Conrad Dube/Shakeman Mugari
THE marketing department of the Zimbabwe Independent had trouble finding a suitable theme for its annual Quoted Companies magazine. No title seemed to correct
ly capture the events on the market this year.
As they scratched their heads for the elusive theme, several suggestions were made. Some thought it was a year of consolidation. But this was immediately shot down after suggestions such a theme could mean the Independent was celebrating the “consolidation of ill-gotten gains” because a lot of companies gained from speculative investments which cost customers their life’s savings or were engaged in illegal foreign currency deals on the parallel market. Others thought that it would be better to call it a year of “survival of the fittest”. Separating the boys from the men in other words.
But that again was jettisoned on realising it would be unfair to attribute the crash of some companies to their size. In any case most of the problems were not of their own making. Attempts were made to call it a turnaround year, a suggestion which others flatly refused to go with.
Turnaround of what? asked some members. It was thought it would indicate that we are a gullible lot that believed the economy was on the mend. In the end no agreement was reached. A strategic decision was taken to publish the magazine in May next year.
No theme can capture the events on the market over the past 12 months except to say it was a troubled year. It saw botched deals and closure of banks. The market had its ups and downs. Listed exporters bled from the foreign currency retention scheme, while many closed shop because it was unviable to operate. Curators also had a field day as they made millions from managing troubled banks.
For investors the stock market was the most viable alternative. The market started the year on a bad patch in the aftermath of the new monetary policy that set the tone for 2004. The market was however to recover from a low of 396 316,03 in January to notch a record 970 229,20 points last week.
The mining index also recovered from the January crash to end the year on a high of 189 795,50 points from 129 384,92 points.
During the year more than four companies were suspended from the bourse. First Mutual was suspended twice from the market as the insurance firm failed to clear the air over the controversial losses their asset management company suffered because of exposure to the curse of ENG Asset Management.
The company lost more than $30 billion in the ENG debacle. The authorities at the bourse were demanding that the company also explain the involvement of Capital Alliance, a management investment vehicle that company bosses used to enrich themselves. The saga finally claimed the chief executive Norman Sachikonye who was dismissed after immense pressure from the stock exchange.
The trouble at First Mutual Life continued to haunt it when it was later suspended after it was involved in serious mudslinging with Royal Bank over investments. The company is still suspended from the bourse and management is battling to persuade the ZSE to allow it to resume trading.
Troubled Barbican Holdings was also suspended from the bourse on March 13 over the liquidity crunch at its banking arm, which has since been placed under curatorship. Trust Holdings’ shares have not traded on the market for more than four months due to suspension.
The situation was compounded by the closure of its banking arm, Trust Bank. The bank is likely to be swallowed into the Zimbabwe Allied Banking Group, which is set to start operations next year.
Horticulture firm TZI requested to be suspended from the market to pave way for investigations into the misappropriation of funds in their subsidiary, Agriflora. The investigations are still going on and a report might be out soon.
The haemorrhage in the export sector continued with many companies closing shop because of the foreign currency regime. Listed firms that made a killing from the external market have also started to bleed. A number of companies have warned that they are under siege from the exchange regime. PG Industries, which was a star performer last year, is now limping after its export earnings received a severe knock over the past nine months. Cafca also said that its export earnings had plunged by more than 50%.
During the year, the land crisis continued to wreak havoc on the listed companies. A number of listed companies are still to recover their land expropriated by the government for resettlement.
Land belonging to Hippo Valley has been invaded by war veterans, leading to the disruption of sugarcane production. This has impacted on the earnings of the group. Interfresh still has large tracts of its Mazoe Citrus land under the control of the new farmers while Radar’s Border Timbers is still in trouble.
There were other botched deals like the Trust/Old Mutual merger talks which could not be consummated because a due diligence report revealed that the bank had holes in its financial books. Old Mutual withdrew from the deal.
Had the deal gone through it would have saved Trust from collapse. Speculation was also rife that NMB Bank and MBCA Bank were in talks over a possible merger. However, the informal talks were later said to have collapsed before much could be discussed.
The Commercial Bank of Zimbabwe this week pulled out of talks with an unknown insurance company. No details of the deal were given.
During the year, CFX Financial Services merged with Century Holdings. The marriage however failed to stand the test of time as the bank was shut down last week due to serious liquidity problems.
The bank was placed under curatorship last Friday after internal investigations revealed that the bank had been defrauded of $115 billion. RBZ investigations are under way.
Politics also reached into economics. The government muscled into Mutumwa Mawere’s Shabanie Mashava Mines (SMM) alleging that the mogul owed the government billions of dollars. The government appointed an administrator to run the affairs of CFI Holdings in which Mawere had interest.
In the mining sector, government ordered platinum mining firms to cease operating offshore foreign currency accounts in a bid to tighten its grip on the lucrative mineral.
RBZ governor Gideon Gono said platinum miners would be required to open foreign currency accounts with local banks into which they would deposit their earnings. The mining firms were also asked to transfer funds held in existing offshore accounts to the new locally held accounts. Gono, who announced the new regulations during his third quarter monetary policy statement in October, said in addition the central bank would now handle all trade in the platinum group metals. The state-run Mineral Marketing Corporation of Zimbabwe will advise the bank on marketing the precious minerals.Zimbabwe holds the world’s second largest known deposits of the platinum group metals after South Africa. But large foreign corporations dominate the local platinum industry.
The new policy is set to hit hard mining groups like Makwiro Platinum and Zimplats in which Impala Platinum Holdings (Ltd) (Implats), the world’s second largest platinum producer, holds 82%.
The move is set to affect the projected mining industry positive growth of 7,5% in 2005, after recording an estimated growth of 11,6% in 2004. Mining contributes about 4% to gross domestic product (GDP).
Real GDP decline this year retreated to 2,5% from 8,5% recorded in 2003. Projections for the coming year are for a positive growth rate of between 3,5% to 5%.
Other economic indicators, inflation, for instance, significantly declined to 149,3% in November from 622,8% in January. This progress notwithstanding, inflation still remains unsustainably high, and the major constraint to export competitiveness.
The government revised inflation targets, initially set at 200% by December this year, to 150%-160%. The objective is to achieve a lower rate of 30-50% by December 2005, with single digit inflation thereafter.
Manufacturing, which used to contribute about 18% to GDP is projected to decline by 8,5% this year while agriculture is still dogged by uncertainty and chaos. Capacity utilisation, which had fallen to as low as 30% in some sub-sectors, is now between 50-60%. The manufacturing sector is anticipated to register a lower decline of only 5% in 2005.
Investment in the country has remained low at levels of about 5% of GDP, while overall savings are estimated to be about –1,7% of GDP in 2004.