Picture: GETTY IMAGES/ AFP/ ZINYANGE AUNTONY
Picture: GETTY IMAGES/ AFP/ ZINYANGE AUNTONY

Fund managers in Zimbabwe are shunning monetary assets and opting for real assets amid growing fears that the country’s economy is facing a crisis.

Inflationary pressures have been mounting since the central bank introduced bond notes. Their value is at par with the US dollar, the country’s monetary authorities say. It is backed by a US$200m bond facility from the African Export-Import Bank.

Prices of goods have been rising since the bond notes were introduced, with most shops setting up a three-tier pricing system — US dollars in cash, bond notes and bank cards. Hard currency normally expedites external bank payments. Bond notes and card payments are accepted grudgingly.

The bond currency’s value on the black market, a good gauge of confidence in the unit, is weakening, with some forex dealers on the street discounting the currency. Those seeking to buy US dollars are paying an extra $2 in bond notes for US$100 or a premium of 2%. For groceries, one can pay a premium of up to 5% when not using US dollars and paying with a bond note. You can be charged a premium of as much as 8% when you are using a card.

Strong demand for the US dollar and dwindling supply points to a weakening bond, analysts say. For the first time in more than two years, Zimbabwe’s year-on-year inflation rose in February. The country has mostly been in a state of deflation.

But that is not why asset managers are concerned. Bond notes are largely seen as the straw breaking the economy’s back, given an already long list of problems, such as a worsening fiscal crisis, rising domestic debt, a slowdown in lending by banks, job losses and company closures.

Already asset managers, investment analysts and banking and financial services executives have compared the situation to an accident waiting to happen. Others say the economy is already in a crisis mode.

Instead of investing in monetary assets like equities and bonds, investors are now buying real estate such as buildings and land.

Economist Prosper Chitambara says Zimbabwe is in a semi-crisis and could end up with fast-rising inflation.

"We also have a domestic debt crisis emanating from a fiscal deficit. There are low levels of confidence in the economy. This makes attracting foreign direct investment impossible," he says.

"Inflationary pressures are already there as evidenced by the February inflation rate, which brought Zimbabwe out of deflation. If government supplies more bond notes, beyond the $200m, inflation could rise faster." Year-on-year inflation for February was at 0,06%. Zimbabwe slipped into deflation in September 2014.

Old Mutual Zimbabwe CE Jonas Mushosho said last week that Zimbabwe was in crisis. "We foresee three scenarios. Hyperinflation is one of them and so we have taken a decision to invest in real assets to preserve value."

Mushosho was responding to analysts’ queries about what his group was doing in the light of the economic uncertainties suggesting a recurrence of hyperinflation. Old Mutual has $801m in investments and securities. Mushosho’s concerns are not without basis. Pension contributions and savings were wiped out at the height of hyperinflation in 2008.

First Mutual CE Douglas Hoto says economic uncertainties caused investments to shift to real assets last year. First Mutual is the second-largest insurance company in the country.

In a statement attached to the group’s full-year financial results to December, chairman Oliver Mtasa says the group will maintain a "cautious" approach in the management of its investment portfolio with key focus on value preservation.

First Mutual Wealth chairman Robin Vela echoes his view. "Negative sentiments pertaining to the economy led to the resurgence of investment in nonmonetary assets such as properties, as investors shifted to holding real assets," Vela says. First Mutual Wealth has $143m under management.

Asset managers have slowed their purchases of equities after the last quarter of last year’s bull run.

Central Bank of Zimbabwe official Kupukile Mlambo this week sought to allay fears the country would slide into hyperinflation. "As long as we don’t start printing bond notes beyond the $200m facility we will contain inflation."

Zimbabwe has a negative balance of payments position owing to its heavy reliance on imports and minimal exports. Because of this Zimbabwean banks failed to make foreign payments after accounts they held in a foreign currency in nonlocal banks ran out.

More worryingly, the financial results of banks that have come to the market show financial institutions are cautious about lending. "Banks not lending is never a good sign," Chitambara says. "But government borrowings are crowding out the private sector."

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