The failure by the Victoria Falls Stock Exchange (VFEX) to attract more listings almost seven months after its launch is a major concern to Zimbabwe’s investment appeal.
More so when one looks at the prospects of a quick post-COVID-19 pandemic recovery were the need for fresh capital is crucial to stimulate the economy.
The idea to turn the resort city of Victoria Falls into an offshore financial center in the regional was noble, but there is plenty of unfinished business to solve before this vision becomes a reality.
To date, only SeedCo International Limited is listed on the secondary bourse.
Now government is desperate to come up with sweeteners to make the bourse more attractive at a time foreign investors have significantly reduced their portfolios locally.
This week, Finance and Economic Minister Mthuli Ncube announced some incremental incentives for investors in a desperate bid to make the VFEX attractive.
The Ministry said exporting companies listed on the VFEX can now retain 100 percent of their export earnings from previous 60 percent in order to prop up productivity.
Perhaps this has been one of the reasons why there haven’t been as many investors willing to do business with Zimbabwe.
It leaves the rest of the exporting companies not under the VFEX or the special economic zones retaining 80 percent of foreign currency yet these same entities operate in an economy that has almost entirely dollarized.
Among other incentives being offered to investors that participate in VFEX is a 5 percent dividend withholding tax, exemption from capital gains withholding tax, minimal currency risk and ability to move capital and dividends in and out freely.
But it remains to be confirmed whether some of these promises are practical given the scarcity of foreign currency in local banks.
According to an economic expert, Victor Bhoroma in his weekly briefing, failure to guarantee companies their total forex earnings and repatriation of profits in the currency of choice scares investors.
“Several foreign investors have significantly reduced their portfolios locally while others have divested totally. Multinational corporations operating in the country have found it difficult to repatriate dividends to their foreign shareholders or settle foreign obligations in the last 3 years,”
“To attract investment in state entities, investors need guarantees that they will be able to repatriate their dividends through formal banking channels and exit the market (if necessary) without regulatory bottlenecks,” wrote Bhoroma.
Previously government has stated that it is targeting mining companies to list on the VFEX since they are the greatest need of foreign currency, and the response by players in the extractive industry has been somewhat lukewarm.
But the reasons for this negative perception of the country by external investors is self-inflicted and to a large extent historical.
“The country is still regarded as a risky and hostile investment destination with most foreign investors pessimistic about the country’s ability to uphold investor property rights and respect the rule of law. Similarly, the independence of the country’s judiciary has been questioned on several occasions when the government muscled its way into private property through cancelling licenses or tenders, seizing assets and parceling awarded mining permits to controversial investors despite pending court orders,” Bhoromo stated.
The political interference in the suspension of the country’s stock exchange market and unprocedural delisting of multinational companies in June 2020 all but confirmed the investor fears.
To date, Old Mutual and PPC – two of the three suspended entities from the ZSE- are yet to list on the VFEX despite promises that they would list.
Corruption allegations are rife and there seem to be little or no action taken to reign in on the scourge with some politically connected individuals and entities seemingly walking free after having been heavily identified massive corrupt scandals.
