The local economy in
Zimbabwe has been affected by a financial market that is not functional and
that has led to the collapse of many firms as the financial intermediary has
been lacking in its execution of its duties. There are a number of factors that
have led to the collapse of the financial market in Zimbabwe and these problems
have not only affected Zimbabwe but most of the developing countries in the
world. Financial markets are of bigger importance to the economy of countries
as they are there to facilitate the efficient allocation of resources which will
spur development further. Dysfunctionality of the financial market will spell
the doom of an economy as resources will be allocated inappropriately and this
will lead to an imbalance within the economy thereby crashing the supporting
systems of economic sectors or factors.
The main challenge in
most developing economies has been a clash between Economics and Politics as
populist political economic strategies have been used to woo voters but at the
same time hurting the market and the economy. Political statements and policies
tend to please the masses at rallies which will be on a shallow basis without
getting deeper into the aspects of the whole issue. On the ground the
sentiments will have a huge knock on the businesses, the economy and investor
confidence. Populist political statements and policies are to an extent
retrogressive to economic development as they are hard to implement with most
of them failing to take off ground or leading to recessionary pressures in most
developing countries. The famous ESAP policy formulated and implemented in the
early 90’s degenerated to an epic disaster in Zimbabwe and now we await the
full implementation of the Indigenisation and Empowerment Act together with the
ZIMASSET which in the meantime have not boded well with the economy.
Still on the issue of
policies and politics, there is no clear interpretation of these policies by the
ministers who would have enacted the policies and thus leaving everything in a
conundrum. The discord created by the misinterpretation of the policies leads
to more challenges in the implementation process. Currently the ministry of
Indigenisation and Empowerment has gone through 3 ministers in less than 8
years bringing inconsistencies and differing ways in which to implement the
whole process. Each minister who came on board had his own explanation and
execution of the policy with the President also echoing different sentiments
which in all confused investors and the general public. Inconsistencies also
within the policies lead to misunderstanding and instability in the market.
Investors require an environment that does not change time and again which disturbs
any future planning and forecasting as it will bring about instability and
losses within business ventures. Government policies should be able to create a
sound environment for efficient economic progress.
The streaming of
information to all stakeholders is a big challenge in Zimbabwe as there is too
much information asymmetry which affects viability and efficiency of financial
markets. Information has to be available to everyone to avoid any disadvantages
in trade and also for raising awareness to all locals. Proper channels of
communication should be followed by all parties concerned in order to reach all
targeted recipients of information. The Zimbabwe Stock Exchange (ZSE) was in
February 2015 involved in an error of communication and information
availability as it suspended the Meikles Group from trade on the national
bourse and later on re-listed after a High Court ruling in favour of the
Meikles Group. If the stock exchange is failing in relaying information to its
participants first, then what about the general public, this in itself
discredits the bourse and causes much concern on its efficiency and of the
financial market at large. Lack of transparency in most of the dealings also
leads to the lack of information availability as most of the details will be
concealed and kept under wraps.
The lack of financial
instruments has led to a less or next to none innovative financial market and
this in turn strains ways with which to keep funds circulating within the
economy and also does not attract foreign funds that might be interested in
financial products. The local market used to have bonds, derivatives, credit
guarantees and other financial instruments that kept the market liquid and
provide both short to long term funding in the market. These products are no
longer in existence, with only local government bonds being in circulation and
mostly being offered to top companies as foreigners cannot take them up due to
the debt overhang that the country has. Lack of financial products makes the
market rigid as there is no diversity within the market.
Collateral is one of
the 5C’s of credit and is a critical issue in Zimbabwe as the property rights
lack protection and are not flexible enough to cover other forms of movable and
immovable property which may be used as collateral in a developing country. Most
Zimbabweans keep their wealth in the form of livestock such as cattle which is
not properly registered in Zimbabwe and that does not stand fit as security for
a bank loan or on any credit facility. The government and the private sector
should come together and be able to set up ways with which to register cattle,
keep check of any movements’ in order to protect the lender and instil
confidence in the lender. The laws should be able to conform to the standards
of the country and be able to be flexible enough to cater for the differing
scenarios within an environment. The then TN Bank wanted to set up a cattle
bank which was a noble idea that would have pioneered the use of cattle as
collateral as it would have been registered but lacked support from the
stakeholders. The country also carried out a land reform programme that availed
land to the general public but since early 2000 up until this year 2015 most
benefactors do not have title deeds, land leases or the 99 year leases that authenticate
that they the owners of the land. Property registration lacks in a big way in
the country with those that were availed 99 year leases are also failing to
access loans from financial institutions, with government financial
institutions also not accepting the papers. Authentication and education of such
important documents by the government should be made in a very intrinsic way
that instils confidence in the whole market about the legal documents.
Commercial courts should be availed to deal with businesses cases especially on
property rights matters rather than placing a heavy load to the general courts
with all kinds of cases at once.
Government debt of $10
billion dollars has had a huge effect on the economy and viability of the
financial markets as foreign capital or funding for the markets cannot be
attracted due to the country’s credit risk rating. Private companies are
failing to lend from foreign financial institutions as the funds attract a high
cost of lending. Lack of funding, a high debt has now led to an illiquidity
challenge that is crippling all sectors, low income level earners now form the
core of the employed percentage in the country and this has severely affected
the savings function. Low liquidity levels have now made the banking
institutions channel funds to risk free assets that keep their funds safe and
depend mainly on service charges for their income.
The death of most
industrial companies in the country which were the mass employers of the
country has seen an up rise of small to medium enterprise (SME) which has led
to sustainability of most families. This emerging sector is not accounted for
by the economy in formal terms as it is still regarded as an informal sector.
The informal sector term deprives these enterprises from things such as loans,
training, advisory services among others but also deprive the government of the
much needed revenue. Microfinances which are supposed to form a support base
for the SME’s have failed in that regard as they have also focused on giving
out short term loans mainly to government employees which is a risk free
arrangement. Besides not offering loans, their loans are at a huge cost which
in turn will make running the business a hard act to do. Structures were in
place to help nurture SME’s have crumbled as rhetoric has taken centre stage with
little to no action taking place. There have been mooted plans to have a SME’s
bourse to operate separately from the main bourse, so as to help organise easy
ways to raise funding for these enterprises. The idea is a great one as we
would be taking cue on the NASDAQ in America but with the current economic
situation it’s not feasible as most counters on the ZSE are trading below 10
cents per share with some trading below a cent and these are big companies
which is a cause of concern. Also the lack of the supporting structures for
SME’s will lead a biased listing.
