EXPERTS say the success of the impending Victoria Falls Stock Exchange (VFSE) will depend on whether foreign investors will be allowed to easily repatriate their investments.
In July, Finance minister Mthuli Ncube announced government would set up the VFSE dedicated to trading stocks in foreign currency to shore up the country’s supply.
But, with the government’s poor track record concerning property rights, investors in recent years have been fleeing the Zimbabwean market.
“In brief, there is potential in the concept (VFSE). I think though what I would try to address are the concerns that investors probably have,” Renaissance Capital (RC) head of research for Sub-Saharan Africa, Yvonne Mhango, said at a Zoom meeting held on Wednesday on the VFSE.
“We are an investment bank targeting frontier and emerging markets and our current clients include institutional investors who have invested in these frontier markets, Zimbabwe being one of them. So, we have clients that have invested in Zimbabwe and the main concern has been the lack of ease in terms of repatriating capital and dividends as well as, of course, significant changes in foreign currency policy that has discouraged foreign investors.”
Looking at trades on the Zimbabwe Stock Exchange (ZSE) ever since the return of the Zimbabwean dollar in June last year, the trend has been that of foreign investors fleeing the main bourse.
This is because the local unit has lost significant value against the greenback from US$1:ZW$6,32 upon the local currency’s re-introduction to the current US$1:ZW$81,70.
Worsening matters was the suspension of ZSE fungible stocks in July 2020, a move that effectively ended foreign currency repatriation as these stocks were a vehicle for foreign investors to take out their investments.
“What we have come across from our investors is the lack of depth in the foreign currency market, stability and liquidity has been an issue, transparency and the lack of clarity in how it functions, how foreign currency allocations are being made, and then transparency and how the allocations are being made to investors,” Mhango said.
“We do understand that the intention here is that the Victoria Falls Stock Exchange will be US dollar-denominated. And, the main question from investors’ minds is that, can the authorities offer guarantees that once they invest their US dollars or foreign currency into this exchange, they will be able to repatriate? This has been the main concern for a couple of years now.”
Based on ZSE trades, before the re-introduction of the local currency, when it was first the RTGS (Real-Time Gross Settlement) dollar in February 2019, foreign buyers on the main bourse were averaging between US$3 million and US$4 million daily.
“If you look at the liquidity on the ZSE from the period of 2009 to about 2013, the ZSE was trading almost US$1 million on a daily basis,” Association of Investment Managers chairperson Jubelah Magutakuona said. “So, if you are going to reach those sorts of levels we have to look and deepen that market and allow the full participation of various investors to come in.
“All across the media, the interventions that South Africa is trying to make — whether it’s a crisis or no crisis in Zimbabwe that everybody is talking about — draw a certain picture about doing business in Zimbabwe. The other thing is that the cost of doing business in Zimbabwe are issues that people have not really discussed in terms of what the Victoria Falls Stock Exchange does differently from what the ZSE already does,” North-West University (South Africa) economic historian Tinashe Nyamunda said.
“The Hon Minister (Ncube) has travelled to Davos (in Switzerland) and to other international destinations to try and attract investment, but with the current currency situation in Zimbabwe — where policy appears to be inconsistent, you know at one point you have US dollars being used at another point we shift to using bond currency and at another point we are not really sure what is going on there — that kind environment is something that investors also look at.”
Ncube revealed during the Zoom meeting that they were working with foreign partners to help provide capital support to the VFSE to help shore up confidence from foreign investors to participate in the VFSE.
To deal with concerns around the repatriation of investments, it was announced the Reserve Bank of Zimbabwe (RBZ) is working with the ZSE on providing guarantees to investors that they would be able to easily take out their investments from the VFSE.
“Shortly, the central bank will be issuing a directive that will address a lot of these concerns on how investment can be done on the exchange, especially from local investors,” ZSE chief executive officer Justin Bgoni said.
“And, a lot of that will be very clear that it will be easy for foreign investors to come in and it will be easy for foreign investors to come out.”