Zimbabwe may offer insurance to investors in new stock market

Zimbabwe shut down its stock market and then ejected the continent’s oldest insurer from the bourse. Now it’s hoping to entice investors to a new exchange with a plan to package equity purchases with political-risk cover.

Justin Bgoni, who is setting up the foreign-currency-only market at the iconic Victoria Falls near the Zambian border, knows it’s a tough sell. As chief executive officer of the Zimbabwe Stock Exchange, he had to deal with trader and investor complaints after the government suspended dealing for five weeks. Trading resumed on the existing exchange on Monday.

“There’s no doubt about it, the closure of the Zimbabwe Stock Exchange makes it difficult,” he said in interview from Harare, the capital. “We’re trying to see whether we can get a country-insurance product for the exchange to mitigate the risk.”

The stock market has become a haven for savers seeking to outrun inflation of more than 700%. But, with the economy imploding, the ruling party blamed Old Mutual for contributing to a plunge in the Zimbabwean dollar, and ordered its removal from the bourse.

Differences between the 175-year-old insurer’s share prices in London, Johannesburg and Harare were being used by local businesses to calculate a future rate for the domestic currency. As part of the deal to reopen the Zimbabwe Stock Exchange, Old Mutual and two other companies with multiple listings had to agree to move to the Victoria Falls bourse.

The aim of allowing dealing only in foreign currency on the new exchange is to address two of the biggest concerns of investors: the weakening of the local currency and moving money in and out of the cash-starved country, Bgoni said.

“It’s to minimise exchange risk, raise capital and to ensure that clearing and settlement will be as easy as possible,” he said. It could open within weeks, but still needs to overcome concerns that the ruling party may again force the government to make changes to its capital markets.

The exchange is in talks to find insurance that will cater for policy changes that fundamentally alter the valuations of companies, Bgoni said, declining to identify the international providers. It is still working on the finer details of how the cover could work.

Government support

The government is getting behind the plans for the new exchange, which has been in the making for almost a year, the CEO said. Finance Minister Mthuli Ncube in July offered tax breaks to companies as an incentive for listing on the bourse.

Authorities do not have ambitious targets for new listings. They are content with one or two by the end of the year amid the fallout from the Covid-19 pandemic, with a more aggressive push in 2021. Even before the onset of the virus, there was a dearth of listings, with the last initial public offering in 2016.

“We want to attract investors who understand the country risk and understand what they are getting themselves into,” Bgoni said.

© 2020 Bloomberg