Controversial new policies to give black Zimbabweans majority stakes in foreign companies in the country have scared off investors from abroad, stock exchange Chief Executive Emmanuel Munyukwi says.
Munyukwi said in an interview orders from foreign investors had dried up since the end of January when Zimbabwe moved to implement the Indigenisation and Economic Empowerment Act that requires foreign firms sell a 51 % stake to local blacks.
“Last year our market was being driven by foreigners, upwards of 40 percent were foreigners and net buyers. But from the end of January with the gazetting of the indigenisation regulations, there has been a lot of uncertainty and foreigners have put a hold on their transactions,” Munyukwi said.
A minister said on Tuesday the transfer of control of foreign companies would begin in the key mining sector.
Under the rules, which took effect on March 1, foreign-owned firms must submit plans to show how they will sell 51 % of their shares to black Zimbabweans within five years.
The Zimbabwe Stock Exchange (ZSE) has 79 listed companies and a market capitalisation of $3.2 billion, down from around $11 billion in 1997-1998.
The exchange re-opened in February 2009 after closing in November 2008 at the height of the country’s hyperinflation which devastated the economy and made its currency worthless.
Volumes recovering slowly
During the economic crisis, many Zimbabweans used the stock exchange to invest as it was the only investment option which gave some measure of protection to savings.
“When you started seeing vendors in the street playing the the market, you knew something was wrong,” Munyukwi said.
Since then, volumes have picked up and until the controversy about selling off stakes of foreign firms, foreign buyers — including South Africa’s Investec and investment bank and asset manager RMB — were acquiring Zimbabwean equities and providing much of the exchange’s liquidity.
Daily turnover, which averaged $2 million in 2009, fell to about $700 000 after the empowerment law was published, although there has been an improvement to $1.3 million in recent days.
Munyukwi said although some foreign interest had returned the uncertainty over the empowerment laws remained an obstacle to badly-needed foreign investment.
“We are hearing that the regulations are going to be reviewed but the unfortunate thing is, investors don’t wait for you. They will go elsewhere.”
The new laws have divided the fragile power-sharing government formed by President Robert Mugabe and Prime Minister Morgan Tsvangirai last year, with Tsvangirai saying they were issued without consulting the cabinet.
Munyukwi said new listings on the Zimbabwe Stock Exchange (ZSE) all depended on the economy picking up further. He singled out tourism and mining as sectors for possible new listings.
The ZSE, which opened in 1896, was looking to modernise and set up a central securities depository as a precursor to moving to electronic trading from open outcry, Munyukwi said.
It may look at South African bourse operator JSE Ltd (Johannesburg Stock Exchange) for help, he said.
“We are looking at all the various options. If you look worldwide, people are trying to piggy-back on the big exchanges because technology is always moving. I see scope in linking up with the JSE,” he said.