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Harare – International investors willing to ride the current risk of uncertainty in Zimbabwe will likely capitalise on attractive interest rates and higher yields owing to the easing of exchange control regulations for equity investors as well as the continued use of the US dollar, according to an expert.
Zimbabwean central bank governor John Mangudya recently announced a relaxation of exchange control regulations for international investors on the Zimbabwe Stock Exchange. The relaxation is part of the government's efforts to speedily attract foreign direct investments into the country.
Investment inflows into Zimbabwe have taken a knock, with officials saying the number has nearly halved in the first half of the current year compared to 2013. The government is now scrambling for a way out of the country’s biting economic situation which has seen companies shut down.
On Monday, officials from the reserve bank and ministers from the mining and finance portfolios held high-level discussions to find ways of creating new revenue streams.
They also looked at how to set the stage to revive the economy, said Deputy Mines and Mining Development Minister Fred Moyo.
A reduction of mining royalties for platinum was among the topics discussed.
John Legat, the manager for Imara's Zimbabwe Fund, said on Tuesday that yield-seeking investors prepared to take additional risks could find opportunities in Zimbabwe.
Most international investors have been waiting by the sidelines, hoping for an improvement in the business operating environment.
“For yield-seeking investors prepared to take additional risk, such rates could be of great interest on a risk-adjusted basis. The stock exchange is keen to promote a bond market for both government and corporate bonds and this will assist them greatly, especially as foreign investors have lately dominated trade in the equity market,” he said.
Turnover on the Zimbabwean equities exchange declined by 6.4% to $125.6m during the third quarter to the end of September. Participation by foreign investors tumbled by 48% during the period, compared to a 50% decline for the same period last year.
Legat added that “interest rates in US dollars are extremely attractive in Zimbabwe” because of the continued usage of multiple currencies backed by the greenback. Foreign investors holding money market instruments no longer have to adhere to strict exchange regulations.
“Previously, foreigner investors could only acquire up to 35% of any bond issue and were not able to buy any bonds in the secondary market at all,” he said.
The reserve bank governor said in his monetary policy statement last month that the country would continue using the multiple currency regime, under which the major regional and international currencies, including the rand, yen, yuan and Australian dollar among others, are accepted as legal tender.
Despite the exposure to opportunities for international investors willing to brave the chill of current difficulties, the Fraser Institute placed Zimbabwe among the 10 lowest-ranked countries in its Economic Freedom of the World report released on Tuesday. Other countries that had low rankings include the Democratic Republic of Congo, Burundi, Chad and Algeria.
- Fin24
