The AXiS XLVII

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Far right victory
a blow to Africa

#Issue: XLVII

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CONTENTS The AXiS XLVII 30 September 2022

The Cover Economic News & Analysis

A far-right political coalition has won the 4 The changing global order The rise of nationalism and its implications on Africa
snap election in Italy forming the first 6 Mthuli’s Economic Engineering : The erratic run to elections
far-right government in Italy since the 7 ZSE In Strong Rebound The impact of sweeping hpolicies the economic landscape
second world war. The coalition leader, 9 Credence to Putinh : What to expect from the Russia-Africa Summit
Giorgia Meloni, who is set to become Italy’s 10 The road to nomalcy: Will oil prices recover?
Prime Minister, leads a party which descends
from Benito Mussolini’s fascist party. Benito 12 High time for a green transition: As power crunch sabotages business activity
Mussolini is a World War II Italian political
leader who was Prime Minister from 1922 to 13 Sub Saharian’s energy transformation : Public Debt remains a major implement
1943
Guest Column
MPS Review
14 Prolonged load shedding :Risks reversing hrecent disinflationary trend
Although the MPC continues to express
satisfaction with the “positive impact” of the Economic Research
recent policy measures, we remain cautious
in our analysis of the general trajectory of 15 External Trade Monthly Update
the economy over the next couple of 16 Inflation Update
17 Auction Markert Weekly Review
months. .
Business News and Insights
Mthuli’s economic engineering
18 Proplastics Limited : Speaks on Zim’s bleak economic arena while authorities talk of stability
Over the years, the Minister has experiment- 19 Padenga Holdings Limited : Bounces back to profitability in HY1’2022
ed with a lot of strategies, trying to bring 20 Rainbow Tourism Group : Optimistic about prospects in the tourism industry
order to the currency market which has
been in chaos since de-dollarization. These Markets
strategies include command economic
activities like the infamous exchange rate 22 Markets Watch
fixation at par with the United States Dollar 24 Weekly Commodities Pulse
(US$). 25 ZSE Weekly
26 Financial Markets At a Glance
Proplastics Limited : Speaks on
Zim’s bleak economic arena while World News
authorities talk of stability
27|29 Business & Politics around the world
In a statement accompanying its half-year
financials for the period ended 30 June
2022, the Group said there was nothing
good achieved by the nation as far as
improving the economic environment is
concerned.

ZSE ASI 10,528.45 ZSE TOP 10 5,904.31 MEDIUM CAP INDEX 25,397.48 ZSE TOP 15 6,664.93 SMALL CAP INDEX 446,804.28 ZWL INTERBANK 614.1789
11,629.65 6,690.83 26,741.87 7,537.46 471,763.41 614.2677
12,584.17 7,415.12 27,576.97 8,279.40 487,763.98 614.6237
13,825.66 8,342.15 28,814.98 9,268.58 494,218.03 618.3696
15,023.86 9,303.37 29,499.17 10,240.54 489,213.56 621.6240
14,937.06 9,244.10 29,374.00 10,168.74 485,956.68 621.8788
41.87% 56.57% 15.66% 52.57% 8.76% 1.25%

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The AXiS XLVII Friday 30 Sept 2022 4

The changing global order

The rise of nationalism and its implications on Africa

Afar-right political coalition has won the time and neoliberalism was posited as the domi- globalisation have every justification to defend the
snap election in Italy forming the first nant globalism endowing the concept of globaliza- status quo given the advancements in their per-
far-right government in Italy since the tion with market-oriented norms and values, influ- sonal economic fortunes and positioning in the
second world war. The coalition leader, Giorgia encing culture and presenting globalization as a World Order. This is not to say that the rest of
Meloni, who is set to become Italy’s Prime natural economic phenomenon whose essential the world has no benefit in the present order, but
Minister, leads a party which descends from qualities are the liberalization and integration of naturally, any order disrupted is likely to give
Benito Mussolini’s fascist party. Benito Mussoli- global markets and the reduction of government birth to a new order which may see the rise of
ni is a World War II Italian political leader who interference in the economy. The major goals of a new order and with it, new world powers. From
was Prime Minister from 1922 to 1943. He is globalization shadowed liberal internationalism an African perspective, this reordering is not in
known as the principal founder of fascism and which is an international understanding and any way likely to improve its bargain or econom-
a dictator, Hitler’s ally and a nationalist turned collaboration on free trade, interventionism, world ic share on the global scene. If globalization,
socialist. Giorgia’s win in Italy is paramount peace, and the promotion of democracy and whose tenets include democracy, is rejected, the
because it brings back to the fore, the paradigm justice. emerging order may weaken democracy giving
of a rising tide in nationalist politics and popu- With the election of Trump to the Whitehouse credence to political models of nations such as
lism across the world and its potential in and Brexit, the ‘hard’ exit of Britain from the EU China and Russia. As these become the political
appending the world order as we have known under newly elected Prime Minister Boris John- campus, their power may be maximized by creat-
it for almost a century now. These geopolitical son, liberal internationalism has been questioned, ing allies in marginalized states in Africa, whose
dynamics have multiple consequences on cut back and rearranged. Internationalism is on leaders are largely willing to sacrifice freedom for
Sub-Saharan Africa, which on one front pre- the back foot in all its forms as the liberal world power. Marginal economic concessions may also
dominantly supplies raw materials in the form order is being turned upside down by a systematic be structured to solidify this union resulting in a
of unprocessed metals, agriculture exports and attack of core liberal values including an attack complete tilt in power towards China and Russia.
labour and on the other is largely a former on open global trade, the prosecution of trade-tech For the proponents of democracy in Africa, the
colony continent with dysfunctional government wars, the increase of anti-democratic practices and outcome is largely unfavourable given the devel-
and steep poverty, which inspires migration. deliberate electoral interference, the cancellation opments of the post-colonial era. There is a direct
These factors if digressed bring to the fore a of anti-nuclear and other non-proliferation agree- link between the economic fortunes of African
number of possible implications and outcomes ments, repudiation of asylum and protection of countries and their respective levels of democracy.
in the context of Africa, in a new world order refugees, and the growth of anti-globalization. Undemocratic countries have largely seen govern-
inspired by rising nationalism. Nationalism is an Authoritarian populism and ‘big man’ politics ments that are unaccountable to their citizens and
idea and movement that holds that the nation have encouraged forms of racism and white this led to massive corruption levels and underde-
should be congruent with the state. As a move- supremacy and a return to the closed society with velopment of respective economies. However, this
ment, nationalism tends to promote the interests an emphasis on border security. does not also mean that all the basic precepts of
of a particular nation ahead of that of a collec- globalization favour African countries. The lack
tive region or broader global sphere. In the Closer perspective of industrial investments has meant that most
context of Africa, nationalism is seen as a pre- commodities are exported at lower values thus
cursor of decolonization leading to a possible In Europe, far-right political parties, who are typi- limiting gross national product.
unification of African states, the latter of which cally nationalists are gaining traction as evidenced Again, this is a debatable matter as it calls to
is yet to consummate. Nationalist leaders such by the election of Meloni in Italy, highlighted question whether investee companies should dip
as Kwame Nkrumah and Julius Nyerere are above. Her vote increased from just 4% in the beyond the levels that they are capable of or be
seen as forefathers of nationalism in Africa. last election to 26% (majority) in the latest elec- prepared to just to value add. Perhaps those com-
The progress of nationalism in Asia and Africa tion. In France, far-right persistent Presidential panies or government which finds value in value
is reflected in the histories of the League of contender Marie Le Penn, recently lost to incum- addition should empower local companies to
Nations after World War I and of the United bent Macron by a narrower margin of 17% per- exploit the opportunity if indeed it is an opportu-
Nations after World War II. The Treaty of Ver- cent from 34% in the last election. In Sweden, nity. All the same, history has shown globaliza-
sailles, which provided for the constitution of victory for the right came after strong support for tion has increased trade and with it economic
the League of Nations, also reduced the empires the Sweden Democrats, a once-fringe anti-immi- integration and growth but also took away
of the defeated Central Powers, mainly Germa- grant party that is now the second-largest party in elements of sovereignty. Redressing these short-
ny and Turkey. The league distributed Germa- the legislature and the strongest voice from the right. comings is not best achieved through appending
ny’s African colonies as mandates to Great These are all examples of a rising tide of national- or replacing the entire system, but by isolating
Britain, France, Belgium, and South Africa and ism and populism across Europe and their increasing elements, to best address different stakeholder
its Pacific possessions to Japan, Australia, and odds to assumption of government power. Donald concerns including Africa and citizens of the
New Zealand under various classifications Trump's electoral win in the USA typifies the epito- respective countries tired of the prevailing order.
according to their expectations of achieving me of the nationalist movement across the globe. The primary value proposition of any system is
independence. its sustainability as well as value maximization.
Zimbabwe’s long-serving President, Robert What is next? The latter is best appreciated through growth per
Mugabe, was also seen as a nationalist leader capita GDP or average incomes, which in effect
in the run-up to Zimbabwe’s liberation in 1980. The shifting geopolitical developments coupled have been dwindling due to economic volatility
On the European front, nationalism has long with the explosive war between Russia and over the last two decades.
been a common feature since the 16th century Ukraine are primarily a huge threat to the present
but appeared to wane in Europe after World global order. It is common that the proponents of
War II with the establishment of international
economic, military, and political organizations
such as NATO, the European Coal and Steel
Community (1952–2002), Euratom, and the
Common Market, later known as the European
Economic Community and then as the European
Community. But the policies pursued by France
under Pres.

Charles de Gaulle and the problem posed by
the division of Germany until 1990 showed that
the appeal of the nation-state was still very
much alive. In short, nationalism catalysed
prospects for war and geopolitical tensions in
Europe while influencing revolutions and the
quest for independence for Africa. Post World
War II, globalization took centre stage becom-
ing the most dominant political ideology of our

& Analysis

Latest MPC sitting Review
The Gold Fix continues
On the 23rd of September, the Monetary unfavourable environment under-which our com-
Policy Committee of the Reserve Bank of coins as an alternative investment product to panies operate. Yet, the retreating of the
Zimbabwe (the Bank) met to discuss the holding US$. A total of 9516 gold coins valued black-market exchange rate has prompted some
macroeconomic and financial developments in the at ZW$9 billion had been sold as at 23 Septem- manufacturers and retailers to cut prices in a bid
economy and their implications on monetary ber 2022, with 35% having been sold to individ- to clear stock. Informal traders use the parallel
policy, particularly, the introduction of the Mo- uals and 65% to corporates, including asset man- market rate and the official rate parallel market
si-oa-tunya gold coins. agement and insurance entities”. rate, while banks quote the official rates. As
Although the MPC continues to express satisfac- Towards the end of June 2022, the RBZ Zimbabwe has struggled with generating suffi-
tion with the “positive impact” of the recent announced that it was introducing gold coins as cient foreign exchange, there have been nagging
policy measures, we remain cautious in our anal- an alternative investment. The apex bank and persistent shortages of hard currency. Busi-
ysis of the general trajectory of the economy announced that the gold coins would be tradable nesses and individuals frustrated with being
over the next couple of months. Primarily, the and would have prescribed asset status as one of unable to acquire forex needed to restock their
gold coins were not a solitary monetary policy their many features. The prescribed asset status businesses have often resorted to obtaining
measure rather, they were also anchored by the of the gold coins is meant to make the unprece- foreign exchange from the parallel market where
treasury’s suspension of payments to contractors dented investment appealing to institutions like the exchange rates are higher. The government
by government, which accounts for the largest banks, insurance companies and pension funds outlawed the use of the parallel market in the
chunk of spending in the economy. Upon resump- because they hold these coins to meet capital formal sector for the pricing of goods and
tion, liquidity will be injected back into the econ- requirements prescribed by their respective regu- services. Generally, companies operating in the
omy, potentially pushing the parallel market rate lators. The introduction of the gold coins has formal sector are compelled by law to price their
up as the operating environment remains primari- largely achieved its primary objective to mop up goods and services at the official rate, which is
ly informal. excess liquidity, creating an alternative investment below the prevailing parallel market rate, albeit
Notwithstanding, these policy measures have been or store of value to greenback. Essentially, in the decreasing disparity. This makes paying for
critical in stabilising the exchange rate and taper- concert with the other measures announced and goods and services in the formal sector more
ing inflation in the last month. Month-on-month implemented by the government, the gold coins expensive in hard currency.
inflation pared from 12.4% in August 2022 to can be touted a success.
3.47% in September 2022, a significant win in However, 1500 gold coins were sold in the first Resolutions
the inflation fight and one that we expected to week alone, signalling the market’s thirst for a
inform the MPC’s monetary stance this month. genuine investment avenue. Sine that first week, • To maintain the Bank policy rate and
The decline in month-on-month inflation has in the coins haven’t necessarily maintained that sale medium-term lending rate at current levels of
turn resulted in the decline in annual inflation to route. There are only so many banks, insurance 200% and 100%, respectively, until durable
280.4% in September 2022, down from 285.1% companies and funds that can purchase the coins stability, measured by a sustained decline in
in August 2022. almost instantaneously, considering that one coin month-on-month inflation to desired levels of less
In the period under review, food and non-alcohol- cost between US$1700 and US$1800. The real than 5%, is attained.
ic beverages inflation rate stood at 1.7% in Sep- opportunity lies within the general populous, As expected, to further the fight for stability,
tember 2022, shedding 12.5 percentage points on which is starved of stores of value. The RBZ has against speculation and the insatiable thirst for
the August 2022 rate of 14.2%. Whereas, the announced its intentions to introduce lower the greenback, the RBZ has since maintained the
month-on-month non food inflation rate stood at denomination gold coins to enable the participa- benchmark rate at 200% over the past three
5.2%, shedding 5.4 percentage points. tion of ordinary citizens. The smaller gold coins months, furthering the pause following the latest
Last week, Finance and Economic Development are expected to be introduced in mid-November sitting. As headline inflation seems to have taken
Minister Professor Mthuli Ncube said he expects this year. a turn, we expect that the bank has already
inflation to rise in the near term whilst the MPC Further, since the introduction of the gold coins, front-loaded any rate hikes anticipated in the
in its latest sitting said, “As previously advised, there has been a marked decline in the combined short-term against the backdrop of sweeping mea-
it was expected that the month-on-month inflation value of the Zimbabwe Stock Exchange from sures to curb soaring inflation, including the gold
would progressively decline, while annual infla- around US$ 6 billion to US$ 8 billion to around coins and suspension of payments to government
tion was expected to continue rising to reach an US$ 2 billion currently. The market has been contractors which has seen the exchange rate
annual peak in September 2022 due to the lower characterized by a mass sell-off by institutional stabilize while Russia's invasion of Ukraine con-
base effect in 2021”. investors desirous of holding gold coins instead tinues driving global commodity prices up.
However, as stated above, the exchange stabilisa- of the capital market. The sell-off has hurt • to further liberalise the foreign exchange
tion is also a function of the payment suspen- long-term investors on the ZSE who have seen market by increasing the maximum amount that
sions, which may undercut the positive trajectory the value of their holdings disappear. entities can purchase from banks for bona fide
expected in the near term, hence the need for a foreign payments under the willing-buyer will-
vigilant approach to monetary and fiscal policy Cinotenrvbearngeknecxechoaf ntghee rpaatersallel market and ing-seller system from the current level of
going forward. US$20,000 to US$100,000 per week per entity.
Inflation in Zimbabwe has mainly been driven by
excess money supply, proliferated by government Conclusion
and the preference by individuals and businesses
to hold and transact the United States dollar over “The Committee also expressed satisfaction with Going forward, the MPC expects that a combina-
the local currency. The tight monetary policy the progress registered with regard to the conver- tion of the current tight monetary policy, contin-
stance has had an adverse effect on the economy, gence of the parallel market and willing-buyer ued use of gold coins, foreign exchange auction
which is projected to slow down in terms of willing-seller foreign exchange rates. The foreign system, insistence of value for money by Gov-
growth. The government believes growth will be exchange rate premium has significantly declined ernment in its procurement processes and practic-
around 5%, whereas we have projected the from an elevated level of 140% in May 2022 to es, close monitoring of possible occurrence of
growth to be in the 3% region. current levels of between 5% and 15%, which wage-push inflation and effective monitoring and
Although the persisting policy environment has- isconsistent with regional and international norms. enforcement by the Financial Intelligence Unit
temporarily subdued or slowed down inflation, it This positive development on the exchange rate will sustainably anchor exchange rate expecta-
has not addressed the fundamental issues around front is envisaged to go a long way in eliminat- tions, thus limiting the exchange rate
external trade, debt and capital accounts. ing arbitrage opportunities which were fuelling pass-through to inflation. The strategies of the
forward pricing models and hence fomenting government to mitigate the inflation problem can
The Gold Fix: Update adverse inflation and exchange rate expectations”. be reasonably characterized as scorched earth
As we move towards convergence or near con- policies, deliberately designed to inspire ballistic
“The Committee noted, with satisfaction, the vergence to ensure the stability of prices and the reactions from the market. However, the last
improved market confidence and uptake of gold exchange rate, as well as the value of the local round of measures has been instrumental in
unit we expect the diminishing of arbitrage honing the current market stability. Further, the
opportunities. According to Dr Mangudya these ball is still in the air, and the jury is still out as
were “fuelling forward pricing models, hence to what could happen if holders of gold coins
fomenting adverse inflation and exchange rate decide to sell and deploy their funds elsewhere,
expectations”. In last week’s issue, we delved possibly even the black market if the exchange
into the cat and mouse antics between govern- rate rises following the resumption of payments.
ment and the private sector, highlighting the

6 The AXiS XLVII Friday 30 Sept 2022

Mthuli’s Economic Engineering

The erratic run-up to elections
Develop alternatives, focus on the differ-
ences, have a consistent viewpoint, use less time in his hands amid hearing a “tik-tok” sound
a common unit of measure, consider all towards elections, the Minister of Finance in conjunc-
tion with the Central Bank governor, John Mangudya,
relevant criteria, make uncertainty explicit and and the government at large, coined some controver-
revisit your decisions are the key principles sial measures which have recently received praises
Mthuli Ncube, the Finance Minister of Zimba- from some quarters of the world, including the Afri-
bwe, has strictly adhered to in his tenure. The can Union.
Minister joined office in 2018 when the coun-
try’s local currency, among other economic Realising that Zimbabwe is just a year away from the to stock markets. A diaspora bond is a gov-
pillars, was already on the verge of collapsing. next presidential elections, Mthuli Ncube stopped ernment debt security, according to the Migra-
His main port of call was to ensure value and experimentations with economic models and intro- tion Policy Institute, with investors drawn
demand for the local currency, and four years duced result-oriented models in a bid to ‘campaign by from the nation's citizens residing abroad,
later, this remains his core plot. results’. The first quarter of 2022 was characterized their descendants, or those with other connec-
Over the years, the Minister has experimented by rampant inflation and a continuation of the overall tions to the country. The bonds are set to be
with a lot of strategies, trying to bring order economic trajectory stretching from 2021. In the launched later this year. However, the govern-
to the currency market which has been in second quarter of the year, with less time in his
chaos since de-dollarization. These strategies hands amid hearing a “tik-tok” sound towards elec- ment has a history of coining
include command economic activities like the tions, the Minister of Finance in conjunction with the strategies aimed at siphoning
infamous exchange rate fixation at par with Central Bank governor, John Mangudya, and the gov- money from the public to
the United States Dollar (US$). ernment at large, coined some controversial measures fund government expenditure
The introduction of the interbank before coming up with ways
market and the Reuters Auction of “getting away with the
System also came into play as murder”. When Gold Coins
the government was trying every were issued, sceptics raised
avenue that would eliminate the questions on how the govern-
existence of the parallel currency ment will afford to pay out
market and thus bring order to investors at the point of liqui-
the economy. However, as the dation as the first batch of
economy of Zimbabwe remains the coins will be liquidated in
highly informalized, parallel eco- November of this year. With
nomic activities will always pre- the introduction of the diaspo-
vail in every sector. When the ra bond, the government can
Minister of Finance joined office afford to set off the liquida-
in 2018, a new government had tion of Gold Coins as most
just been ushered into office, investors are anticipating
marking a second dispensation. liquidating in foreign currency
With high hopes placed on the according to speculation.
new dispensation, the ministry of However, if the current
finance had a significant role to liquidity position in the coun-
play in maintaining the confi- try is maintained, we expect
dence and high hopes in the to see a significant chunk
generality, lest the government
would risk tarnishing its image.

As the term of office is almost running out, which have recently received praises from some opting to liquidate the coins in local currency.
the mission can be hypothetically declared: quarters of the world, including the African Union. As highlighted in the first paragraph, the gov-
Failed! The Central Bank suspended borrowing to curb ernment has developed alternatives to achieve
According to research by RNB Global Univer- speculative borrowing which was followed by a hike its goal of stabilizing the currency as shown
sity, Zimbabwe ranked third saddest country in in borrowing costs to a whopping 200%. The gov- in the body. Mthuli has also maintained a con-
the world, despite the research noting that the ernment later suspended payments to government sistent viewpoint since his first day in office.
saddest countries in the world or those that contractors in a bid to pin down liquidity. These This stems from the belief that potential
rank low on the happiness index might not be measures, among others, have aided in stabilizing results of options, whether economic or other-
the worst place to live, taking Zimbabwe as the exchange rate in the country. The parallel wise, should be constructed consistently from
an example that while it ranks third saddest exchange rate has been stable for close to 3-months a predetermined point of view (perspective).
country, the nation is peaceful. The reasons now while the formal exchange rate took the oppor- Owner's point of view is frequently the deci-
behind the low happiness scores of the saddest tunity to retrace market-determined value. This has sion maker's perspective.The outlook for engi-
countries in the world were low per capita reduced the premium between the two markets to neering projects' success can be viewed from
GDP, low life expectancy, insufficient public around 20% from over 100%. a variety of angles. Mthuli’s viewpoint
healthcare facilities, lack of freedom of choice In their majestic strategies, Mthuli Ncube and John remains to stabilize the currency and hence-
in social and political space and high levels Mangudya introduced Gold Coins in June to aid in forth stabilize the economy as a ripple effect.
of corruption. Other hypotheses to suggest the mopping up local currency liquidity. According to His obsession with this viewpoint has, howev-
failed mission of the government in keeping the Central Bank, an aggregate of 9,516 Mo- er, attracted critics locally and abroad, with
hopes high include the high rates of migration si-Oa-tunya Gold Coins have been sold since the the International Monetary Fund alluding that
by Zimbabweans in search of a bare minimum introduction. These are valued at a cumulative focusing on monetary policy alone cannot
lifestyle in other countries along with with- ZWL$9 billion in total. About 35% of the coins result in an overall positive economic outlook.
drawals by most corporates including Standard were bought by individuals, summing up to The macroeconomy has several fundamentals
Chartered Bank which left Zimbabwe in 2022 ZWL$3.15 billion. The remaining 65% has been and pillars that need equal attention as that is
after 130 years of operating in the country. reportedly bought by corporates, including asset siphoned towards the monetary policy as is
Low confidence has also been seen in finan- managers and insurance companies. A vast majority the case in Zimbabwe.
cial markets, with the Victoria Falls Exchange of the coins traded so far were purchased in local With production remaining low while compa-
failing to attract significant activity and currency, thereby mopping up liquidity from circula- nies continue to close, tightening the monetary
listings since its inception while the Zimbabwe tion to the coffers of the Reserve Bank of Zimba- policy can prove toxic to productivity as capi-
Stock Exchange (ZSE) has been hit by a bwe (RBZ).In addition to the Gold Coins, recently, tal for operations and expansions will be
bloodbath that stretched to 5-months following at a side meeting with investors at the United scarce. Due to the rampant loss of the Zimba-
controversial and unfavourable policies by the Nations General Assembly 77th session in New bwe currency, as the US$ has appreciated by
government, particularly the Central Bank. York, the Zimbabwean government announced over 300% against the local unit since the
Realising that Zimbabwe is just a year away through President E. Mnangagwa and his Finance beginning of the year, imports have become
from the next presidential elections, Mthuli Minister, Mthuli Ncube, that Zimbabwe is set to very expensive relative to local goods and
Ncube stopped experimentations with econom- introduce a diaspora bond for Zimbabweans overseas disposable incomes. This has led to people
ic models and introduced result-oriented as it seeks to raise investment levels in the country. settling for low-quality local products with
models in a bid to ‘campaign by results’. The A bond is a type of security under which the issuer less variety in a bid to survive. Resultantly,
first quarter of 2022 was characterized by owes the holder a debt, and is obliged – dependin- the country’s balance of trade has lately sailed
rampant inflation and a continuation of the gon the terms – to repay the principal of the bond in the positive. However, this positive balance
overall economic trajectory stretching from at the maturity date as well as interest over a speci- is somehow counterintuitive as it comes at the
2021. In the second quarter of the year, with fied amount of time. The bond market is one other expense of the welfare of citizens.
e African Union. viable and active financial market in Zimbabwe, next

The AXiS XLVII Friday 30 Sept 2022 7

ZSE In Strong Rebound

The impact of sweeping policies

T he Zimbabwe Stock Exchange is one of the The Zimbabwe Stock also exacerbated by the rampant inflation and
most active bourses in Africa. In 2020 and Exchange is one of the exchange rate losses, with inflation reaching
2021, the stock market emerged as the best most active bourses in 285% in August while the US$ had appreciated
performing in Africa, surging 1046% and 311% Africa. In 2020 and by over 300% against the ZWL on both the
respectively in nominal terms. In US$ terms, the 2021, the stock market formal and informal currency markets.Since April
ZSE grew approximately 500% in 2020 and over emerged as the best per- of this year, the ZSE has plunged by -51.30% in
100% in 2021, which is also the best in the forming in Africa, surg- nominal terms. The bourse reached a market capi-
world. The performance was induced by rampant ing 1046% and 311% talization of US$23.5 billion in April and dwin-
inflation along with Covid-19 lockdowns which respectively in nominal dled to US$1.83 billion in early September. This
reduced economic activities globally, thereby leav- terms. In US$ terms, the was the lowest market capitalization in more than
ing economic players with fewer playgrounds for ZSE grew approximately 2-years.
their liquidity. As fewer investment options were 500% in 2020 and over Since April, the bourse has been recording some
available during the lockdowns, avid investors 100% in 2021, which is mild recoveries which would not last for three
started chasing safe haven in the stock market as also the best in the consecutive sessions. The failure of such recover-
value for the ZWL was quickly eroding. world. The performance ies was worsened by tightened liquidity in the
The inflationary pressures have stretched to the was induced by rampant economy as the Central Bank introduced measures
present day as the local currency continues to inflation along with aimed at mopping up all the excess liquidity in
lose value against other hard currencies. However, Covid-19 lockdowns which reduced economic the economy. These measures include the intro-
the bull run on ZSE has since turned into a bear activities globally, thereby leaving economic play- duction of Gold Coins as well as suspension of
run, and the market has become one of the ers with fewer playgrounds for their liquidity. As payments to government contractors alleged to be
worst-performing stock markets in the world in fewer investment options were available during involved in forward-pricing.
US$ terms. The positive trajectory was halted in the lockdowns, avid investors started chasing safe However, on the upside, the ZSE recorded a
late April. haven in the stock market as value for the ZWL significant rebound on Wednesday in the prior
While the bull run on the ZSE was fueled by was quickly eroding. week and has sustained the trajectory to date. In
speculation rather than micro-economic factors, The inflationary pressures have stretched to the the 5-days to Tuesday, the bourse has garnered
that is, company specifics, the operating environ- present day as the local currency continues to 40% in nominal gains. The recovery came as
ment posed a strong impact on the market in lose value against other hard currencies. However, investors are rushing to grab stocks at their
April. The government was under dire pressure to the bull run on ZSE has since turned into a bear record lowest prices. With most economic players,
control the runaway inflation and rampant run, and the market has become one of the individuals and corporates, becoming illiquid by
exchange rate losses and therefore decided to worst-performing stock markets in the world in the day amid Central Bank measures, some have
meddle in the stock market, which is supposedly US$ terms. The positive trajectory was halted in resorted to liquidating their portfolios in a bid to
a free market. This involved the pronouncement late April. strengthen their liquidity positions. This impacts
of some controversial policies including the While the bull run on the ZSE was fueled by supply and thus increases activity on the bourse.
increase in capital gains tax on the stock market, speculation rather than micro-economic factors, While the cycle of a stock market is
prohibition of 3rd party funding of investing that is, company specifics, the operating environ- Buy>>Sell>>Panic>>Buy and repeat, some inves-
accounts as well as suspension of borrowing, a ment posed a strong impact on the market in tors are still in panic mode and sceptical of a
move that reduced liquidity. These measures April. The government was under dire pressure to recovery to prior positive levels. In this respect,
weighed on investor confidence as the uncertainty control the runaway inflation and rampant these investors would rather liquidate the little
of further controversial policies prevailed. exchange rate losses and therefore decided to they are left with in their portfolios and hence
meddle in the stock market, which is supposedly induce supply.
a free market. This involved the pronouncement The positive outlook also comes as other nations
of some controversial policies including the and institutions, including the African Union,
increase in capital gains tax on the stock market, have hailed the recent monetary policies being
prohibition of 3rd party funding of investing implemented by the government. Since poor poli-
accounts as well as suspension of borrowing, a cies were the main trigger of the bloodbath on
move that reduced liquidity. These measures ZSE, the solution for a rebound also lies in poli-
weighed on investor confidence as the uncertainty cies. Tightening the monetary policy has resulted
of further controversial policies prevailed. in the stability of the local currency. Scarcity is
A bloodbath was immediately experienced on the a prerequisite for any currency that seeks to be
stock market in May and extended to mid-Sep- of value the world over, and the scarcity of the
tember. In that interim, the bourse reversed a official trading currency in the nation has led to
168% nominal gain recorded at the end of April more people chasing the few local units available
to a loss of -7% in mid-September. In US$ terms, in circulation, thus enhancing the value of the
the ZSE dipped from an almost 100% surge in local unit. Resultantly, inflation slowed down by
April to a loss of -85% in September. This was five percentage points in September to 280%,
from 285% recorded in August. This outlook has
invoked optimism in some financial market play-
ers, raising confidence in a stable trajectory as we
approach the 2023 presidential elections.
For the Zimbabwe Stock Exchange to reverse the
losses made since April, the All Share Index has
to grow by at least two-fold from its current
level, assuming the exchange rate remains as
stable as it has been in recent months. For almost
three months now the parallel currency market
exchange rate has sailed at a stable level while
the exchange rates on formal currency markets
(Interbank and Reuters auction system) have
sought to collide with the parallel market in a bid
to eliminate the incentive to consider the informal
market. As a result, the premium between the
formal and the informal currency markets has
been trimmed from over 100% to roughly 20%.
Going forward, we expect the ZSE to continue on
the upsurge as stocks retrace value. However, it
is important to note that one of the factors drag

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