Incentivise ZSE issuers, government urged

THE Securities and Exchange Commission of Zimbabwe (SecZim) says the Treasury should incentivise issuers on the Zimbabwe Stock Exchange (ZSE) to salvage the market’s appeal amid a mass exodus to the Victoria Falls Stock Exchange (VFEX).
This comes when the main bourse is losing relevance in the face of persistently high inflation in the southern African economy, with a number of companies claiming that raising capital on the market has become difficult.

Meanwhile, the VFEX — a US dollar-denominated market introduced in 2020 — has been gaining ground, seemingly at the expense of the main bourse.
Three of the four listings on the budding exchange to date were migrations from the ZSE, and three more issuers have confirmed plans to move to the new exchange.
“The laws do provide for migration, so it is perfectly legal, but one of the things that we are trying to look for in the upcoming budget are incentives for the ZSE so that we also maintain the market for local currency investors,” SecZim chief executive Anymore Taruvinga told The Financial Gazette.

The VFEX was created to encourage international investment into the country and is one of many programmes that the government has put in place to stabilise the economy.
To lure investors to the new market, the government introduced a number of incentives including a reduction in the withdrawal tax on dividends for foreign investors from 10 percent to five percent, as well as the scrapping of capital gains tax when listed stocks are sold.
Seed Co International, Bindura Nickel Corporation and Padenga Holdings have already moved to the market.
The foreign currency bourse’s lucrative incentives have seen more companies opting to list on the exchange while delisting from the ZSE, with National Foods Holdings being the latest company to announce plans to migrate to the market.
Simbisa Brands has said the migration of its listings from the ZSE to the VFEX will be completed on December 2, 2022. The move, which was initially announced at the end of September is, however, subject to shareholder and regulatory approvals.
In August, Getbucks Microfinance Bank said it was also considering moving its listing to the VFEX.
Economist Victor Bhoroma said viability and sustainability have of late been threatened by currency instability.
“The operating environment remains very challenging and uncertain given the government’s policies. Exchange control and repatriation of capital or dividends have not yet been addressed,” he said.
“VFEX is offering more benefits to businesses in terms of relaxed foreign exchange regulations. So, there is the flight of blue-chip companies that seek to maximise return.”
Financial analyst Newton Mambande said by listing on the VFEX, companies were seeking to hedge their monetary assets against inflation.
“In fact, they want to avoid the mess that happened at the peak of the crisis in 2008. In addition to that, they are working on recapitalisation. Importantly, investors are more interested in injecting capital into a stable business environment and financial markets,” he said.
“In this scenario, the VFEX offers a conducive environment for wealth creation in comparison to the volatile environment at ZSE, where we are likely to have a possibility of having investments wiped out by inflation.”

Another economist, Yona Banda, said that migrating to the VFEX was the only realistic option for a handful of companies.
“Since those are generally the more liquid counters, it is still a significant threat to the ZSE. It is a tough situation for the ZSE because the underlying issues are out of their control,” he said.
He said the main challenge was the lack of stability and confidence in the Zimbabwe dollar.
“Then there is the recent erosion of the value of savings, the low economic growth and high unemployment. All these factors narrow the scope of the ZSE’s existence as a major platform for local investment.”
Economist Vince Musewe said the company movements were not surprising as the firms sought to raise capital in forex and attract international institutional investors.
“Smaller counters will not have an impact on the ZSE, but if, for example, the top 10 counters on the ZSE move, then we have real problems,” he said.
On his part, economist Tarisai Makunde said the major reasons were currency stability, taxation and interest rates, among other variables, which have proven the ZSE to be riskier compared to the VFEX.

Justin-Bgoni, ZSE chief executive

“However, if the currency proves to be stable and taxes and interest rates on ZWL investments are reviewed accordingly, the ZSE remains the investment exchange of choice,” he said.
“Currently, these moves are driven by the need to minimise risks.”
Investment analyst Lloyd Mlotshwa said the capital markets were beginning to reflect rapid dollarisation in the economy as customers are preferring to settle their transactions in US dollars.
“The attraction of being able to raise capital in US dollars, report financials, pay dividends, make settlements, and crystallise valuations all in US dollars is inevitably making the VFEX a stronger option for companies,” Mlotshwa said.
ZSE chief executive Justin Bgoni, however, said the migration of companies from the local bourse to VFEX was not a threat at all.
“VFEX was launched to complement ZSE, and when a company makes a decision to migrate, this is entirely a business decision after consulting with their board of directors and shareholders,” he said.
“We have diverse issuers covering various sectors with different business needs, therefore, we believe that this does not pose a threat to the ZSE, which will remain relevant and strong.”
Five of the 19 security market participants registered by SecZim in 2022 are funds for collective investment schemes. Some of the funds have since been listed as Exchange Traded Funds, and a Real Estate Investment Trust Fund (REIT) listing is anticipated soon.
The country’s markets watchdog recently disclosed that it had a strong list of further ETFs and REITs at various stages of registration.
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