Capital markets to play a key role towards Vision 2030

06 Dec, 2021 - 00:12 0 Views
Capital markets to play a key role towards Vision 2030 President Mnangagwa officially opens the Victoria Falls Stock Exchange last Thursday

The Chronicle

Prosper Ndlovu

IN his foreword to the “Vision 2030” document published in September 2018, President Mnangagwa pledged to work hard towards building a new Zimbabwe, a country with a thriving and open economy, capable of creating opportunities for investors and employment.

“My Government will leave no stone unturned in transforming Zimbabwe into a knowledge-driven and industrialising upper middle-income economy by 2030,” he wrote.

“As a New Administration we were categorical from the onset that focus would be on putting in place policies and measures to regain investor confidence lost over the last two decades.”

Vision 2030 simply reflects the collective aspirations and determination of the people of Zimbabwe towards a common prosperous destiny. Its objectives are clearly aligned with those of Africa’s Agenda 2063, the 50-year continental dream, which runs from 2013 to 2063.

The national vision also takes into cognisance the United Nations’ Sustainable Development Goals covering the period 2016-2030.

No doubt, the realisation of this vision would be largely dependent on revitalising the productive sectors, alongside a series of cross-cutting reforms as spelt out in the actions and measures that have been undertaken through the short-term Transitional Stabilisation Programme (TSP:2018 to 2020) and now under the National Development Strategy 1, a five-year blue-print spanning 2021 to 2025.

While the TSP has been commended for restoring key fundamentals of the fiscal front, and enhancing the general ease of doing business, increased focus now has to be directed at capacitating the productive sector through securing strategic partnerships and luring solid foreign direct investments.

There is huge potential in revitalising the mining, agriculture, manufacturing, construction, innovation and technology sectors. However, over and above the need to embrace modern technology, these industries are mainly constrained by inadequate capitalisation, both from domestic financiers and offshore sources.

Economists across the globe are agreed that capital markets could play an important role in mobilising the critical savings in an economy and channelling these into productive investments to create a thriving industry and commerce.

President Mnangagwa reiterated this in his keynote address while officially opening the Victoria Falls Stock Exchange (VFEX) last Thursday where he also presided over the ceremony to mark the listing of global mining investor, Caledonia Mining Corporation Plc, a parent company to Gwanda-based top gold producer, Blanket Mine.

The President implored local businesses to ride on capital markets to harness the critical funding to bolster their operations and thereby contribute to economic growth of the country.

“Let me take this opportunity to encourage unlisted corporates in the mining, manufacturing, agriculture, tourism, and other sectors of our economy to also consider listing,” President Mnangagwa said.

“If not here on the Victoria Falls Stock Exchange, they can also list on the Zimbabwe Stock Exchange (ZSE) and the Financial Securities Exchange (Finsec).

“I, particularly, want to encourage our micro-small and medium enterprises to consider listing on these various stock exchanges in their large numbers, as this is the surest way to raise long term capital for growth.”

Caledonia Mining Corporation is the third counter to list on the VFEX, which was established in October 2020, joining Seed Co International Limited and Padenga Holdings.

It is also the first new listing in the Zimbabwean capital markets since 2016, which strongly endorses the drive to transform Victoria Falls into an offshore financial hub, as well as a hub for tourism and financial services under the Special Economic Zones (SEZs) initiative.

Being the first Initial Public Offering (IPO) to the stock exchange, the listing of the VFEX by Caledonia is a milestone for the young bourse given that stock exchanges normally take up an average of six to 18 months to be well established, said Finance and Economic Development Minister, Professor Mthuli Ncube.

An initial public offering (IPO) refers to the process of offering shares of a private corporation to the public in a new stock issuance.

Vision 2030 and the role of stock exchanges

Stock exchanges largely assist productive sectors to grow the economy through providing a platform for capital raising. The viability of such platforms goes further to consolidate investor confidence and deepening of the country’s financial markets.

In the case of VFEX, for instance, the bourse is expected to help unlock mining sector potential, which has suffered lack of financing over the years and yet it is a key economic player.

Already the sector has set a target to achieve a US$12 billion industry by 2023, as set out in the Mining Industry Strategy in 2019.

Mining employs more than 45 000 people and contributes at least 60 percent in export revenue annually, which accounts for at least 12 percent of gross domestic product (GDP), according to official statistics.

VFEX, thus comes in handy in the context of the risky and capital-intensive mining industry, which requires suitable funding mechanisms. Capital markets also provide suitable funding for other keys sectors of the economy such as tourism, manufacturing, agriculture and other viable ventures.

The significance of a foreign currency denominated stock exchange has been necessitated by the fact that since de-dollarisation of the economy in 2019, most companies could only raise capital on the ZSE in local currency, which has been subjected to inflationary pressures.

Companies have also been struggling to then convert these funds into forex for critical raw material and equipment imports among other expenses, including repatriating their profits in the case of foreign investors.

This has resulted in the death of the IPO and listed companies raising money on the stock exchange.

While the Reserve Bank of Zimbabwe’s foreign currency auction system has helped ease the burden on forex access, the pressure has mounted on the system and in some instances some players have manipulated the bidding process.

How VFEX works and benefits it offers?

According to Prof Ncube, the RBZ administered Government incentive scheme has played a key role in attracting the giant businesses like Seed Co, Caledonia and Padenga to list on the VFEX. This is because under this platform, investors have the leeway to move their capital and dividends in and out of the country freely at lower transactional costs.

Tax incentives that include a five percent dividend withholding tax for foreign investors and exemption from capital gains withholding tax, are also applicable.

Since the platform is denominated in United States dollars, there is minimal currency risk for investors. Companies listed on VFEX also enjoy an increased export retention of up to 100 percent compared to about 40 percent for non-listed entities.

A lot of benefits accrue to investors through this platform and these include; the ability to raise hard currency for retooling and expansion.

There is also an advantage of secondary market liquidity for their securities, which enhances primary capital raising and international branding at relatively lower listing fees.

Trading on the VFEX is done nationwide and the exchange operates on a fully automated system. Already there are 17 stockbrokers responsible for placing bids and offers on behalf of investors as well as five custodians responsible for the settlement of trades, said the VFEX.

Offshore Financial Services Centre

The establishment of VFEX was laid by the Ministry of Finance and Economic Development in the formation of the Offshore Financial Services Centre in Victoria Falls. The operationalisation of VFEX, thus, has kick-started the

Victoria Falls Special Economic Zone.

In 2019, VFEX at its formative stages, was part of the team that was involved in the research and benchmarking exercise on how other jurisdictions operate their Offshore Financial Service Centres.

The concept is common on jurisdictions such as Ireland, the Caribbean, Luxembourg, Singapore, Netherlands and Hong Kong. In Africa, Mauritius stands out as an Offshore Financial Centre.

It is in this regard that the establishment of VFEX is expected to complement the existing infrastructure in promoting both domestic and cross border investments.

This also has huge implications on the ease of doing business front given that the Offshore Financial Centre promotes a ‘one-stop-shop’ model. Government expects this to help create employment opportunities for local communities.

Going forward, Zimbabwe is focused on developing new products with plans to establish a Commodities Exchange, riding on the recent signing of the memorandum of understanding between VFEX and the Dubai Gold and Commodities Exchange (DGCE).

The Treasury has also hinted on listing Government bonds to also raise money through VFEX.

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