After soaring 700% in local currency terms through late June as investors sought a hedge against hyper-inflation, the Zimbabwe Stock Exchange was shuttered for five weeks by the government for alleged currency violations. On re-opening, the ZSE was missing three listings, including the biggest, Old Mutual Ltd. The government claimed three cross-listed shares in South Africa were being used to manipulate the exchange rate. In fact, the Old Mutual Implied Rate (OMIR) has been widely used for years in the unstable economy. While officially the Zimbabwe dollar, re-introduced last year after a decade of dollarization, floats against a basket of other currencies on the tightly-controlled Interbank Foreign Exchange Market, a huge parallel market exists with OMIR the best known and widely tracked proxy.
When the ZSE opened again earlier this month minority foreign investors, whose holdings had been frozen for weeks, dumped USD 2.5 million in stocks in the first two weeks as annual inflation surged to 837% in July from “only” mid-double digits 18 months earlier. In USD, the exchange has fallen 22% on the MSCI Frontier Index so far this year. The Reserve Bank in June introduced a new currency auction system and banned automated transfers in an effort to manage swings and quell inflation, but a continued shortage of USD has left some 15% of FX demand unmet while the Zim dollar is down some 30% since the auctions were launched.
As the economy continues to contract – IMF data shows GDP -8.3% last year and forecasts -7.4% — this year, the government is desperately trying to attract investment as it remains locked out of official aid programs due to outstanding multilateral and bilateral foreign debt arrears of some USD 8 billion. Reports indicate Old Mutual, and PPC Ltd. And Seedco Ltd which were also delisted, have agreed to move to the yet-to-be-established Victoria Falls Stock Exchange, a USD-denominated wholly owned subsidiary of the ZSE still waiting approval from the local regulator. The Finance Ministry also announced it intends to turn Victoria Falls into an international financial center.
The stock exchange announcement came after an equally grandiose plan two years ago to increase investment in Victoria Falls, the country’s prime tourist destination, through a Special Economic Zone by offering fiscal and infrastructure incentives. Interest was absent as the IMF declared the country in an “economic and humanitarian crisis” in its latest pre-pandemic review. President Mnagawa declared the country open for business after seizing and winning office nearly 3 years ago, but stagflation, endemic hunger and poverty, erratic exchange rate and foreign investment policies, and political opponent detentions remain blights on bourse operations and vision.