ZIMBABWE’s insurance and pensions regulator has cast doubts over the credibility of figures coming out of investment property valuations following radical currency changes in the past three years.
This week, the Insurance and Pensions Commission (Ipec) shared a glimpse of the depth of the crisis at hand when it revealed that almost half of the industry’s assets were investment properties whose valuations had been affected by a string of currency reforms and hyperinflation.
Cuthbert Munjoma, the Ipec director for pension, told a stakeholder meeting that the regulator had observed that investment properties had been beset by volatilities since 2009.
This was when the government started changing currencies to stem a blazing economic crisis highlighted by 500 billion percent inflation in December 2008.
In 2009, the government ditched the free falling domestic currency and adopted a multicurrency system, before bringing in bond coins and notes to operate alongside the United States dollar from 2013.
“We are noting that valuations are being done in USD and converted to Zimbabwe dollars, which is the functional currency,” Munjoma told the stakeholder conference.
This week’s meeting was meant to explore how the valuation crisis can be addressed.
“If you profile the investments in properties since 2009, we see some more volatilities than equities. At one point around 2014 to 2016, the assets were hovering around US$1 billion in terms of value. Right now it’s approximately US$600 million. So we believe there is a challenge,” Munjoma said.
“There is generally some opaque sales and minimal data which is available. We are observing these evaluation inconsistencies and limited disclosure in terms of valuations. We have some concerns as the regulator,” he said.
Most of the complications emerged three years ago after authorities issued Statutory Instrument S1 142 of 2019, which ended the multicurrency system and reintroduced the Zimbabwe dollar as the medium of exchange for domestic transactions.
Last year the government had a change of heart and issued SI 185 of 2020, which authorised firms to price goods and services in both United States dollars and Zimbabwe dollars.
Ipec plans to issue guidelines on investment property valuations.
But it hopes that before sending out its circular engagements with stakeholders will iron out “opaqueness” and inconsistencies stemming from lack of data.
“Valuers should be registered with the Valuers Council of Zimbabwe,” Munjoma said.
“Valuation methods and assumptions have to be very clear in every valuation report. Previously we have not been requesting valuation reports but…this is now a regulatory expectation. For all major asset classes we need to see those valuation reports. We would want to have disclosures,” he said.
ICAZ technical manager Owen Mavengere told businessdigest that engagements would be important to help valuers reduce inconsistencies in financial reports produced by pension funds and insurance firms.
“Engagements will be important because this will reduce inconsistencies in reports produced by pension funds and insurers,” Mavengere said.
“Engagements also aim to reduce modifications of financial statements audit opinions. The major practice being currently used by valuers in the valuation of property is performing valuations in United States dollars, with some then converting into Zimbabwe dollars using the prevailing auction rate or an agreed rate. Most entities which have significant investment property had their audit opinions modified due to property valuations being done in United States dollars then converted to Zimbabwe dollars at the auction rate. The engagements will assist Ipec in producing a standard guidance for pension funds and insurers, which will improve consistency, comparability and the credibility of reports,” he said.