Forex crisis rocks Zim stock market 

Source: Forex crisis rocks Zim stock market – The Zimbabwe Independent November 16, 2018

Discounted market capitalisations are prevailing on the Zimbabwe Stock Exchange.

TRADING on the Zimbabwe Stock Exchange (ZSE) could be disrupted after it emerged yesterday that the local bourse has not paid Infotech — a company that developed its electronic trading system — thousands of dollars in annual maintenance fees due to acute foreign exchange shortages gripping the broken economy.

By Chris Muronzi

This came as it emerged yesterday that the ZSE has also failed to pay £143 000 (US$182 394) annual maintenance fees to an information technology firm that developed the ZSE’s EasyTrade electronic trading system.

Stockbrokers raised alarm yesterday over the scary prospect of trades being suspended on the local securities market after receiving a shocking memo on these issues, a situation that could undermine the ZSE’s credibility and reputation as a capital market at a time government has been singing the now fading “Zimbabwe is open for business” mantra.

The ZSE’s plight is a microcosm of a wider forex crunch currently gripping the whole economy; from individuals, families, companies to the government. Apart from forex shortages, the local market is also in turmoil due to currency volatility and price instability amid rising inflationary pressures and shortages of basic commodities.

In a letter to stockbrokers yesterday, the ZSE’s trading and surveillance manager Robert Mubaiwa said the trading system had been erratic since Wednesday, with traders failing to access reports from the Automated Post Trade Systems.

We refer to the above and confirm having noted some anomalies since 14 November 2018 when we tried to access reports from ZSE Automated Post Trade Systems (PTRS). Some reports are coming out and some are failing completely.

We require support from Infotech to rectify the matter,” Mubaiwa’s letter, dated November 15, 2018, reads. “As a brief background to the matter, the ZSE is obliged to pay maintenance fees for support to Infotech on an annual basis. ZSE has not been allocated the foreign currency required for payment to be made in respect of 2018 maintenance and support fees. Infotech has withdrawn support until payment has been made.”

Mubaiwa said the ZSE’s problems would worsen if problems develop on the EasyTrade system.

“At this stage, we are able to extract the report from our end, which we will avail to you at the end of the day. The impact of us failing to access the required foreign currency will be amplified if there is a problem on the EasyTrade, which is the matching engine,” he said.

ZSE acting chief executive Martin Matanda confirmed the situation yesterday, saying the stock exchange owed Infotech annual maintenance fees and this could end up disrupting trades.

“We have a maintenance agreement with Infotech in which we pay an annual subscription of £143 000. Like everybody else, we are struggling to get forex. The vendor is therefore unable to deal with problems as they arise,” Matanda said. “At the moment, we have not been able to pay the fees and, as a result, we have not been getting support from them.”

He also confirmed the system had been having problems with issuing trading reports since Wednesday, but said this had not affected trading yet amid fears that the situation could disrupt the securities market if not resolved urgently. Zimbabwe has tight exchange controls and forex is issued by the central bank according to a government priority list.

Gold mining giant RioZim was recently forced to close three mines, Dalny Mine, Cam & Motor Mine and Renco Mine after consumables and spares ran out due to forex shortages.

Matanda said trading could be affected if the front end of the system failed.

“Potentially, in the event of a major problem, it can affect trading,” he said. “Currently, we are still able to access the front end.”

The ZSE entered a vendor contract agreement with Infotech Middle East FZ-LLC for the use of its Automated Trading System after inviting bids in 2013 for vendors who could supply, install, test and support the requisite hardware and software for the implementation of an Automated Trading System.

The system, which became operational in 2015, matches and executes “buy” and “sell” orders that stockbrokers would have brought into the system in order for both buying and selling clients to get the best bargains available on the market for their shares. It differs from manual trading as it eliminates human intervention in the process of matching orders.

Should trading in stocks be disrupted or suspended, local investors and fund managers holding on to cash and near-cash asset classes could find themselves stuck with quasi-currency instruments that are losing value at an alarming rate against the United States dollar as demand for forex in the market surges.

The currency volatility has also divided government, monetary and multilateral financial institutions with Finance minister Mthuli Ncube pushing for the freeing of the exchange, while monetary authorities fear this could unleash mayhem in the economy.

Treasury sources say Ncube — who has already made it clear that he prefers market-driven policies — wants to liberalise the exchange, while Reserve Bank governor John Mangudya prefers a cautious approach compared to his boss’ “big bang and fiscal shock” strategy.

The sources said World Bank and International Monetary Fund officials, who prefer free market policies and limited economic controls, have warned behind the scenes that Ncube’s approach could trigger chaos. However, Ncube has the support of some players in the economy. This has divided the market.

Imara Asset Management Zimbabwe CE John Legat said last month the authorities should allow banks and the private sector to trade between the two foreign currency accounts (FCAs), thereby formalising an exchange rate between Real-Time Gross Settlement (RTGS) and the US dollar benchmarked by the free market.

Government’s announcement last month that corporates and individuals should open separate foreign currency accounts was construed to mean government no longer recognised bond notes and RTGS as trading at par with the US dollar.

However, at the level of rhetoric government continues to insist on a 1:1 exchange rate.

The official move to de-dollarise triggered a wave of massive price increases after the bond notes, RTGS and mobile money transfer rates dramatically tumbled overnight to the dollar.

The ZSE reached an all-time market capitalisation of US$22,5 billion as investors offloaded cash and near-cash asset classes, before retreating to close at US$19,3 billion yesterday.

Zimbabwe’s economy is currently in the doldrums partly owing to forex shortages emanating from low productivity and poor exports, low foreign direct investment and capital inflows, lack of lines of credit, weak tourism, poor returns from foreign investments and stunted diaspora remittances.

The major sources of liquidity in the economy, which comprise export earnings, diaspora remittances, offshore lines of credit, foreign direct investment and portfolio investments, are not performing well.

The export sector has remained sluggish, diaspora inflows have been stagnated by adverse global economic conditions, while capital inflows have remained subdued on account of growing investor uncertainty.