Investors cautious ahead of poll

MANY companies closed shop last week and have adopted a wait-and-see attitude as investors tread cautiously in anticipation of the outcome of tomorrow’s elections.


As  companies’ operations  remain depressed, government’s domestic debt has increased to $1,6 quadrillion as at March 8 from $60 billion on February 1.
Analysts have attributed the soaring deficit to hyperinflation, which has pushed the initial budget of elections from $208 trillion to an undisclosed figure understood to be hovering around $800 trillion.
The Reserve Bank has continued to print money with money supply at 51 768,8% for November last year and expected to be over 150 000% by February this year.
Stock market prices this week weakened sharply as investors pocketed profits from a rally that has lasted nearly six weeks.
Fixed income investments continue to perform badly due to the continued excess liquidity conditions on the money market emanating from injections from fiscal and quasi-fiscal expenditures to fund, among others things, the farm mechanisation programme.
The post-election monetary policy promised by Reserve Bank governor Gideon Gono has complicated investors’ ability to make medium to long-term investments.
It is estimated that about 65% of operating companies and industries could have closed last week although industry sources could not ascertain this figure.
Confederation of Zimbabwe Industries president, Calisto Jokonya however said while some companies have closed shop, the figure of 65% was an exaggeration.
“Some companies did close shop but that (65%) figure is an exaggeration and not coming from CZI, even though we (CZI) do not have exact figures,” Jokonya told businessdigest.
“The economic environment has not been normal for almost every business and we do not expect it to be better even after elections. Most companies are however hoping that the election results would enable them to operate viably,” said Jokonya.
Zimbabwe National Chamber of Commerce (ZNCC) president, Marah Hativagone said she could not make an official statement on how many companies have closed down over the past two weeks and the reason behind the closures, saying “companies were operating cautiously ahead of the election”.
“It is difficult to say which company has closed and for what reason, but people are in business to make money and as such were operating cautiously ahead of the elections. Businesses are operating under an environment characterised by lack of raw materials, foreign currency and price distortions and such developments (closure of companies) are expected,” she told businessdigest.
Manufacturers who spoke to businessdigest this week said that they had to discontinue, or scale down production output this week to minimise losses. This reduction in productivity has resulted not only in businesses operating below break even point but has also seen shortages of fast moving consumer products in retail shops.
“There is now a more vigorous and virile black market than previously existed due to the intensity of demand in the absence of goods in the formal market, which could take months to reverse as businesses have closed in anticipation of a better government,” economic consultant John Robertson said.
With demand massively exceeding supply, black market merchants are able to command prices very considerably greater than those which were being charged by retailers prior to the controls being introduced.
Robertson said industries and companies had weighted their options ahead of the election resulting in most of them closing weeks before tomorrow’s elections.
President Robert Mugabe last week attacked businesses for hiking prices and closing shop ahead of the elections. Mugabe took a swipe at the about 400 British companies in the country threatening to seize them if he wins tomorrow’s elections.
“The British still have companies here and we have not yet touched them. Four hundred British companies and so they must take care. After elections we will look into that,”  threatened Mugabe at a rally last week
Mugabe claims foreign businesses were hiking prices to turn voters against his government. Stock market prices this week weakened sharply as investors pocketed profits from a rally that has lasted nearly six weeks ahead of the polls.
“Investors continue to exhibit uneasiness ahead of the elections as evidenced by the frequent profit-taking behaviour as investors stay close to their money through frequent realisation of profits,” Kingdom bank analyst Witness Chinyama said.
“The massive increase in the number of council, parliamentary and presidential election candidates and the fact that the polls will be held in a single day, have all baffled investors,” he said.
In the short-to-medium term the outlook for the Zimbabwe Stock Exchange remains bullish underpinned by weak inflation and negative interest rates.
Stockbrokers said the market pullback would not last long, as there were so many fundamentals supporting a bull market on the stock market.
“Investors are hedging their financial assets against hyperinflation thereby effectively competing with other non-interest bearing assets such as property and a host of other non-interest earning alternative markets,” said a Harare stockbroker.
“We expect the market to remain largely firm on the back of continued negative returns obtaining on the money market, continued rising inflation rate and the shortages of investment options.”