Foreign currency shortages, ZSE trade suspension drags ZimRe Holdings

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  • Forex shortages leading to slow discharge of foreign currency denominated liabilities
  • ZSE trade suspension shook investor confidence
  • Hyperinflation and COVID 19 worsening the situation

Harare – Listed diversified insurance holding company, ZimRe Holdings Limited has lamented the shortages of foreign currency experienced in the country and the suspension of trading on the Zimbabwe Stock Exchange (ZSE) in June this year, citing them as reasons for poor investor confidence in the company.

ZimRe Holdings Limited operates through subsidiaries to provide solutions for general insurance, health cover, reinsurance, life reassurance, reinsurance brokering and property services for private, commercial and corporate clients in Zimbabwe and overseas.

In a report accompanying the company’s financial results for the half year ended 30 June 2020, ZimRe Holdings chairperson, Benjamin Kumalo said that the shortage of foreign currency in the country resulted in the slow discharge of new foreign currency denominated liabilities and accumulated legacy creditors by market players.

This negatively shaped the perceptions of the firm’s foreign business partners as they feared losses that may be incurred due to currency fluctuations.

“This limited the business confidence of external business partners fearing increasing foreign exchange risk,” Mr Kumalo said.

“The tight liquidity situation slowed down premium collection thereby negatively impacting investment portfolio growth,” he added.

On top of foreign currency shortages, the company expects the suspension of trading on the ZSE that occurred on the 28th of June 2020 to further present damaging effects on investor confidence.

“The suspension of all trading on the Zimbabwe Stock Exchange (“ZSE”) on 28 June 2020, though subsequently lifted, is also expected to diminish investor confidence and negatively impact the performance of the investment portfolio,” the company board chairman said.

The move to close the local bourse came after the suspension of monetary transactions on phone-based mobile money platforms by the Central bank in order to conduct investigations following allegations of economic sabotage by authorities.

In the week prior Information permanent secretary, Nick Mangwana said the government was in possession of impeccable intelligence that the phone-based mobile money systems were conspiring, with the help of the ZSE, either deliberately or inadvertently, in illicit activities that were sabotaging the economy.

However, market watchers warned that the move to close the stock exchange could have devastating effects in the long term which include waning investor confidence to bring capital into the country which is what is haunting ZimRe Holdings now.

Furthermore, hyperinflation in Zimbabwe which peaked at 837.53% in July 2020, forced the group to constantly increase insurance premiums and the cost of rentals making their properties and insurance less and less attractive to the market whilst COVID 19 disrupted company activities disrupted company activities in all the countries in which the company has interests in.

“The onset of hyperinflation in Zimbabwe exerted pressure on purchasing power and resulted in the need to constantly increase sums insured and rentals and a spike in the cost of insurance claims and operating costs,” stated Mr Kumalo.

“The outbreak of the Covid-19 pandemic resulted in unprecedented disruption to economic activity and created material uncertainty for business in all countries where the Group conducts operations,” he further said commenting on the pandemic’s effect on business.

Equity Axis News.

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