Stock Exchange resumed trade March 26, 2009, to a slow start. According to Kingdom Stock Brokers, in the absence of US dollar denominated financial data, there was no agreement as to the method that could be used to evaluate share prices in the newly dollarised environment.
This resulted in very low bids to the few buyers who were then available in the market as they also wanted to avoid buying overpriced assets. Investor interest was coming by September, but slowly, from China, Pakistan, India, Mauritius, South Africa, Kenya, Nigeria, Britain, the United States and Canada. Mining attracted most interest, followed by manufacturing, tourism, services and construction. However, foreign investors were snapping up shares as they are cheap.
Three features can be noticed in Table 1, which concentrates on turning points in the share indices (peaks are bold and lows are italicised):
Random fluctuations are quite large, as can easily happen when the actual amount of trading is small, and
Some quite wild plunges, especially in the mining index, whenever a new Zanu (PF) statement on ‘indigenisation’ was made. These do not help investor confidence.
The highest peak in the mining index occurred in June 2009, and for the industrial index in October 2009. By then the optimism about the state of the country released by the initial performance of the inclusive government has worn thin. The confidence of foreign investors should not be our only indicator of how wel things are going, but in this case they seem to share the general mood in the country.
Table 1 :Summary of changes in ZSE indices, February 2009 October 2010:
Source: Zimbabwe Independent
It is not clear how the new baseline for the indices was determined.
By mid-December: ZSE registered 200% growth from the $1,6 billion market capitalisation at the start of the year.
Table 2: ZSE market capitalisation:
By the end of August 2009 trading was dominated by four mining stocks – Bindura, Falcon Gold, RioZim and Hwange Colliery (HCC) while US$19,7 million (40%) went to two industrial counters, Econet (US$12,4 million; 27% of the money) and Delta (US$7,3 million). Niels Kristensen, head of Rio Tinto’s diamond unit in Zimbabwe, told a mining conference in September the country would not see new investment in mining unless uncertainty over the indigenisation law and fiscal policy were resolved.
The German government sent an official letter of complaint to Zimbabwe, lamenting that German investment continues to be under threat due to ongoing lawlessness in the country. The letter follows an attempt by some Zimbabweans to take over a German-owned farm near the border with Botswana. Issues, particularly with the German government, continue.
Foreign investment made up 43.18% worth of capital invested between April and October 2009, in contrast with the previous trading pattern where local institutional investors were more active.
Hwange Colliery is failing to attract investors because of low coal reserves. Reserves at Hwange were projected to last 25 years,according to the Zimbabwe Independent in October 2009, but now we hear that new investment is held up for lack of a thorough assessment of Hwange’s coal reserves.
Hopes for BIPPA
In November 2009, Zimbabwe signed the Bilateral Investment Promotion and Protection Agreement with South Africa which should have been a signal of government’s intentions to attract investors. In practice, the agreement is ignored whenever political capital is to be made by hostile words or actions against foreign investors. Government’s claim that it had covered more ground in the creation of a One- Stop Shop to simplify investment procedures sounds hollow when we consider this background. They have been rather quiet about this issue in 2010.
Local pension funds were at the end of 2009 the largest owners of equity (15%) and they were beginning to enjoy net inflows which was a good sign. This year’s more sluggish performance by ZSE will have slowed this, if it didn’t reverse it.
Premier Finance Group (PFG), the parent company of Premier Banking Corporation and Premier Asset Management lured African Development Corporation with a 54% sweetener for US$6 million. The new shareholder together with a consortium of local investors led by George Manyere and Doug Mamvura now has an unassailable 82% shareholding in PFG .
Bank lending
Deposits had risen from US$350 million in April 2009 to over US$800 million in mid-August owing to an increase in transactions going through the RTGS. Lending rates were up to 10% and investment rates for the money market between 6% and 8%. Banks started giving personal loans in August.
In August banks introduced forex-denominated cheque books and some started offering personal and corporate loans to account holders who receive their salaries through those banks. An official manning the CBZ stand at the Harare Agricultural Show said the bank was offering short term mortgage loans through CBZ Building Society, on strict conditions (property as security & for refinancing and home improvements, on condition that one demonstrates capacity to repay the loan within the prescribed period). The bank would also charge monthly interest rates: 10%/year for 30 days, 12%/yr for 60 days and 14%/yr for 90 days. The minimum loan amount is US$500 and the maximum, US$25,000. CBZ is also offering personal loans to account holders who receive their salaries through the bank. One gets a loan half their salary plus a 10% monthly interest charge. The bank offers less than 1% interest to account holders who regularly deposit money into their accounts.
Some figures published in the Zimbabwe Independent in February 2010 showed the ratio of loans to deposits was still low although confidence in the banks was slowly recovering from the years of hyperinflation and RBZ raids on private accounts. Many borrowers don’t have anything to offer as security.
Table 3: bank loans and deposits sampled across Africa:
Banks still need to work hard to restore their credibility with ordinary savers and ordinary businesses, but this is just an acute case of a worldwide problem.
Post published in: Manufacturing