HARARE – Finance Minister Mthuli Ncube on Sunday suspended the fungibility of three dually listed counters – Old Mutual, PPC and Seedco International – hoping to stem the Zimbabwe dollar’s huge losses.
Investors unable to repatriate their earnings were buying shares on the Zimbabwe Stock Exchange and selling them abroad. The share price comparison gave rise to the Old Mutual Implied Rate (OMIR), used by some as an exchange rate gauge.
Old Mutual’s stock also trades in London and South Africa, PPC in South Africa and Seed Co. in Botswana. Those dual listings and differing exchange rates can offer traders arbitrage opportunities.
The move by the Treasury, announced in a General Notice in the Government Gazette on Sunday, means investors can no longer transfer shares of these counters across stock exchanges.
The finance ministry said in a statement on Twitter: “This is part of broad and bold measures to weed out some of the visible sources of currency instability.”
Zimbabwe’s dollar has weakened about 86 percent since February 2019, when the government dropped a one-to-one peg of its quasi-currency to the dollar and later outlawed the use of foreign currencies.
On Friday, the Zimbabwe dollar was trading for 18.39 on the official interbank market against the United States dollar, but was more than three times weaker on the OMIR at 60.77.
George Charamba, the spokesman for the presidency, said the OMIR “had become the de facto Exchequer in this small economy, causing absolute mayhem in all spheres of the economy, even then on sheer speculative grounds.”
He added in a tweet: “Fungibility allows the Old Mutual share to trade across bourses, London and JSE in this case, with those volatile platforms determining the currency value in Zimbabwe, to great detriment in the local unit and, by extension, the whole economy.”
Former finance minister Tendai Biti described the measure, which was previously invoked in vain during the 2008 economic crisis, as “insane” and “baseless”.
“The regime is truly and remarkably zany and fascist,” Biti wrote on Twitter.
The year-long order does not have any impact on the settlement of transactions in the stocks conducted before March 13 as long as they are effected by March 18, Ncube said in his decree.
Alex Magaisa, a former adviser to Zimbabwe’s late former Prime Minister Morgan Tsvangirai, said the fungibility of the three counters was an “exit route for investors whose money is otherwise trapped in Zimbabwe’s financial system.”
He also questioned if the decree could pass a legal test.
He explained: “Last year, a government decree restricted the fungibility of shares by placing a 90-day limit. But it was of general application. This is selective. This selective application opens the decree to a legal challenge.
“As is now the norm, Ncube is merely copying from history. In 2008, authorities closed these escape doors for investors. But that did nothing to stop the runaway hyperinflation rate and it certainly didn’t save the Zimbabwe dollar.”
David Coltart, a lawyer and treasury secretary for the opposition MDC described Ncube’s announcement as a “desperate measure to prevent the plunge of the Zimbabwe dollar, rather like a pilot jettisoning fuel after a plane has stalled.”
“It won’t work,” he added.