Papering over cracks

The Reserve Bank of Zimbabwe (RBZ) has standardised export retention at 75% across all sectors of the economy including firms listed on the Victoria Falls Stock Exchange (VFEX) as it seeks to strike a balance between the promotion of production of exports and export earnings and the accumulation of foreign reserves.

RBZ governor John Mangudya suspended the incremental export incentive scheme for ease of administration.

He was quoted by a weekly saying the incremental export incentive had to go as it had sparked off ‘artificial’ migrations to VFEX, leaving the ZSE on the edge.

“We did not want to have an artificial movement of companies, from ZSE to VFEX,” Mangudya was quoted as saying.

If this was the thinking of monetary authorities, the move addresses the symptoms and not the problems.

Companies that have migrated to the VFEX have made it clear that the foreign currency-only bourse offers incentives too good to resist.

They see the bourse as a platform to raise equity capital in foreign currency.

The companies say the VFEX listing requires US$ financial reporting, which contributes to a lower risk perception and an enhanced understanding of the company’s financial position.

This comes at a time when accountants have said that exchange rate volatilities were giving them headaches when preparing financial statements.

Firms that are trekking to the dollar-denominated bourse are attracted by the lower trading costs on VFEX which allows shareholders to retain more of their capital and potentially stimulating the liquidity of their shares.

The VFEX trading costs at 2.12% are lower than the 4.63% prevailing on the ZSE.

It said listing on the dollar-only bourse gives the firm access to offshore settlement which allows for efficient dividend repatriation for foreign shareholders.

This comes as companies on the ZSE have in the past struggled to remit dividend to foreign shareholders.VFEX also offers tax incentives for shareholders which include a 5% withholding tax on dividends for foreign investors compared to a withholding tax of 10% for non-resident shareholders on the ZSE.

There is also no capital gains tax on share disposal compared to 40% on the ZSE. Some firms say migrating to the VFEX enhances regional profile and commercial standing, thereby creating pathways to local and regional prospects and that listing on the foreign currency-only bourse reduces valuation volatility caused by currency translation.

All these incentives are justified as the bourse is operating in an international financial services centre created by the government to attract foreign investors.

Such move was buttressed this week following the appointment of veteran banker Marc Holtzman as the inaugural chairman of the Victoria Falls International Financial Services Centre.

The appointment comes a year after Finance minister Mthuli Ncube designated the Victoria Falls Special Economic Zone as an international financial services centre. This requires authorities to ensure there is policy consistency to attract foreign investors.

Authorities should go to the drawing to come up with measures that ensure counters remain on the ZSE.

The VFEX has on its part attracted foreign investors following the listing of Karo, Nedbank Zimbabwe Depositary Receipts and gold producer Caledonia Mining Corporation in barely three years.

The local currency bourse requires incentives and not protection, like what monetary authorities have done.

 

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