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- The ZSE sold shares worth R825 million in two months.
- Transaction fees on the VFEX were reduced by 150 basis points on the sell side.
- Compensation and settlement of operations to be carried out offshore.
Zimbabwe launched its second stock exchange on Friday, which officials believe will protect investors from currency instability and currency control risks.
The new stock exchange, which will be based in the resort town of Victoria Falls, will be priced in US dollars in terms of clearing and settlement.
It comes at a time when foreign investors are selling shares listed on the Zimbabwe Stock Exchange (ZSE) after years of limited access to foreign exchange for the repatriation of capital and dividends by foreign investors.
Between August and September, foreign investors had sold 80% of the shares listed on the ZSE.
In value, shares sold by foreign investors represented 75% of the turnover of Z $ 5.6 billion (R1.1 billion) recorded during the period under review.
Foreign investors took advantage of the currency auction system that was introduced in June this year as a window to repatriate investments long trapped in the southern African country.
Since 2016, foreign investors have struggled to remit capital, capital gains, and dividends from Zimbabwe following a central bank directive for banks to prioritize certain transactions in all foreign payments.
While the central bank said that foreign portfolio investment in the ZSE was a top priority, fuel, electricity and food took away most of the already limited available currencies, leaving foreign investors’ funds trapped in the funds. banks or back to the stock market. .
Some investors took advantage of Old Mutual’s fungibility and used it as a conduit to repatriate funds out of Zimbabwe. But authorities also closed that window by suspending the fungibility of the shares and eventually expelling Old Mutual from the ZSE.
Before the introduction of the auction system at the end of June, foreign investors were not so interested in selling their shares, as access to foreign exchange was severely restricted.
In the six months to June 2020, share disposals by foreign investors represented only 25% of ZSE’s turnover compared to 75% in the last two months.
Authorities now hope that the new exchange, Victoria Falls Stock Exchange (VFEX), can attract foreign investors.
VFEX is targeting foreign investors, as well as global capital markets, especially the mining industry, according to Finance Minister Mthuli Ncube and CEO Justin Bgoni.
“The Government of Zimbabwe is aware of the expectations of the international community in terms of investment repatriation, and one of the areas that we believe will help us restore investor confidence in our capital markets is the establishment of VFEX to put offshore financial sector launched. Service center in Zimbabwe. This will reduce the risk of liquidation and foreign currency for our international investors, “said Ncube at the launch.
Statutory Instrument 196 of 2016 (SI 196 of 2020), which was issued by the government of Zimbabwe, stipulates that non-resident companies can be listed on the VFEX as long as any capital raised by the company is from an offshore source.
Ncube and Bgoni told investors in September that VFEX is a way to deal with the country’s capital and foreign exchange controls, which are perceived as an obstacle to attracting foreign direct investment.
While the long-term plans are for the settlement of the deal to take place abroad, through a technical partner in the form of an international bank or other stock exchange, the VFEX has meanwhile signed a Memorandum of Understanding with the Reserve Bank of Zimbabwe on trade settlement. for the Victoria Falls Stock Exchange.
SI 196 of 2020 stipulates some of the rules and regulations that will govern the listing and trading on the VFEX.
To protect investors from exchange control risk, section 8 of SI 196 of 2020 stipulates that all clearing and settlement of transactions on the VFEX will be carried out by the VFEX, either locally or abroad in terms of clearing rules. and settlement which will be approved by the Securities and Exchange Commission in consultation with the Reserve Bank of Zimbabwe.
Another section says that any capital raised by a company listed on the VFEX can be held in an approved local or offshore account with an internationally recognized banking institution.
Investors in the VFEX will also be exempt from paying taxes on their capital gains, while the withholding tax on dividends will be 5%, which is less than 10% in the ZSE.
Transaction fees have also been reduced by 150 basis points on the sell side compared to the ZSE.
The total transaction fees on the VFEX will be 2.124%, which is less than the 4.136% charged on the ZSE.
There are high hopes that a platform like VFEX will be a conduit for portfolio investment as well as Foreign Direct Investment (FDI) in Zimbabwe.
“We want it to be a platform for trading securities in Africa in hard currency, we also want it to be a platform for companies looking to go international and use the exchange as a conduit,” Ncube said in September.
“As we know, some companies reach the rest of Africa through destinations like Dubai, Mauritius and other jurisdictions and tax havens. So why not a Zimbabwe jurisdiction or a Victoria Falls jurisdiction?”
