US$2 billion shareholder value eroded on the ZSE

via US$2 billion shareholder value eroded on the ZSE – The Zimbabwe Independent April 1, 2016

Nearly US$2 billion in shareholder value was lost year-on-year in the quarter to March compared to the same period last year as investors fret over indigenisation regulations compelling foreign investors to sell controlling 51% equity stakes to indigenous Zimbabweans.

By Bernard Mpofu

The under performance of the local bourse continued to reflect waning confidence in the economy after total market capitalisation eased 42% annually, marking a persistent bearish run for 12 consecutive months.

Official figures show that the Zimbabwe Stock Exchange (ZSE)’s market capitalisation, which has been on a downward trend, closed the first three months of the year at US$2,4 billion, down from US$4,1 billion in prior comparative period.

Market capitalisation reached a peak of US$6 billion in July 2013 before plunging after general elections controversially won by President Robert Mugabe in the same month.

The statistics also show a decline in the participation of foreign investors on the local bourse.Net foreign sellers are dominating the bearish run on the ZSE.

Experts blame policy inconsistencies and failure to uphold the rule of law and property rights for scaring foreign investment which has over the years sagged.

Some of Zanu PF’s economic policies such as the chaotic land reform programme at the turn of the millennium has unnerved investors. This exercise led to the seizure of large swathes of land from white commercial farmers resulting in a sharp fall in agriculture output.

Government’s controversial indigenisation policy, which is also criticised for stymieing investment, has heightened investor fears. Under the programme, Zanu PF wants foreign companies operating in the country to be 51% owned by black Zimbabweans.

Last week, government ordered the cancellation of operating licences of foreign-owned companies that have not complied with the country’s controversial indigenisation laws after a unanimous cabinet resolution.

Youth, Indigenisation and Economic Empowerment minister Patrick Zhuwao announced cabinet had resolved to enforce the Indigenisation and Economic Empowerment Act Chapter 14:33 which provides for the cancellation of non-compliant companies, operating licences across all sectors of the economy.

Zhuwao said Mugabe’s cabinet had ordered that ministers from today invoke section 5 of the Indigenisation and Economic Empowerment Act against all non-compliant businesses.

Plans to shut down foreign owned firms that fail to comply with indigenisation regulations came barely a month after Mines minister Walter Chidhakwa ordered six companies operating in Chiadzwa to cease operations for defying a directive to merge into a single company called the Zimbabwe Consolidated Diamond Company (ZCDC).

Chidhakwa’s directive follows the diamond miners’ rejection of the initial amalgamation plan, which gave birth to ZCDC and left government owning a non-dilutable 50% stake and the balance shared among the existing miners.

Foreign-owned companies with a presence in the country include miners such as Impala Platinum and Anglo American, financial institutions such as Standard Chartered, Barclays and Standard Bank, manufacturers British American Tobacco (BAT) and Nestlé. BAT and Barclays are listed on the ZSE.

In 2013, Zimplats, a unit of South Africa’s Impala Platinum, agreed to sell a 51% stake to indigenous entities, including worker and community funds and the state-owned National Indigenisation and Economic Empowerment Fund for US$971 million.

Low local demand, competition from imports, high cost of doing business, capital constrains and antiquated machinery continue to act as an albatross affecting industry’s viability.