In recent months more local companies have announced of pending moves to derisk part of their business from Zimbabwe as way of mitigating loss in financial value due to a tightening liquidity environment. Corporates readily face a risk of losing foreign business due to a perceived high credit risk now associated with Zimbabwe as the cash crisis deepens. The crisis has made it increasingly difficult to service foreign debt, finance foreign sourced stocks and underwriting of foreign obligations. On the other hand the tight liquidity environment has reduced the allure of local capital markets as companies seeking expansion, especially into the region, are opting elsewhere for cashflows to capitalise their ventures.

Two leading reinsurers Baobab Re, which is the largest reinsurer in Zimbabwe and FBC Re which is a subsidiary of financial services group FBCH recently announced that they be will setting up foreign units so as to retain regional underwriting. Listed companies Seedco and Simbisa which have regional exposure likewise announced their intentions to seek a secondary listing in alternative markets. Seedco will demerge its regional operations and separately list on the BSE in Botswana while Simbisa will seek a secondary listing on the AIM in London. Another Zimbabwe based private equity firm Brainworks which has interest in quoted and unquoted equities in Zimbabwe is also seeking a listing outside Zimbabwe.

The instance of the two reinsurers highlight the depth of the cash crisis induced business erosion where local business are becoming less competitive and losing regional business due to the rising insurance credit risk and this effectively reduces their earnings. That of the other 2 listed companies highlight the illiquid stock market, the currency risk and the international money transfer challenge. A liquid market would ensure that rights issues are optimally subscribed to, thus creating value for the local participants on the market and a shared benefit to the economy even as that value is taped from regional markets.  Beyond liquidity concerns, the money raised from such market activity as rights issues should be transactable, which condition the economy cannot readily satisfy and that is partially a currency induced risk as well as a result of gross financial system manipulation by the government.

Whereas certain variables impacting liquidity are exogenous, a great deal of them are self made and endogenous and hence can be controlled. The government should intimately introspect at this point as some of the economic policies being pursued are counteractive and weighing on the financial sector. While command agric is cheered as a success and a possible driver for agric sector growth, the funding of the exercise is largely through government borrowings. Those borrowings are equated with electronic credit which simply raises the RTGS deposits position while worsening the variance to real cash balances as productivity (in maize production) is not part of the equation. Once the variance widen, exacerbated by a net trade deficit, the RBZ’s ability to settle international obligations on demand diminishes as is the case presently. Therefore the celebrated gains in command has a cost attached and that cost should be quantified (in terms of lost foreign business, lost credit lines, lost FDI, portfolio investments, lost production time, inflation , the list is but endless)  and if a cost benefit analysis is done the gains monetarily should outweigh the losses even on an adjusted scale.

It is quite evident that the expansionary policy measures being pursued by the government has a deep downside which needs to be cautiously managed. The IMF has reiterated of the need to realign the government’s cost base and our response is a charged budget deficit financing a sector which has little inclination to productivity, bar the envisaged multiplier effect. Otherwise someone is playing a fool of themselves robbing their right hand to give their left and in the process lose part of the spoils such that the net outcome is negative.