Donna Block
Zimbabwe’s stock exchange is the latest casualty of President Robert Mugabe’s stubborn pursuit of economic policies that have savaged the local currency and plunged Zimbabwe into the worst financial crisis of its 18-year history.
Since the beginning of the year Zimbabwe’s share market (ZSE), once one of Africa’s brightest rising stars, lost 18,7% of its value in local currency terms. In US dollars, the market has shed a staggering 60,2%. Over the last few months market sentiment has become increasingly depressed. The heavyweights of the ZSE like Delta Corporation, Zimbabwe’s largest listed company and its only real blue chip, and the supermarket and hotel group, Meikles Africa Limited, are finding their share prices going nowhere fast.
Foreign and local investors are staying away because they don’t believe Mugabe is taking the country’s economic problems seriously. Apart from a few bargain hunters trying to pick up some cheap deals, trading on the exchange is thin and liquidity is almost non-existent.
It is hard to believe that the ZSE is the same exchange that only few years ago thrilled the world as a shining example of Africa’s new emerging market potential. Since it was first opened in June 1993 to foreign investors until 1996, the ZSE had consistently outperformed most of the world’s other emerging markets in terms of growth and return on investment.
Boasting a well-diversified economy, increasingly open to outside participation, Zimbabwe demonstrated a level of sophistication uncommon for such a young market and reaped the rewards. But in less than two years the African jewel has turned to tarnished glass.
Mugabe has blamed the economic woes on politically ambitious labour leaders, sinister white bankers, unspecified political agitators and faceless currency speculators.
He has blatantly ignored the disastrous effects on the economy of an unbudgeted Z$3-billion scandal involving a state pension fund, the almost Z$2-billion failure of a politically well-connected bank, the high cost of Zimbabwe’s four-month military intervention in the Democratic Republic of Congo, and the economic impact of the arbitrary seizure of 841 white-owned commercial farms. In short, Mugabe has blamed everyone and everything but himself and the root causes of Zimbabwe’s financial predicament.
Strive Masiyiwa, founder of cellphone service provider Econet Wireless Limited and one of Zimbabwe’s most highly regarded businessmen, told reporters this week at an international trade conference in Cape Town that when investors abroad heard about the seizures of the farms two weeks ago he received dozens of panicked phone calls from his foreign financial backers saying: “Strive, we love your company, but we hate your country.”
The only saving grace for people like Masiyiwa is that Zimbabwe is now so cash-strapped that closing a large position on the ZSE is almost impossible, forcing most investors to hang in there.
In the face of such harsh reality, some investors are trying very hard to be optimistic. But they are finding it increasingly difficult when the ZSE is at a two-year low, the Zimbawean dollar has lost nearly 60% of its value this year, inflation is likely to reach 40% by the end of December, interest rates approach 50% and the International Monetary Fund (IMF) has taken the country off its agenda until further notice. The fund approved a US$176- million standby facility to Zimbabwe in June, and it had been expected to approve a $53-million tranche before Christmas.
But the transfer of funds depended on Zimbabwe meeting targets on economic reform. Donor officials in Harare said last week that the IMF payment would be delayed after the government announced it would seize 841 mostly white-owned commercial farms.
“If this [land seizure] signals an intention to proceed immediately with large-scale land acquisition, this could have adverse fiscal implications for 1999 and beyond, as well as hurt confidence in the economy generally,” the IMF said.
The IMF also said that they wanted assurances that Zimbabwe’s military involvement in Congo would not jeopardise economic targets needed to meet the requirements of the loan agreement.
In the absence of IMF support, fears emerged that Zimbabwe might emulate its good friend Malaysia and attempt to stem the 40% annual inflation and stop the collapse of the dollar by introducing a fixed exchange rate and other exchange controls.
While such a move might bring some relief to the economy and give Mugabe’s government badly needed breathing space, in the end it would be an unmitigated disaster. Foreign goods and services would dry up.
Trading partners would insist on being paid in scarce hard currency. Local companies dependent on foreign inputs for their survival would die slowly, but surely. Investors and international companies unable to get their money out of the country would find their funds locked into a worthless currency.
“The end result for the local stock market and the investment rating of the country as a whole would be too horrible to contemplate,” said a report by Investec Securities.
Fear about a fixed exchange rate reached fever pitch on Monday ahead of a scheduled announcement by Zimbabwe Reserve Bank Governor Leonard Tsumba. In the end Tsumba announced plans to change the way the country sets its interest rates, switching from a fixed rate to a floating rate, much like South Africa’s repo rate system.
The move was aimed at squeezing speculators out of the market and propping up Zimbabwe’s beleagured dollar. Analysts, however, say it was futile because poor fundamentals – not speculators – are hammering Zimbabwe’s dollar. While Tsumba ignored the major issues for the Zimbabwean economy, he also failed to ease investors’ minds by keeping alive the possibility of fixing the exchange rate.
“You never rule out anything but I’m not talking about fixing,” Tsumba said. “We’re talking about stabilising the currency. There may be some buzz of fixing, but that’s not my wish.”
Meanwhile, the government has come up with no answers as to how it plans to finance pay rises for civil servants, costs of the Congo war, or how it is going to handle the farm debacle, which many analysts say ultimately lies at the core of Zimbabwe’s trouble.
According to a Reserve Bank official who asked to remain anonymous, “Land is the cornerstone of capitalism. It is the essence of the notion of private property. Once private property is no longer sacred it is impossible for investors anywhere to believe in you.”
The only thing that can save Mugabe and the economy right now is an injection of cold hard cash. The problem is where to find it. Unconfirmed reports speculate that during a stopover in Libya recently, ostensibly to discuss the war in Congo, Mugabe was really looking to be bailed out by Colonel Moammar Gadaffi, Libya’s head of state. The reports claim that Gadaffi has promised his Zimbabwean friend millions of dollars to help cushion the cost of the Congo war.
Despite such rumours, confidence in the government’s ability to pull the country out of the mire is non-existent. The stock and money markets are likely to remain idle until economic conditions improve, or until enough liquidity becomes available to enable people to abandon what analysts see as a sinking ship.
November
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