🔒 As Zimbabwe tanks, its stock market moves up – FT

EDINBURGH — Zimbabwe is an economic mess, with food, medicine and money shortages. Jobs are scarce, too, in a country in which underground currency trading is rife and the government has lost its grip on inflation. Gary Kleiman, an analyst on banking and securities in emerging markets, has assessed the situation in Zimbabwe. He points out how the stock market has shot up, even though the economy has tanked. This is because Zimbabweans have been looking for places to preserve wealth. The eye watering gains have failed to attract international investors, who remain concerned about the broken promises to restore Zimbabwe to democracy, clean up on corruption and protect asset ownership rights. – Jackie Cameron

By Thulasizwe Sithole

Emerging and frontier stock markets have been battered this year, with one unusual exception: Zimbabwe’s MSCI index was up more than 200% in early October and is still up more than 90% for the year, thanks to local investors desperate to preserve the value of their savings, says Gary Kleiman in the Financial Times.

“Bank collapse and hyperinflation are again looming a year after longtime president Robert Mugabe was forced to resign. His successor and former deputy Emmerson Mnangagwa won his own term for the ruling Zanu-PF party at elections in July, with the opposition claiming widespread violence and vote-rigging,” says Kleiman, an emerging markets analyst.

Emmerson Mnangagwa
Zimbabwe’s president Emmerson Mnangagwa pauses during an interview in Harare on Thursday Jan. 18, 2018. Photographer: Waldo Swiegers/Bloomberg

“The president and his team, with Mthuli Ncube, former chief economist at the African Development Bank, as finance minister, have tried to shake off years of international commercial sanctions and shunning, with outreach at this year’s IMF-World Bank meetings and conferences in the US and the UK,” he reports.

Their return to the global investor stage is so far symbolic, notes the writer. “They have endorsed the privatisation of state enterprises, fiscal discipline and clearance of official arrears, while the banking and multi-currency systems heavily reliant on electronic transfers and artificial ‘bond notes’ unravel.”

Foreign portfolio investors have held back, resilient to attempts by Zimbabwean government officials to woo them. US officials have reminded Zimbabwean delegates that the Trump administration’s view is that political and economic reforms are preconditions to stronger diplomatic and trade ties, as individuals associated with the Mugabe regime remain under asset freezes.

London investors aren’t convinced, either, that Zimbabwe is a safe place to invest. The FT tells how President Mnangagwa ramped up the rhetoric at a Financial Times event in London, where he compared planned restructuring efforts to the UK’s Thatcher “revolution” four decades ago in cutting the public sector payroll and selling off state-run companies.

“He promised to collect taxes and proposed a new levy on electronic transfers comprising 95% of financial transactions, and targeted hundreds of millions of dollars in revenue through an anti-corruption crackdown. He talked of a ‘zero tolerance’ campaign that had resulted in the arrests of top business and government people, with suspects going into exile to avoid investigation. As a strong signal, former president Mugabe’s energy minister was sentenced to prison for contract fraud.”

However, latterly prices of staple foods, fuel and medicines have suddenly spiked several hundred per cent, recalling the pre-2009 hyper inflationary era. Mnangagwa’s office has also threatened 10 years in prison for underground currency traders, points out Kleiman.

“Against this background, investors at the London conference in November were unmoved by the MSCI index’s triple-digit gains and the minister’s pledge to end indigenisation laws and permit foreign majority ownership of listed companies. To resolve the confidence and policy impasses, both sides should form a joint economic and financial market task force to speed rebuilding and reintegration.

“It would concentrate a focus on private capital that is still lacking under the new leadership, while finally tackling dual banking and currency crises for a fresh start. This interim model could also fill a glaring gap, as post-sanctions countries elsewhere on the continent, such as Sudan, begin the journey towards longer-term commercial financing,” adds Kleiman.

  • Gary Kleiman is co-founder and senior partner at Kleiman International. He is a magna cum laude graduate of the Georgetown University School of Foreign Service, and he earned advanced degrees from the Institut d’Etudes Politiques (Paris) and the London School of Economics.  He has been an adjunct professor at the Georgetown University School of Foreign Service, financial sector expert for the IMF/World Bank’s First Initiative and a columnist for the Financial Times. He is a cited member of the Bretton Woods Committee and listed in Marquis’ Who’s Who in America.