Grim outlook as ZSE falls

The Zimbabwe Stock Exchange's (ZSE's) fall on Monday and a run on bank deposits showed fears over President Robert Mugabe's economic policy after his controversial re-election last week.

There are fears that Mugabe will scrap the United States dollar in favour of the local currency that was abandoned in 2009. There are also jitters over his indigenisation policy.

As the stock market opened on Monday on the first day of trading after Mugabe was declared the winner on Saturday night, investors rushed to the sidelines. Shares fell by 11%, although this was in thin trading, with just 39 trades. Normally, trades are recorded in about 70 counters each day. The ZSE has been Africa's best performing market this year, rising by 40% in the six months to June and dwarfing other regional markets, including South Africa's JSE. But with Morgan Tsvangirai, seen as more business-friendly, disputing the win, the economy faces uncertainty.

The election results were apparent on the Thursday and Friday after the polls, but negative sentiment was amplified after the weekend's  events: the big margin of Mugabe's win, Tsvangirai's furious reaction and rejection of the poll outcome by Western governments.

"It shows how panicky people are," broker Bernard Ndebele told the Mail & Guardian. "But the market will recover."

Richard McCawley, a fund manager who invests on the ZSE on behalf of South African and American investors, said it was expected that the market would fall after the elections.

"However, what we lack are cool heads in government to make strong assurances on the economy," McCawley said. "We have not seen that so far."

Part of that assurance, many observers say, is the make-up of the Cabinet Mugabe will appoint.

The post of finance minister will be central, and Mugabe is already rumoured to be looking outside his party for a pro-business figure to appoint. Others within the party, however, say Mugabe is looking for "fresh faces" from within Zanu-PF.

Mugabe has a large pool of former business executives to choose from. Two already being mentioned as possible appointees to key economic ministries include Sylvester Nguni, a former head of Cottco, the country's biggest cotton company, and Fred Moyo, a former mining executive.

When asked on the eve of elections whether he would appoint the same loyalists to his government, Mugabe said: "I may not appoint them, you see." The biggest fear is that Mugabe will reintroduce the Zimbabwe dollar, a wish he expressed on the campaign trail. His reassurance that this was only in the long term did little to ease fears of a return to the pre-2009 era, when the local currency became worthless.

There appears to be little appetite, however, even within Zanu-PF, for an immediate return to the Zimbabwe dollar. Zanu-PF's own manifesto takes great care to mention that the Zimbabwe dollar would only return "at an appropriate time when the economy has reasonably recovered and stabilised".

Privately, senior Zanu-PF officials also oppose the early reintroduction of the local currency.

"That's what got us in trouble in 2008. You think we want to go back there?" a senior member of Mugabe's politburo said on Tuesday, referring to the economic crisis that cost Zanu-PF the 2008 election.

Central Bank governor Gideon Gono also said the "reintroduction of a local currency is rather a medium- to long-term aspiration".

However, in the aftermath of their big win, Mugabe's officials have not done a lot to ease fears.

In the vacuum, banks reported unusually high withdrawals by clients. One executive said banks were "already facing liquidity challenges, and there's need for a confidence boost" to ease fears.

Banks had stopped lending ahead of the polls, said Sij Biyam, head of the Bankers Association of Zimbabwe.

There were also fears that Zanu-PF would use its position to push through its indigenisation policy, the cornerstone of its election campaign. On Monday, the party said Zimbabwe would "witness a unique wealth transfer model that will see ordinary people take charge of their economy".

Zimbabwe has seen some economic recovery since the formation of the unity government in 2009, but the growth slowed over the past year as political tensions rose and companies found it harder to raise capital on domestic and foreign markets.

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Jason Moyo
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