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Vic Falls bourse faces forex retention threat



THE Victoria Falls Stock Exchange (VFEX) could lose its sparkle as a haven for investors seeking returns in hard currency following the government’s decision to cut the foreign currency retention threshold on exports and other sectors to 75% from 100%, market experts and analysts have warned.


Zimbabwe has since 2008 been battling cycles of currency volatility which have prompted authorities to come up with various initiatives to reassure investors.

But pressure to meet local and domestic obligations in foreign currency has also put monetary and fiscal authorities in a tight spot on which policy direction to take.

This week, the Monetary Policy Committee announced that it would lower the threshold, triggering fears that the authorities in Harare were on the brink of abandoning the current monetary system for the sole use of the domestic currency.

“With effect from 1 November 2023, foreign currency retentions on exports shall be standardised at the level of 75% across all sectors of the economy and all special dispensations granted to some sectors of the economy shall be removed,” Reserve Bank of Zimbabwe governor John Mangudya said in a statement.

“The net effect of this measure is to increase foreign exchange resources available to the Bank and Government to meet foreign exchange requirements for the settlement of national and international obligations.”

The VFEX offers tax incentives for shareholders which include a 5% withholding tax on dividends and no capital gains tax on share disposal. Shareholders would be able to retain more of their earnings compared to the Zimbabwe Stock Exchange.

Capital raised through a VFEX listing may be held in an approved local or offshore account, and there would be an allowance for offshore settlements for executed trades for easier repatriation of dividends and more transactional flexibility to existing shareholders.

Chris Mugaga, Zimbabwe National Chamber of Commerce chief executive, said the reduction in forex retention could affect foreign participation on the VFEX.

“This could be part of government’s de-dollarisation programme, but it could make the Victoria Falls Stock Exchange unattractive,” Mugaga said.

Tinashe Murapata, Leon Africa chief executive, said markets would be unnerved by the latest developments.

“The market worried about threats of monocurrency has moved its United States dollars offshore,” Murapata said.

“USD cash in the formal system used to be above US$500m. As of July it had come down to US$350m. Formal businesses preferring to keep cash offshore. How much more is outside the system?

“Rather than come to the market and ask for solutions and market consensus, the Monetary Policy Committee has thrown down the gauntlet — in a shock and awe move, every exporter must surrender 25% of export receipts. No exceptions. Forget VFEX.” 

Before the 23 and 24 August general elections, analysts had warned that the wobbling economy and policy inconsistency could trigger a sell-off on the VFEX as risk-averse foreign investors exit the market.

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