Robust capital markets derailed due to currency crisis

Tafadzwa Chinamo

ZIMBABWE’s battered currency, along with sluggish ICT investment are among the factors holding back the development of capital markets, outgoing Securities and Exchange Commission of Zimbabwe (SecZim) CEO Tafadzwa Chinamo said on Friday, as multi-millionaire investor Nicholas van Hoogstraten called for a stable currency.

Chinamo told Standardbusiness that Zimbabwe’s currency turmoil has been compounded by high transaction costs and hyperinflation, which have affected investor confidence in capital markets.

“Lack of investment in ICT systems, high transaction costs, lack of confidence in the Zimbabwean dollar by investors and high inflation which means there is no bond market and commodities derivatives (affect the development of capital markets,” Chinamo said.

“To improve, market players need to invest significantly more in ICT systems and infrastructure. While the market, ZSE (Zimbabwe Stock Exchange) and CSD (Central Securities Depository) have become automated, very few players have invested in the technology to take advantage of it.

“As a result, interaction with potential clients/investors has not changed in form and is not exciting for investors. Lack of investment in ICT has also limited the growth of product development.

He said that despite these problems, he was satisfied with the profile of the country’s capital markets.

“We have enough players in all categories, namely brokers, exchanges, CSDs, asset managers and others,” Chinamo said.

“In terms of products, until recently we had a very limited product offering.

“I’m happy to say that has changed recently with ETFs (exchange-traded funds) and REITs (real estate investment trusts).

“However, we still don’t have a vibrant bond market. Our bond market is non-existent, which is a shame because without it our derivatives market cannot take off.

He also said that the negligible growth of institutional investors was concerning.

“We have seen growth on the retail side, unit trusts and exchanges on the ZSE via C-Trade and ZSE direct, but very few large customers are coming to market,” Chinamo said.

“Several reasons could be attributed to this, including lack of confidence in Zimbabwean dollar securities and assets, self-management of assets, and lack of marketing and development by market players.”

Van Hoogstraten said that while currency changes have not largely affected foreign investors, local investors and employees have been somewhat harmed over the years.

He said corruption and incompetence are currently the biggest threats to investors.

“Currency has a different impact on local people compared to people like me, whose capital and income comes from relatively stable investments and assets in developed economies,” van Hoogstraten said.

“Generally, the different monetary values ​​in Zimbabwe do not change the real values ​​of assets, but a weak local currency erodes the savings and wages of the local people – those same people whose wages and hard-earned savings should be protected. by the state.

“The state must crack down harder on the twin plagues of corruption and incompetence before we can have a stable currency.”

After a decade of hyperinflation, in 2009 Zimbabwe adopted a multiple currency regime dominated by the US dollar.

The Treasury assured the market that the multiple currency regime would remain until the fundamentals of a local currency are correct.

But that promise was broken in 2016 when the country introduced bonds, which were at par with the US dollar before officially introducing a local currency in 2019, even when reserves were still low. – The standard