By John Kachembere
FOREIGN investors on the Zimbabwe Stock Exchange will soon be able to repatriate dividends and proceeds from equity trades following a central bank plan to establish a portfolio investment fund aimed at facilitating foreign payments.
Reserve Bank of Zimbabwe (RBZ) governor, John Mangudya, yesterday said the new facility would encourage overseas portfolio investment in the local equities market.
This comes as international investor appetite is diminishing on the local bourse, with foreigners selling to escape increasing uncertainty brought about by cash and foreign currency shortages.
Capital flight characterised the local bourse in the six months to June, as foreign sales amounting to $58,28 million outweighed foreign purchases of $27,77 million, resulting in a net capital outflow of $30,51 million.
The central bank last year introduced a priority list that is meant to control the allocation of foreign currency.
However, this has resulted in delays in payments to foreign suppliers and foreign investors repatriating dividends or money from stock sales.
Mangudya said by the end of last week, at least $75 million in dividends, sales and income was locked up in banks waiting repatriation.
To deal with that problem, the RBZ was creating, with effect from September, a fund in which all proceeds from the Zimbabwe Stock Exchange would go to facilitate foreign payments.
“We are quarantining the fund so that the banks and ourselves will not utilise foreign funding for other purposes than what it was intended. So this is like a matching scheme and it is important as it gives hope, faith and confidence to foreign investors that they will get their money,” he said.
Mangudya said foreign portfolio flows had provided both liquidity and stability on the market, which has been positive for not only listed firms but the country as a whole.
“The bank’s view is that a well-functioning capital market provides a strong signal for potential sources of foreign investment and for promoting the integrity and efficiency of the stock market. The fund is therefore essential to re-establish confidence on the ZSE by demonstrating that there is a pathway for foreign investors to realise their gains, stimulate active trading and build a vibrant market with efficient and accurate price discovery and generally to demonstrate that Zimbabwe is open for business,” he said.
The facility shall initially focus on the collection and repatriation of foreign funds related to portfolio equity purchases and sales, with the scope of the fund to include the repatriation of dividends at a later date. Such dividends would then be serviced on a pro-rata basis.
Mangudya noted that the central bank would place an initial seed capital of $5 million into the fund to kick-start the repatriation mechanism and improve investor confidence.
“The bank shall have an oversight role for monitoring purposes and to maintain integrity and transparency in the functioning of the fund. All incoming and outgoing portfolio funds, going forward, to be collected and pooled into the fund, with payments made on a first-in-first-out basis and, if required, on a pro rata basis in line with funds available in the fund post contribution.
“Excess funds raised will be allocated to clear the backlog with capital gains prioritised over dividends,” he said.