BY MELODY CHIKONO
THE recent revelation by Finance minister Mthuli Ncube that a number of mining firms will list on the foreign-currency-indexed Victoria Falls Stock Exchange (VFEX), though a positive development, is under threat from the government’s policy inconsistencies and flagrant violation of property rights, among other hurdles.
VFEX was established to enable companies to trade in forex to raise capital on the bourse while mechanisms to allow funds repatriation of foreign currency were being worked on.
Prior to the establishment of the bourse, three counters, namely PPC, Seed Co International and Old Mutual Limited were suspended from the Zimbabwe Stock Exchange (ZSE) over allegations of manipulating the exchange rate by virtue of their dual listings.
This suspension had a massive knock on investor confidence.
The VFEX was expected to be a game changer which would help transform the country’s fragile economy. However, since its colorful launch in October last year, the bourse situated in Victoria Falls has only attracted two companies — Seed Co International and Padenga Holdings.
Ncube, however, said the bourse was a potential hub for mining firms as scores of them were expected to list on the bourse.
But experts warned that the business environment in Zimbabwe was hostile and uncertain and the failure by the government to respect property rights by unilaterally suspending the ZSE was the final nail in the coffin as the same foreign investors quoted by VFEX also invest on ZSE.
They said the key requirement is to have independent markets free of government control and ensure monetary policy consistency.
While the ZSE closure had a significant impact, experts said, foreign investors or businesses prefer to deal with markets where there is rule of law, property is protected by law, where there are guarantees to property rights and no restrictions on moving capital.
Economic analyst Victor Bhoroma said the intended move by miners to list on VFEX points to their need to retain 100% of their foreign earnings.
He said that the 40% retained by the central bank at a pegged rate is hurting mining operations in a United States dollar economy where companies have to pay taxes in foreign currency.
“It also needs economic stability, transparency and accountable governance from the government. The closure of ZSE last year had a significant impact. Foreign investors or businesses prefer to deal with markets where there is the rule of law and with no restrictions on moving capital,” Bhoroma said.
Concerns about the VFEX were raised by investors in a Zoom meeting with Ncube just before its launch last year.
During the meeting, the head of research for sub-Saharan Africa at the Russian-headquartered Renaissance Capital, Yvonne Mhango, voiced fears among investors of doing business in Zimbabwe.
“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,” Mhango said.
Investment and research analyst Enock Rukarwa said export incentives announced by the government should create listing demand on VFEX.
“Victoria Falls Stock Exchange (VFEX) is nearing its first anniversary which is set for October 2021. However, counter liquidity remains a huge impediment on the currently listed companies looking at the volumes traded up to date. On the backdrop of the Covid-19 strain that has weakened company fundamentals, VFEX listing rate remains favorable under the circumstances and we remain upbeat that a handful of exporters might onboard in the short to medium-term.”
He said the suspension of trading on ZSE last year worsened confidence levels.
Securities Commission Exchange of Zimbabwe chief executive Tafadzwa Chinamo said the VFEX needed more time to reach full potential.
“We cannot at this point compare VFEX with ZSE which has been in business for years. Let us give it more time. For more than a decade now businesses have not been able to raise capital. They find it futile to raise capital in local currency. VFEX addresses that aspect that we want a platform where the private sector can attract hard currency,” Chinamo said.
“We are going to see that in the coming years. We are also looking at the diaspora where we are engaging them to participate. They are interested in sending money home and being there for the platforms’ development. More products are coming but it is going to take more time.”