Hopes of creating a Victoria Falls exchange in Zimbabwe are in jeopardy
Zanu-PF has demanded that the listing of Old Mutual, the biggest company by market value, be terminated
Zimbabwe’s closing of its stock exchange risks upending plans to start a new equity market in the northwest of the country, according to Renaissance Capital.
The government shut the Zimbabwe Stock Exchange on June 28 as part of an effort to stabilise its collapsing currency. Since then, the nation’s ruling party has demanded that the listing of Old Mutual, the biggest company by market value, be terminated because the insurer’s share price is used to determine a future rate for the Zimbabwean dollar.
The measures undermine investor confidence in government proposals to start a foreign-exchange denominated stock exchange in Victoria Falls, said Charles Robertson, global chief economist at Renaissance Capital. Zimbabweans would be able to use the new bourse to protect themselves from annual inflation that’s surged to 737%.
“Hopes to create a Victoria Falls exchange have been put in jeopardy by the closure of the ZSE,” Robertson said in an e-mail.
The Zimbabwe dollar, reintroduced last year after a decade-long hiatus, has plunged more than 60% since the government abandoned a 25:1 peg in June, which it had put in place in March.
The stock exchange has lost about 335-million Zimbabwean dollars ($5.1m) in revenue and another 14-million dollars in other income since being shut down, Justin Bgoni, the CEO of the bourse, said in a text message on Tuesday. Turnover in 2019 amounted to 2.03-billion Zimbabwean dollars.
The losses “pale by comparison to the inconveniences of those who trusted our platform,” Bgoni said. “We’re glad that discussions with government are progressing well and hope to be allowed to trade soon.”
Symptom vs cause
Old Mutual should be delisted and moved to another exchange that trades only in US dollars, Patrick Chinamasa, the acting spokesperson for the ruling Zanu-PF, said on Tuesday.
“Setting up a foreign-exchange-denominated stock exchange is an appropriate institution for raising and attracting foreign direct investment,” he said. Details of how this needs to be done will be left to the government, but should be done in the shortest possible time to “avoid undue disruption to inflows of investment capital”.
Zanu-PF wants to stop the use of the Old Mutual implied rate, a gauge used by domestic companies to determine the future cost of goods and services. It’s calculated by using differences between the insurer’s share price in London, Johannesburg and Harare.
“The Old Mutual story is a classic case of mistaking the symptom of a problem for its cause,” said RenCap’s Robertson. “Investors have been able to justify investments in Zimbabwe by using the Old Mutual implied rate as a basis for valuing those investments. Without it, the investment case is cut away.”
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