Foreign investors desert Zimbabwe stock market, no inflows in 7 years

THE Zimbabwe Stock Exchange (ZSE) has not witnessed any foreign investor inflows for the past seven years, according to chief executive officer, Justin Bgoni.

The country has a strong appetite for foreign direct investment, including portfolio investments, especially at a time when Government is on an offensive to rebuild the economy that had been battered for close to two decades.

A portfolio investment is ownership of a stock, bond, or another financial asset with the expectation that it would earn a return or grow in value over time or both.

Ultimately, when portfolio investors participate in a particular stock exchange, the knock-on impact is that this boosts confidence from external investors to pour in foreign direct investment into the country.

Responding to questions during a panel discussion at the inaugural Zimbabwe Annual Investor Forum held in Harare on Wednesday, Bgoni revealed foreign investors have been shunning the local bourse.

“If you look fundamentally in Zimbabwe, we haven’t had foreign direct investment coming since around 2015/16. The large part of it is because of the exchange rate. People worried that they will not be able to get their money. So that has been the biggest problem of money coming in.”

“It’s people’s perception or reality of not being able to repatriate their dividends when they sell. I think that has been the main thing,” said Bgoni.

He said right now there was “barely any money coming into the market” from foreign investors.

In separate interviews yesterday, market analysts concurred that the economic outlook has not been good for foreign investors to stay put as they were worried about the capacity of companies to generate earnings in the right currency.

“Not only have we failed to attract new investment onto the stock market, but I think in the last two years, foreign investors are selling out of the ZSE because return prospects were not as exciting as they were expecting.

“It’s a number of issues, it speaks to the direction that the economy in their view was going and obviously that has an impact on the companies’ ability to generate earnings,” said Ranga Makwata.

“The biggest issue has been foreign currency shortage, the fact that investors were not able to take out their money or it would require them to take months if not years for them to be able to take their money out of the country, so that made investment less attractive if you had to queue for a month or so.”

Makwata said in the last seven years the country has suffered negative outflow of money adding that in the last 24 months they were more sellers than buyers in terms of foreign trades at the ZSE.

Under normal circumstances, he said the stock market is supposed to be a platform for capital mobilisation and if the existing scenario continues to prevail, businesses will continue to suffer capital inadequacy.

“This is also happening at a time when the banking sector is shrinking, how do you see that the banking sector is shrinking, you look at the size of the deposits. There are only a (few) deposits and even if they were to lend all of us (companies and individuals), how far can it go?”

Given the prevailing situation on the stock markets, pressure was mounting on the Treasury to fund various projects including those in sub-sectors such as mining, agriculture, and manufacturing should ordinarily be funded by private investors or banks.

The solution to the above predicament, Makwata said the country needs to have policy consistency.

“Investors need to know what to expect by way of policy. We have identified foreign currency issues as one of the push factors, it means we need to have a very predictable foreign currency situation, whether we try to go with the Zim dollar only, there must be consistency in the foreign currency management,” he said.

In recent years, the country’s industrial representative body, the Confederation of Zimbabwe Industries (CZI) has raised concerns over lack of policy consistency in the country.

This, CZI has said was affecting the country’s risky profile in terms of attracting fresh lines of credit that industry was in dire need to recapitalise operations as well as retooling with the ultimate objective to improve capacity utilisation to competitive levels.

According to CZI, capacity utilisation in the manufacturing sector last year stood at 56,52 percent.

Another market analyst Lloyd Mlotshwa, said lack of foreign direct investment in the country over the past seven years was a function of unavailability of foreign currency management policy in the economy.

“The tragedy for foreign investors is that there has not only to be the ability to bring in foreign currency but there should also be the ability to take that currency out.

“For them, it became very difficult to repatriate their funds, for instance, when they earn dividends that money goes into the repatriation queue and as you might be aware there are significant delays which makes it difficult to repatriate their funds,” he said.

The other aspect which is there for foreigners, Mlotshwa said, was the exchange rate that was being used to convert the foreign currency they were bringing into local currency.

“The actual reality is that foreign investors have not been actual participants for a long time and when they participate, it was just to sell, and they will continue to do so until we sort out our foreign exchange platforms,” he said.

Victor Bhoroma echoed similar sentiments, adding that foreign investors invest in economies or markets where they will be able to repatriate their dividends and capital through formal channels without any bottlenecks. – Business Weekly

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