs a favourable political and business environment first.
“We need business confidence and this comes from a good political environment which is able to boost investment,” he said.
Econometer Global Capital (Econometer) head of research Takunda Mugaga said the ZSE is just a barometer of economic performance, hence its lethargic performance reflects an expected decline in corporate earnings with a number of counters expected to delist.
Mugaga said debt-stressed balance sheets for listed concerns are scaring away investors, while the narrow lending market is leaving fewer firms as reliable recipients of advances.
“To correct this, the Securities Exchange Commission, along with the ZSE, should reform the exchange by making it a leaner bourse with at most 14 counters, the remaining 50 plus counters should be prime stocks to join the SME (Small to Medium Enterprises) exchange, which will be a lower-tier bourse,” said Mugaga.
He said policies that attract quality stocks must be instituted, for instance, enticing international banks such as Stanbic and Nedbank to list locally.
Local economist Kipson Gundani said the poor performance of the stock market mirrors a general underperformance of the economy.
“The stock market is directly linked to the economy; so it is equally expected the stock market will slow down,” he said. “The mining index, however, is highly linked to international commodity prices which are particularly low in January. It is common knowledge that the biggest players on the stock exchange are driven by foreign capital, which is now slowing down. On the other hand, there is little capital internally.”