Zimbabwe, a nation on the brink of a possible economic turnaround, had its progress almost halted last month by the “invisible hands” of the market, with pressures coming in many different forms.
Citizens were thrown into a flurry of panic, succumbing to market pressures and irrational market behaviour. The multiple currency system currently being employed played a part in the unprecedented price hikes, with parallel market rates for the greenback skyrocketing. While the Minister of Finance has come out in defence of the use of bond notes, which have helped ease liquidity challenges since their introduction, there have been various market forces forcing a dual currency, with both RTGS and bond notes trading at massive discounts compared to the US dollar.
This devaluation and unexpected fuel shortages, along with market-wide panic, led to widespread irrationality, causing consumers to stockpile commodities and leave a majority of store shelves bare. Efforts have been made by government to assuage people’s fears and reassure citizens that there is no crisis and the momentary hiccup being experienced will soon pass. The bedlam stems from differing government policy measures announced within a week from each other that have left many Zimbabweans pondering their next move. It is key to remember that the economy has in fact shown signs of recovery, although the nation does face a number of challenges. Projected growth for 2018 stands at 6,3 percent against the 4,5 percent estimate for 2017. Should Government remain disciplined in its policies and the appropriate monetary and fiscal measures incorporated, Zimbabwe will be on course to join the “six percent club” of African countries growing at more than six percent per year. Currently the challenges being faced are related to foreign currency shortages, unsustainable budget and current account deficits, emerging inflationary pressures and weak social service delivery.
Overcoming these challenges is not an impossible task, daunting though it may seem. Officials have already begun to formulate solutions highlighted in both the Monetary Policy Statement and the Transitional Stabilisation Programme. There has been a renewed sense of vigour and optimism since the political events that occurred last year. Despite the current chaos that has added to an already complex currency system in which non-US dollar backed electronic money (RTGS) and bond notes are rapidly losing value, there is still light at the end of the tunnel.
Government, along with the private sector, has shifted the focus to the issuance of infrastructure bonds to boost construction and production as part of the medium to long-term solution. This will have the effect of including the private sector (especially the diaspora fund) and help contribute to a deepening fixed income market.
What this means is that it opens up alternative options for the typical investor trying to preserve the value of assets or to hedge against the on-going currency devaluation.
Traditionally investors would turn to the Zimbabwe Stock Exchange (ZSE). This was evidenced by a bull run on the ZSE in previous weeks. However, uncertainties continue to hover over markets following the Monetary Policy statement characterised by the decision to divide bank accounts into two types, as follows:
RTGS/local accounts for local economic use and convenience of payment for consumers nationwide.
Foreign Currency Accounts backed by real inflows of US dollars.
The Zimbabwean concept of currency hedging was to rush to the equities market, resulting in an unprecedented demand on the ZSE that culminated in a demand for equities, as investors rushed to unwind RTGS balances and transfer them to securities. Unlike the bullish run on the market in September 2017, however, fewer returns were gained, as the All Share Index went up by a record 60,14 percent for the week with trading throughout most days of the week having to be stopped by way of circuit breaking in the market. Being a high multiple currency country, however, Zimbabwe could be poised for product and investment growth that will both protect and offer new hedging schemes against possible future currency shocks. For the moment stability must be restored. Shops must be restocked and fuel stations reloaded. There must be greater inclusion of the informal sector.
We must look further than equities in this environment. Alternative investments, such as property, with a focus on Real Estate Investment Trusts (REITS), have become just as popular, as the risk return profile does hold value. The issue with this is that in the current market, with no faith in the currency, almost no property owners are willing to sell unless it is for physical US dollars.
There are, however, different avenues to explore as alternative investment options. The market has begun to see a response to Real Estate Investment Trusts and investments in renewable energy such as solar power energy.
While returns were initially low and somewhat untested, they remained a viable avenue in having an option to preserve value in one’s assets as opposed to holding onto cash that may or may not increase in value in the future. Furthermore they have been on an upward growth trajectory in other African countries such as Kenya, Botswana, South Africa and Uganda.
We live in interesting times but the government, along with the Reserve Bank of Zimbabwe, seem up to the task of tackling the various problems afflicting the country currently and should steer the nation back on course given the time, discipline and appropriate resources. As an agricultural based economy there are various alternative investment schemes to set up such as commodities trading and futures and options contracts, all derived from the vast natural resources we have the luxury of owning.