Blocked exits send offshore capital fleeing the ZSE

CLOUDINE MATOLA

Foreign investors are scaling back exposure to the Zimbabwe Stock Exchange (ZSE), as policy inconsistency and repatriation constraints continue to undermine confidence in the country’s capital markets, it has been learnt.

Official data obtained from the ZSE shows that foreign investor participation slipped to 20.96% in 2025, down from 24.68% in 2024, extending a downward trajectory that market watchers say reflects mounting offshore caution.

The decline is significant for a market that has historically relied on foreign portfolio flows to deepen liquidity and stabilise valuations during turbulent economic cycles. Analysts note that while domestic participation has provided a cushion, foreign capital remains a critical anchor for price discovery and long-term credibility.

At the heart of the pullback is policy unpredictability. Shifts in monetary frameworks, exchange rate management and regulatory interventions have complicated risk assessments for global investors. In frontier markets, stability is often as valuable as yield — and Zimbabwe’s evolving policy landscape has made forward planning increasingly difficult.

Repatriation challenges have further amplified concerns. Offshore investors continue to flag uncertainty around accessing foreign currency to remit dividends and capital gains. Although authorities have moved to improve foreign currency availability, lingering doubts over seamless exit mechanisms remain a deterrent.

“Portfolio capital is highly sensitive to policy clarity and capital mobility,” a market analyst observed. “When either becomes uncertain, allocations are quickly reassessed.”

Macro-economic fragility has compounded the strain. Exchange rate volatility and inflationary pressures have weighed on real returns, while liquidity constraints have reduced market depth. For foreign funds comparing Zimbabwe with alternative frontier markets, relative risk has risen.

The latest participation figures serve as a barometer of that sentiment shift. Reduced foreign involvement not only affects turnover, but also narrows the investor base at a time when broader capital inflows are essential for economic stabilisation.

“Foreign participation has been affected by increased policy inconsistency. For example, the government has increased and decreased capital gains over the last five years and a raft of economic measures that have affected some of the listed companies, highlighting our markets as unattractive. Macroeconomic instability mainly fueled by high exchange rates, inflation have created an unpredictable environment, in which mature funds cannot keep up with the increases in foreign selling as foreigners divert the funds to stable markets.

“The issue of repatriation of funds has also contributed to the challenges of net funds outflow, as foreigners struggle to repatriate their dividends and proceeds after disinvestment. However, of late, banks have been able to quickly repatriate dividends and proceeds of disinvestments, so we expect to see some improvement in foreign purchases. Some investors highlight the issue of increased risk as a reason for declining participation, with the issue of prolonged suspension of Old Mutual and PPC being the major concern,” Chirwa said.

Chirwa stressed that restoring investor confidence will require urgent regulatory action and macro-economic stability.

“The government and regulatory authorities need to urgently finalize negotiations and lift the suspension of Old Mutual Zimbabwe and PPC shares as this has severely affected investor confidence. A clear roadmap with timelines for resolution should be communicated to the market, even if it involves phased lifting of restrictions or conditional trading resumption. The government needs to maintain the stability of the local macroeconomic environment, especially the ZiG so foreigners will not have to bear the challenges of an ever changing environment. They need to maintain a consistent monetary policy, continue building foreign currency reserves, and avoid frequent policy changes that erode confidence.

“There is a need to establish clear and reliable mechanisms for foreign investors to repatriate dividends and capital. This could involve dedicated foreign currency allocation windows or priority access for portfolio investors with verifiable capital market holdings,” he said.

He added that authorities must commit to transparent, consultative policy-making processes in which major regulatory changes are discussed with market participants before implementation, warning against sudden suspensions or policy reversals that catch investors off-guard.

Securities and research firm Morgan & Co echoed similar concerns, pointing to Zimbabwe’s high debt burden and a volatile operating environment as key deterrents.

“There are a number of issues that include difficulty in moving funds out of the country after disinvestment, a VUCA environment that has seen some foreign investors being forced to remain invested beyond their horizon and capacity and a fragile macroeconomic environment characterised by very high debt relative to GDP, poor infrastructure, poor governance, and heavy taxes.”

FBC Securities research analyst Enock Rukarwa concurred, noting that years of macro-economic instability have led to write-offs by multinational firms and accelerated foreign disinvestment.

“So when you look at foreign investor participation, what you note there is that as a country, we have endured several years of macroeconomic instability to the extent that some multinational companies and some companies, foreign companies with local operations have gone to an extent of even writing off Zimbabwean operations. This is how dire the situation was,” Rukarwa said.

“So it’s one of the reasons why we are seeing a lot of foreign investors continue to exit the local market. And number two, you also recall that as a country, we have seen numerous episodes of policy uncertainty and this policy uncertainty is a negative externality to foreign investors and the option that you are left with when you are operating in such an environment is to consider your alternatives.

“No wonder why other neighboring countries in the SADC and also in Africa have been getting a lot of attention in terms of foreign direct investment at a point in time when Zimbabwe as an economy was having a decline in these numbers.

“You’d also pick that as a country, as an economy, we took a deliberate stance to prioritize foreign investment, disinvestment through the auction system whereby if you sell your shares on the Zimbabwe Stock Exchange, you get a priority on the auction system when you want to disinvest from this economy. So we are now seeing a lot of foreign investors taking advantage of this window and it has been actually acting in the favour of foreign investors. Why? Because there is that sentiment that such a window will not come again, especially in the short to medium term,” Rukarwa said.

He further noted that the migration of some blue-chip counters from the ZSE to the Victoria Falls Stock Exchange (VFEX) has created an easier exit route for foreign investors.

“No wonder why we are seeing a lot of attraction and a lot of exploitation of this foreign disinvestment window where foreign investors can actually take out their investments without challenges. Then the last point that is also critical is that these foreign investors were invested in blue chips which were on ZSE and some of these blue chips migrated to the Victoria Falls Stock Exchange and this migration has necessitated an opportunity where if you sell your shares, you’re a foreign investor, you can repatriate your investment proceeds without a challenge and this has also been creating a lot of opportunities for the foreign investors. So when you see volumes trading, especially on your high value counters, your blue chips on the ZSE and also Victoria Falls Stock Exchange, most of these high value trades are being undertaken by foreign investors trying to disinvest from this market,” he said.

Another stockbroker, Kelvin Muchirawehondo, said high country risk perceptions and policy inconsistency continue to weigh heavily on investor sentiment.

“The reason might be the instability of the local currency, high country risk perceptions and policy inconsistency.

“Improving the ease of doing business within the country might attract foreigners, strict reliance with the fiscal policy, diversifying asset classes (listing of REITS on the VFEX), improving market liquidity and continued effort of local currency stabilisation,” he said.

As foreign participation continues to trend downward, analysts say restoring confidence will require more than rhetoric. Policy consistency, macro-economic stability and credible mechanisms for capital repatriation may determine whether Zimbabwe can stem the tide — or watch more foreign capital quietly exit its markets.