FAILURE by foreign investors to repatriate funds has led to massive disinvestment on the Zimbabwe Stock Exchange (ZSE) with investments plummeting to 25% in 2019 from 52% in 2016, the Zimbabwe Independent has learnt.
This comes as the Monetary Policy Statement presented this week by central bank governor John Mangudya painted a bleak picture of a 93% plunge in net portifolio investments, with foreign direct investment (FDI) falling 64% in 2019.
This implies that foreign investors are now disinterested in portfolio investments which span a wide range of asset classes such as stocks, government bonds, corporate bonds, Treasury Bills, real estate investment trusts, exchange-traded funds, mutual funds and certificates of deposit, among others.
Most foreign investors have at least 10% to 15% on the fund side invested in Zimbabwe.Foreign investors have been sitting on the fence for years, waiting for the economic situation to improve. Investment managers are now under pressure from the investors who are agitated by the business climate in Zimbabwe.
At a time the central bank has failed to kick-start the much-anticipated investor portfolio fund since 2017, analysts say it is now more critical than ever.
Financial analysts Ranga Makwata on Tuesday told the Independent that it was unlikely that the central bank would prioritise stock market investors seeking to repatriate investment proceeds, although the authorities know how critical this is in attracting portfolio investment to the country.
“The idea to set it up was good and it was motivated by the need to create a mechanism for investors to take their investment proceeds out whenever necessary but it was clear from day one that funding the scheme was going to be difficult,” Makwata said.
The failure to repatriate money and continued accumulation of blocked funds is largely responsible for the massive disinvestment on the ZSE as investors see no value in maintaining investments in a country that has no capacity to transfer proceeds to their preferred destinations.
“Foreign investor flight is rampant now with their participation on the ZSE down to below 25% in 2019 from more than 50% in good times. The latest statistics from the RBZ showed net portfolio investment inflows declining from US$54,7 million in 2018 to US$3,7 million in 2019. So, clearly, lack of a clear repatriation mechanism has huge impact of portfolio flows.”
Besides repatriation hurdles, Makwata said bringing back the Zimbabwean dollar and the negative impact it has had on business operations have also contributed to the foreign investor flight.
“Zimdollar adds foreign exchange risk to investment a time the local returns are dire because of economic problems. All this makes Zimbabwe less attractive as an investment destination both for long-term FDI and short portfolio investments. Addressing those issues will be the only way of rebuilding lost investor confidence and make the country an attractive investment destination again,” he said.
Head of research at local equities firm Morgan & Co, Batanai Matsika, on Tuesday said that recent meetings with foreign investors had shown that the investment climate in Zimbabwe is now toxic, with the investors expressing disappointment and eagerness to leave.
“But now there is more urgency, considering the currency we are using. The truth is foreign investors are very disappointed and they want out but they can’t. There are no mechanisms to repatriate their money. They cannot use the Old Mutual Implied Rate (OMIR) because it is very expensive. It means they will have to raise more money on the stock exchange for them to be able to do so,” Matsika said.
“We have been meeting recently with a number of investors who are invested on the local bourse. They are disappointed. I will tell you, no more investors are willing to come to invest here but those in here can’t sit still anymore.”
While investors are likely to take a huge knock on the OMIR should they choose to repatriate their money that way, they have limited options generally with the market capitalisation having been depressed for some time.
As the market is also struggling with confidence issues, the central bank is struggling to bring closure to the funding of the Zimbabwe Investor Portfolio Fund since 2017 (US$1 million for each appointed bank).
The fund was an attempt to speed up the repatriation of portfolio-related funds to foreign investors on the ZSE and would be critical in attracting new investors to the local stock market given the current challenges faced by foreign investors in moving funds offshore owing to foreign currency shortages.
On the sidelines of the Monetary Policy Statement presentation on Monday, Reserve Bank governor John Mangudya said the central bank is still seized with introducing the fund.