The Sunday Mail
Persistence Gwanyanya
Zimbabwe’s currency and stock markets have responded positively to the Zimbabwe Defence Forces intervention that saw Cde Mugabe resign as President, and be replaced by President Emmerson Mnangagwa.
Markets welcomed the new political dispensation that has breathed confidence in the national economy’s prospects.
The market now pin its hopes on the new Government’s ability to sustain the confidence by crafting and implementing sound investment and business polices that put the economy on a sustainable recovery path.
Achieving this economic imperative requires the new leadership to be honest about the challenges we face as an economy, to bite the bullet and make some difficult comprises while rejecting the myth that politicians fixate on winning the next poll. So far, the stock market has lost close to US$6 billion from a peak market capitalisation of US$15,2 billion recorded on November 14, 2017. This fall can be viewed as market correction noting that the local bourse was highly overvalued, at least reading from both the price earning and market capitalisation to GDP ratios.
Importantly, this correction shows that the local bourse was not being driven by economic fundamentals but challenges in the currency market.
Firms and individuals are having difficulties in making foreign payments, making the stock market an attractive option to invest funds lying idle in the banks.
These funds end up on the black market as investors try to procure merchandise for their normal business operations, noting that Zimbabwe is an import-dependent country. Enterprising citizens were making a living on moving money between these two markets.
It seems these market dynamics worked well for participants, no wonder why a number of firms have remained in business — and some even flourished — despite escalating currency challenges.
I am sorry that I could be a bearer of bad news to this constituency of people as this era of “fun money” could be coming to an end, at least reading from the recent market reaction.
The loss in the stock market was accompanied by a significant reduction of cash premiums in reaction to the renewed confidence levels in Zimbabwe’s economy.
Cash premiums have fallen from 95 percent to around 40-55 percent.
Now there is very little trade between bond notes and US$ as the continued reduction in cash premiums has reduced the lucrativeness of these currency switches.
Interestingly, the fall in the stock market was not accompanied by a comparable increase in market turnover, which could be an indication that the market expects the bear run to continue in the future, hence the reduced appetite for investment in shares.
Though market turnover more than doubled to US$84 million as at November 17, 2017 from US$40 million the previous week, a significant number of sellers could not find buyers as investors expect the market to remain bearish.
As such there was no significant cash flow from the stock market to drive the black market for currencies. Instead the currency market reacted to sentiments of an improving economy which saw a significant decrease in cash premiums. This underscores the notion that lack of confidence is a binding constraint to growth.
Importantly the success of any currency regime is inextricably linked to the confidence levels in the economy.
Commendably, it seems banks have thus far managed the issue of salary payments to civil servants very well. That further bolsters confidence levels.
This trend is expected to continue as long as the new Government can come up with appropriate policies to boost the economy. Ostensibly so because our markets had become more speculative characterised by rent seeking behaviours. It’s ironic that one of the poorly performing economies in the world had one of the best performing stock markets in the world.
The stock market had increased by more that 200 percent with other counters increasing by as high as 300-900 percent, which a significant increase by the world standards.
As we focus on the economy it’s important to spell out some policy priorities to guide the new leadership.
- Spell out and start to work out on the road map to reintroduce our own currency
- Deal with the land question conclusively.
- Revisit the indigenisation policy to reflect both local and global realities
- Fight corruption decisively
- Re-engage the international community
The new President should set the tone for economic development, and this should be followed by the selection of Cabinet that shuns corruption, is knowledgeable, and can steer implementation of sound policies.
Persistence Gwanyanya is the founder and futurist of Percycon Global Fund Managers (SA) and Bullion Leaf Zimbabwe. Feedback: [email protected] and WhatsApp +263773030691
