CONCERNS raised last week by investors on whether they will be allowed to repatriate their funds if they list on the Victoria Falls Stock Exchange (VFSE), is an indication that government has a long way to go in instilling confidence amid policy inconsistencies and a reforms deficit.
By Kudzai Kuwaza
At a Zoom meeting held on Wednesday last week about the VFSE with Finance minister Mthuli Ncube, head of research of sub-Saharan Africa at the Russian headquartered Renaissance Capital, Yvonne Mhango, voiced the 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.
“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.”
The abrupt introduction of the Zimbabwean dollar, through Statutory Instrument (SI) 142 of 2019 as the sole legal tender without the necessary benchmarks, which include low inflation and three to six months import cover, illustrates why investors are wary of investing the foreign currency denominated Victoria Falls bourse.
The introduction of the local currency last year led to the collapse of the local unit stoking inflation figures to fluctuate between 700% and 800%, the second highest inflation after South American country Venezuela.
After the chaos of the spectacular fall of the local currency, Mnangagwa’s government has since changed its tune allowing the United States dollar it had barred for domestic transactions to trade with the local currency initially as a mechanism to ameliorate the impact of the Covid-19 pandemic. Through SI 185 of 2020, the US dollar, which had been barred last year, is now trading as dual currency with the depreciated Zimbabwean dollar. This signals the policy inconsistency that has scared away investors.
Despite President Emmerson Mnangagwa vowing to lure potential investors and making it the key objective of his tenure, which includes the setting up of the Zimbabwe Investment and Development Agency (Zida), investment inflows have dwindled since he won the disputed elections in 2018.
Foreign direct investment (FDI) has plummeted from US$717,1 million in 2018 to just US$259 million last year. The country’s FDI is projected to plunge further this year to just over US$150 million due to policy inconsistences on critical issues such as the currency matter.
The VFSE will only succeed in luring significant investment if there are wholesale reforms across the political and economic spectrum, according to economist Godfrey Kanyenze.
“Investors do not just look at one issue that you have created the Victoria Falls Stock Exchange. They look at the whole scenario in terms of governance. So they will say, ‘We know about the Victoria Falls Stock Exchange, but we have also heard about abductions and human rights abuses’. We need a systematic approach to reforms and not a sectorial approach,” Kanyenze said.
“We have come up with Zida, but these are isolated reforms. Reforms need to be implemented simultaneously.”
The abrupt suspension of the Zimbabwe Stock Exchange for more than a month on allegations of illicit activities as well as halting the fungibility of three counters, namely Old Mutual, Seed Co and PPC, has further sapped investor confidence. This is evidenced by the bourse losing a massive ZW$42,5 billion shortly after the suspension was lifted as investors abandoned the ZSE.
Ncube’s comments that those affected by the suspension should treat the stoppage as a long holiday, has not helped either in terms of attracting the much-needed investment.
Business consultant Simon Kayereka contends that the suspension of the local bourse dealt a major blow in government’s drive to attract investment.
“The suspension was a knee-jerk reaction. Kicking out fungible stocks was the first blunder. Why kick them out first and then investigate them? It was done in an unorthodox manner,” Kayereka said.
“The repatriation of dividends has always been problematic which is one thing that must be tackled. Investors do not come here to lock up their money. If there is no transparency and confidence, the VFSE will not take off as anticipated. We need consistency, predictability and honesty in our dealings with investors.”
To compound the problem of policy inconsistency, the Zimbabwe government has been accused of gross human rights abuses which include the arrests of political opponents and activists, who include Transform Zimbabwe leader Jacob Ngarivhume and MDC Alliance deputy chairperson Job Sikhala, as well as alleged abductions of civil rights activists, opposition party members and even comedians.
This has prompted widespread condemnation from various quarters, which include the European Union, the United States, and the United Nations, the African Union Commission and the church, further damaging the country’s chances of attracting significant levels of investment.
“You have a sense of people working at cross-purposes when we are supposed to work towards nation building,” Kanyenze added.