Source: RBZ ring-fences investment funds | The Financial Gazette February 16, 2018
Reserve Bank of Zimbabwe Governor, John Mangudya
THE Reserve Bank of Zimbabwe (RBZ) has placed a guarantee that foreign exchange inflows with respect to securities-related transactions will only be used for the purpose of repatriation of dividends and profits from the Portfolio Investment Fund (PIF).
The PIF was created last year “to facilitate the efficient repatriation of portfolio-related funds to foreign investors” invested on the Zimbabwe Stock Exchange (ZSE),” said RBZ governor John Mangudya.
It is not clear if the fund has become operational. The motivation behind the setting up of the fund was to restore confidence on the ZSE by establishing ways for foreign investors to realise their gains.
The fund was built from the idea that “a well-functioning capital market provides a strong signal for potential sources of foreign investment”.
This came after foreign activity on the local bourse had slumped on complications in the repatriation of securities-related transactions because they were taking a long time to be processed by banks.
This was despite the fact that such transactions were on a priority list for foreign currency allocation.
In his monetary policy statement last week, Mangudya announced that the RBZ would ring-fence inflows into the PIF to meet the requirements of repatriation from the same fund.
The governor said RBZ was enhancing the nostro stabilisation facilities by $400 million to support the guarantees on the fund among other things.
He added that the bank envisaged that this will augment the $5 million that it has provided as seed capital for the fund.
“The bank is enhancing the nostro stabilisation facilities… (and) refining the operation of the Portfolio Investment Fund by ensuring that all portfolio investment inflows are ring-fenced to meet the portfolio investment outflows.
“This policy measure is necessary to augment the current $5 million that has been provided in the fund as seed capital,” said Mangudya.
In finance, to “ring-fence” is to guarantee that funds or an investment will be used only for a particular purpose. The central bank’s move to ring-fence portfolio investment inflows to meet the portfolio investments outflows implies that funds which will come into the country as portfolio investments will not be available for the settlement of any foreign payments outside of the repatriation of foreign exchange for securities- related transactions.
The apex bank had reportedly planned for the fund to start operating in October 2017 with arrangements having been made with banks to facilitate the fund in September 2017, but it remains unclear if any foreign investor has repatriated funds through the fund.
A stock broker with Invictus Securities, Tinashe Magodora, told The Financial Gazette that there were no signs that the bank’s plans to have the facility operational by October last year were successful.
“In terms of if there is anyone who has repatriated their funds through the fund, we cannot tell whether there is anyone who has done so to date,” Magodora said while welcoming the central bank’s move to introduce the fund, saying the investing community hopes the facility improves the situation.
He, however, added that there was need to ensure that policy was effectively implemented to boost confidence.
“We are quite impressed with the formation of the portfolio fund as a remedy to the long queues that investors had to join to repatriate their funds in real time. The idea is to improve investor confidence to enhance investment flows in the economy, which the RBZ is working towards, in order to compliment the notion for making Zimbabwe open for business, a success.
“Most importantly, we reiterate that there is still need to walk the talk in the new political dispensation and improve investor confidence to attract investors into the Zimbabwean economy,” said Magodora.
Meanwhile, in pursuit of the same goal of restoring the foreign investor confidence in local markets, the bank has also announced tax-free savings bonds with a coupon rate of seven percent. The bonds will be exclusively available to “remittable funds currently held in non-resident transferable accounts in respect of in-country funds such as dividends and profits”.
The purpose of the bonds is to provide return on remittable funds that cannot be immediately remitted as a result of foreign exchange shortages.
COMMENTS
This has been tried before and it failed because the RBOZ cheated on the figures !