Foreigners ditch Zimbabwe equities in record numbers over currency move

Foreigners ditch Zimbabwe equities in record numbers over currency move

HARARE, November 3 (The Source) – Foreign buyers are deserting the Zimbabwe Stock Exchange in record numbers, with net outflows of $56, 28 million in the 10 months to October, the biggest sell-off in five years over government plans to introduce a token currency in the financial system.

Zimbabwe has sort to contain a dollar shortage by introducing local ‘bond notes,’ which it said will trade at par with the US dollar. President Robert Mugabe on Monday used the Presidential Powers (Temporary Measures) Act to amend the Reserve Bank of Zimbabwe Act to designate the bond notes as legal tender, effectively launching the new currency.

But questions remain about the legality of the instrument, which was used to bypass Parliamentary approval.

In May, the central bank announced its plans to circulate bond notes alongside the US dollar and other currencies in Zimbabwe’s multi-currency basket, which also includes South Africa’s rand, Botswana’s pula, China’s yuan, the euro, British pound and Japan’s yen.

The central bank says the surrogate currency will be backed by a $200 million facility provided by the African Export Import bank.

The bank has not said when the notes will be brought into circulation.

Zimbabwe has suffered from a crippling dollar shortage since the beginning of the year, but foreign investors appear to be unimpressed with the government move to introduce a local currency, eight years after it ditched the hyperinflation ravaged Zimdollar.

The central bank insist that the bond notes are not local currency but President Mugabe has called them a ‘surrogate currency’ while vice president Emmerson Mnangagwa on Tuesday called them ‘a mode of transaction that is domestic.’

Foreign participation on the Zimbabwe Stock Exchange recorded a net outflow of $56,28 million in the 10-month period to October 31 this year, compared to $306,000 over the same period last year.

In 2012 with Zimbabwe’s post-dollarisation recovery at its zenith — a growth of 10.6 percent — the ZSE recorded net inflows of $51,983 million. In 2013 and 2014, it generated net inflows of $82,962 million and $93,201 million over the 10 months.

Analysts say the poor creditworthiness of the government — which ran a budget deficit of about $400 million last year and is expected to be over $1 billion this year — has also influenced foreign buyers’ investment decisions.

Chinamasa had predicted a budget deficit of $150 million in the 2016 budget. As of June, this year, the deficit was at $623 million.

In his mid-term, fiscal policy announced in September, finance minister Patrick Chinamasa noted that, “there is a growing trend whereby international correspondent banks and other financial institutions terminate financial relations with financial institutions in the Eastern and Southern Africa Anti-Money Laundering Group (ESAAMLG) member states, including Zimbabwe.”

The process, commonly referred to as de-risking, has hit hard trade transactions and portfolio investments which largely rely on correspondent banking relationships.