🔒 Expert insights on Old Mutual, and Zimbabwe, as Zanu-PF moves to ‘eject’ biggest company

Zimbabwe is blaming the collapse of the Zimbabwean dollar on the stock market and is pointing a finger at Old Mutual, the largest company by market value on the exchange. The government threatened to ‘evict’ Old Mutual from the stock exchange, with the ruling ZANU-PF party saying in a statement that Old Mutual could trade in US dollars on another stock exchange in Victoria Falls. But that stock exchange does not exist. Zimbabwe experts Sean Gammon, Professor Tony Hawkins and Tara O’Connor told the BizNews Midweek Catchup webinar that the steps that Zimbabwe wants to take are not going to slow inflation. – Linda van Tilburg

Zimbabwe’s inflation rate has been above 700% for most of the year and the value of the Zimbabwean dollar has plummeted, raising fears that it is another race to the bottom – similar to what happened in 2008 when hyperinflation was counted in billions. 

Investors rushed to the stock markets to protect their assets, which led to a jump on the all-share index of the Harare-based exchange of 677% since the beginning of the year. But the government decided to halt trading on the stock exchange two weeks ago in a bid to stop companies from using the differences between the share prices of Old Mutual in London, Johannesburg and Harare.

Also read: Zimbabwe salaries worth LESS than one US dollar a day – Cathy Buckle

The ruling ZANU-PF party also announced that it would “eject” Old Mutual that is the largest company on the Zimbabwe bourse by market value.  The Managing Director of Harare-based Imara Edwards Securities Sean Gammon told a BizNews Midweek webinar that he expected Old Mutual to be delisted and that the insurers would not be removed from the entire financial services sector.

We have a situation now where we are two and a half weeks into total shutdown and there’s been no formal communication from government in any way of the reason for this. There’s been discussion around the fact that the market is being used for speculative purposes and the market has been performing very, very well in nominal terms, but that’s just inflation driven. There’s also been discussion that certain of the ratios that were being derived from the market were being used by people to set prices and adjust prices and therefore influence inflation and influence exchange rates.

When you hear that, you know very quickly that they talked about the Old Mutual implied rate.

The Old Mutual implied rate is really just looking at the difference between the price of Old Mutual plc on the Zimbabwe Stock Exchange and what it’s trading at in Johannesburg and London and Malawi and all the other places where it trades.

We actually started using the OMIR as it’s called, about 15 years ago, shortly after Old Mutual was listed and it became quite clear that there was a disparity and we started using it as a measure for what people were expecting or not expecting an exchange rate to be. The reality on the ground was, it was outside of control of exchange rates.

It’s very clear that the government feels that it is the mechanism that is driving the parallel rate. That is what we believe and we read into why the stock market has been been shut down. Quite why they didn’t just make a move to suspend Old Mutual trading leaving the other fungible shares from trading and leave the rest the market open, nobody knows. It doesn’t seem that there is any direction for how we move forward and out of this.

Zimbabwean economist Professor Tony Hawkins said the ‘heavy handed’ decision to halt the stock exchange appeared to be because of a pre-occupation with controlling the exchange rate.

Authorities are preoccupied with the public relations of economic management, and they want people, market players, investors, if there are any and I don’t think there are many, to believe what the government says rather than what is actually happening on the ground and markets are sharing and so on. It seems to be a very heavy-handed approach. To talk about the exact phrase, it was ‘evict’ Old Mutual from the financial system, which include subsidiaries like one of the country’s biggest banks and so on. To use the closure of the stock exchange for two and a half weeks for that purpose, doesn’t make any great sense. There’s no sense of economic strategic management here.

Also read: Old Mutual singled out as part of ‘instrument of economic sabotage’ in Zimbabwe – Wall Street Journal

The fact that on both these occasions – first came the announcement from the Ministry of Information and the second announcement came from the ZANU-PF political party – we didn’t hear from the Minister of Finance. We didn’t hear from the Governor of the Reserve Bank. It seems to be a preoccupation with believing that if you control the exchange rate, you can reduce inflation and stabilise the exchange rate as a result. Well, if inflation is running at  730% and it going to go up, if money supply is doubling in six months as it has, you’re not going to slow inflation. You can do what you like with Old Mutual and their implied rate and so on, but it’s not going to achieve anything other than a temporary hiatus, which is what has happened now.

According to Tara O’Connor from African Risk Consultancy it is an indication that Zimbabwe has moved into a state of economic abnormality. 

There is nothing normal about closing your stock exchange and in the manner that it has been done. It sends the absolute opposite signal that any normal investable environment would want to send, which is that we’re open for business, our left hand and right hand know what they’re doing and that we have a clear economic policy particularly in the midst of Covid-19, an international, global health pandemic.

That really should, to all intents and purposes, be the focus of government activity at the moment. There will be enough drama around facing that crisis rather than piling on more drama by doing something like this, like shutting down the stock exchange as a mechanism to control the currency.

The ruling party, ZANU-PF, has indicated in a statement that it wants Old Mutual to be delisted from the Zimbabwe Stock Exchange and said Old Mutual Limited could then be allowed to migrate and trade in a foreign currency-denominated exchange in Zimbabwe. Zimbabwe has previously mooted the opening up of another stock exchange in Victoria Falls, which would trade in foreign currency, but no progress has been made to establish an alternative stock exchange.

Meanwhile, Old Mutual told Bloomberg that the company’s operations are continuing as normal while it seeks clarity on the matter. This is Linda van Tilburg for BizNews.