- The VFEX or Victoria Falls Stock Exchange is Zimbabwe’s exclusively United States dollar only stock market which was launched 3 years ago.
- The Zimbabwe Stock Exchange or ZSE’s main board has been shrinking because of companies migrating to the VFEX.
- Companies in Zimbabwe constantly experience a shortage of foreign exchange to support their increasingly import reliant businesses.
The number of companies that are delisting from the main board of the Zimbabwe Stock Exchange, often known as the ZSE, and moving their operations to the ZSE’s hard currency equivalent, the Victoria Falls Stock Exchange (VFEX), has been growing. When the central bank eliminated the favorable foreign exchange retention levels that had been the primary draw of the VFEX, it is anticipated that the outflow from the ZSE will slow down in 2023. This comes after the central bank eliminated the foreign exchange retention thresholds.
Is Victoria Falls Stock Exchange capital market innovation or regulatory haven?
- Companies were leaving the ZSE in large numbers to take advantage of the concessions and favorable foreign exchange retentions from listing on the VFEX.
- The central bank, the Reserve Bank of Zimbabwe has scrapped these benefits and placed uniform foreign exchange retentions across all sectors of the Zimbabwe economy.
- This decision by the central bank will be a major disincentive and deterrent from companies looking to list on the hard currency bourse.
- The central bank announced this latest policy position through its monetary policy statement which is announced last month.
- Prior to this announcement by the RBZ, the VFEX had begun to experience a listings boom, even floating the country’s first ever hard currency corporate bond.
VFEX sees listings uptick after initial slow start
The Victoria Falls Stock Exchange (VFEX) was starting to give off an impression that was almost too good to be true. ZSE-listed companies began announcing almost on a monthly basis in 2022 that they would be delisting from the local currency bourse in favour of the hard currency sibling of the ZSE, which had only been around for three years. This was a sign that the hard currency only bourse in Zimbabwe was beginning to take off. The announcement made by the country’s finance minister that companies that listed on the ZSE would keep a greater portion of the foreign exchange earnings produced from exports was the catalyst for the mass departure of companies from the ZSE. Companies that accepted the offer from the government and flocked into the newly created stock market, which was and still is rarely liquid, did so because the allure of being able to keep more of their foreign cash was too much of a temptation for them to pass up. According to the most recent monetary policy statement released by the governor of the Reserve Bank of Zimbabwe, all of this is about to undergo a significant transformation. The policy paper that was issued at the beginning of February eliminated the potential benefits that would have accrued to VFEX-listed firms as a result of the standardization of all foreign exchange retentions.
This action has resulted in a significant amount of unease among members of the business community. Tabloid newspapers in Zimbabwe, such as News Day, have referred to the most recent policy position as a “change in goal posts” by the government. Unfortunately, the government has developed a reputation for being inconsistent in its policymaking.
Unlocking Success in Zimbabwe: 3 Key Business Strategies
When it comes to gaining a knowledge of how business is conducted in Zimbabwe, there are three factors that need to be kept in mind. The first issue is that the nation has a multi-currency system, which, according to Mthuli Ncube, the country’s finance minister and an Oxford-trained economist, places the Zimbabwe dollar as the primary currency, with the other currencies serving as secondary options. The assertion made by the head of the Treasury Department has been thoroughly refuted in the most recent monetary policy statement, which was just issued. According to the policy document, monetary transactions in the Zimbabwean economy are reportedly settled in hard cash seventy percent of the time. Businesses, on the other hand, are experiencing a severe shortage of hard currency capital, and as a result, they are searching for ways and means to raise the aforementioned money in hard currency. Also, businesses are working to maintain their operations by preserving the financial resources they have in the form of hard cash.
Simbisa Brands to switch listings from Zimbabwe Stock Exchange to VFEX
The mandatory foreign exchange retention and surrender requirements were put in place by the government as a means of allocating scarce foreign exchange to households and firms that need it. The second thing that foreign investors need to appreciate about doing business in Zimbabwe is that the government has put these requirements in place. Since they were first adopted, these retentions have gone through several different proportional iterations, ranging from 80:20 to 60:40 to their current state of 75:25. Under the current official exchange rate, a Zimbabwean-based company must hand over 25 cents of every dollar it earns in order to convert it into U.S. currency and submit it to the central bank. Foreign exchange retentions and surrender requirements have been a particular source of frustration for exporting enterprises, who have bemoaned the negative impact that these regulations have had on their operations. According to reports, a large number of corporations and businesses have approached the central bank in an effort to obtain exemption from the surrender obligations and/or more favorable returns, citing the negative impact that was mentioned before. It is anyone’s judgment as to whether or not these pleadings were met with cooperation from the other party.
And finally, the fact that there are two stock markets to choose from is the third positive aspect of conducting business in Zimbabwe.
