Tinkering with stocks ruinous

POLICY certainty is a fundamental ingredient of the socio-economic development menu in contemporary nation-states and its importance is being highlighted by the multi-faceted turmoil rocking Zimbabwe.

Other crucial components of the dish are peace, security, infrastructure, technology and innovation. In their collective strength, these ingredients are the vital inputs of a delectable meal.

Foreign exchange intervention is very difficult to achieve in an environment characterised by policy uncertainty.On Sunday this week, Finance minister Mthuli Ncube published in an Extraordinary Government Gazette a Statutory Instrument outlawing the fungibility of three counters on the Zimbabwe Stock Exchange: Old Mutual, PPC and SeedCo. It is necessary to state from the outset that the minister’s tendency to resort to statutory instruments (economic management by decree) is astounding. In certain instances, this has led to embarrassment, as he is then compelled, ex post facto, to retrace his steps and seeks approval from the National Assembly.

Officials argue that the fungible stocks were being used by some speculators to earn a quick buck by externalising foreign currency via the backdoor. Interestingly, some prominent politicians in the Zanu PF government have previously accused Old Mutual of stoking the flames of inflation by eroding the value of the Zimbabwean dollar. There is no empirical evidence for this, of course, but politicians have a tendency for speaking without giving due consideration to their claims. The dramatic outlawing of fungibility has spooked the markets and will have consequences for investment promotion.

In the world of foreign investors, nothing screams “danger” louder than a sudden policy prescription that seems not only rushed but also the end result of official panic.
Zimbabweans were stunned last week when the local currency lost value in a precipitous manner, falling from 1:29 to the United States dollar to 1:41. Nerves were frayed, official egos bruised and consumers left aghast. At a time the global markets are reeling from the devastating effects of the Covid-19 pandemic, Zimbabwe’s Treasury should be a proponent of calm and moderation — a voice of reason. Investors and the markets need assurance that the Covid-19 storm will blow over. Exchange rate volatility is inflicting enough damage before we can even begin countenancing the prospect of more policy-induced headwinds of uncertainty from the authorities.

The most obvious impact of the ban on the fungibility of stocks is that investors feel besieged by a jittery government, which increasingly seems clueless and out of its depth on matters of economic management.

We must always be alive to the fact that capital is fickle and cowardly — hence very sensitive to wild swings in policy. Investors have to grapple with immense risk; which explains why they prefer policy predictability.

There is no doubt that the government will soon realise that tinkering with a few stocks will not solve the foreign exchange crisis. What is needed is a holistic solution at the level of policy, governance and the all-important “atmospherics” of troubled politics.

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