The acute foreign currency shortage being experienced in the country is limiting the participation of foreign investors on the equities market, as it hinders the repatriation of their gains.
Zimbabwe Stock Exchange (ZSE) chief executive Justin Bgoni, indicated policy inconsistencies were also a major damper for foreign investors’ participation in the local equities.
The local bourse has recently been experiencing capital flight with foreign investors pulling out for other investment destinations or urgent projects in their own countries.
“The main concern with foreign investors is on the repatriation of dividends, and policy issues,” he said in an interview on the sidelines of a C-Trade Investor Day Conference recently.
“But investors now understand what happens in Africa that there can be policy changes here and there. So the most difficult challenge at the moment for Zimbabwe is repatriation of their funds.
“Investors do not want to invest in an economy where they will face difficulties to take out their money whenever they want to,” said Bgoni.
In August 2017, the Reserve Bank of Zimbabwe (RBZ) announced the establishment of the Zimbabwe Portfolio Investment Fund to facilitate the repatriation of funds to respective countries of foreign investors on ZSE.
This came following consultations with capital markets regulator, Securities and Exchange Commission of Zimbabwe (SECZ) after the realisation that foreign exchange for securities related transactions was taking long to be processed by banks, despite such transactions being on the first category of priority list for allocation of foreign exchange.
Banks had been struggling to pay foreign investors on low nostro balances.
Foreign investors play a significant role on the local bourse accounting for nearly two-thirds of the activity on the ZSE providing both liquidity and stability on the market.
But the liquidity challenges have resulted in capital flight from the bourse, with investor confidence waning.
This year, the RBZ announced it would provide 15 percent of the foreign exchange it has available to investors seeking to repatriate proceeds
from share sales and dividends.
The allocation is the latest step by the authorities to overhaul its monetary system after a lack of foreign currency caused shortages of basic commodities and spawned the highest inflation rate in a decade.
Year-on-year inflation is currently at around 75 percent.
The move is aimed at re-building investor confidence, stimulate active trading and create a vibrant market with efficient and accurate price discovery as well as show that Zimbabwe is an investment destination.
The equities market still suffers limited participation by local investors, which Bgoni said was a result of lack of knowledge.
Resultantly, the local bourse in conjunction with capital markets stakeholders are working on awareness programmes that should educate potential investors to make informed investment decisions on the bourse.
“In terms of local investors, the challenge is on knowledge, people do not have enough knowledge on equities market and how they can invest,” he said.