Zim economy in dire straits

THE country's economy continues to swing directionless with figures indicating that the Zimbabwe Stock Exchange (ZSE), seen as the barometer of the economy, slumping by US$642,8 million to US$4,56 billion in the first quarter of this year, as stock prices plummeted. Reflective of the dire state of the macroeconomic environment has been the delisting of companies on the local bourse and the decline in both the industrial and mining indices.

The ZSE's mainstream index closed the quarter 12,76 percent lower at 176,32 points while the resource index dropped 35,55 percent to 29,51 points, the lowest since 2009. Overall turnover for the quarter was down eight percent to US$118,7 million from the previous quarter turnover of US$128,8 million as foreign investors buying declined by four percent to US$79,4 million from US$82,7 million.

Reserve Bank of Zimbabwe (RBZ) senior division chief for national development and economics, Simon Nyarota, recently said the economy was certainly not in good shape. "The continued decline in both the industrial and mining indices signifies a slowdown in the economy," he said while speaking at a recent Confederation of Zimbabwe Industries' annual general meeting.

Nyarota said the equities market's performance had also been affected by de-listings and suspensions which peaked in 2013 as companies faced mounting viability challenges. "Since 2009 a total of 14 counters were suspended and 15 counters were delisted from the stock exchange," he said.

A total of 11 companies delisted from the ZSE last year due to liquidity challenges that resulted in companies failing to raise money or attract new investors to inject fresh cash. A significant number of the delisted firms failed to meet the minimum listing requirements, an indication that the volatile climate that has dogged the ZSE since dollarisation in February 2009 was deepening.

Industrial counters, Apex Corporation, Cairns Holdings, Celsys, Chemco Holdings, Interfresh, Gulliver, Interfin, Lifestyle Holdings, Phoenix Consolidated, Steelnet and financial services firm, Trust Holdings delisted last year.

During the first week of January, PG Industries was suspended from the local bourse for failing to meet ZSE requirements due to a difficult operating environment. Economic commentator, Eric Bloch, said the delistings signalled an ailing economy. "The delistings will not have much of an impact on the stock exchange and investment in general but will affect a few investors who might worry of possibly the same happening on other listed companies," he said.

However, Nyarota hinted that the economy was going to decline and companies capacity utilisation and performance would further decline.

Economist, Brains Muchemwa, said most companies were delisting in order to restructure their "septic" debts. "Companies are restructuring because of the debts they have and to reshape their business models to try and overcome the prevailing economic challenges," he said.

"Some are doing so to grab opportunities that would have emerged. It is easy to raise more money when not listed because a company would not be subject to regulations that are associated with listed companies," Muchemwa said.

In fact, quoted entities have found it difficult to convince investors to inject large amounts of capital when valuations using market benchmarks reflected a lower net worth to the firm's potential, intrinsic value. Since it became increasingly difficult to obtain long-term loans and lines of credit after the economy was formally dollarised in February 2009, ZSE-listed firms have resorted to rights issues or private placements to raise capital

In so doing, the companies sought to avoid the burden of huge interest payments on the local market. However, almost all rights issues embarked upon by listed companies since dollarisation have failed to attract meaningful support. Most were undersubscribed.