4 August 2017

Zimbabwe: RBZ Introduces Portfolio Fund

The Reserve Bank of Zimbabwe (RBZ) has introduced a portfolio fund in an attempt to speed up the repatriation of portfolio-related funds to foreign investors invested on the Zimbabwe Stock Exchange (ZSE).

This was announced by RBZ governor John Mangudya (pictured) when he presented his Mid-Term Monetary Policy Statement on Wednesday. The fund, he said, will be in place by September 1 this year.

"The Bank has noticed that repatriation of foreign exchange for securities related transactions is taking a long time to be processed by banks despite such transactions being on the first category of the priority list for the allocation of foreign exchange," Mangudya said in his statement. "In order to address this challenge, the Bank is establishing a Zimbabwe Portfolio Investment Fund ('the Fund") to facilitate the efficient repatriation of portfolio related funds to foreign investors invested specifically on the Zimbabwe Stock Exchange (ZSE)."

The move by Mangudya to encourage foreign investors comes at a time foreign direct inflows into the country continue on a downward spiral. The United Nations Conference on Trade and Development revealed that the country's FDI inflows has reduced from US$545 million in 2014 to US$421 in 2015 before plunging to US$319 million last year.

Mangudya said a well-functioning capital market provides a strong signal for potential sources of foreign investment and forpromoting 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," Mangudya said.

The Fund, Mangudya pointed out, will initially focus on the collection and repatriation of foreign funds related to portfolio equity purchases ands sales, with the scope to include the repatriation of dividends at a later date.

Such dividends, he added, would then be serviced on a pro-rata basis.

Mangudya said a dedicated Portfolio Investment Fund will be opened at two designated commercial banks for the receipt of all portfolio investment proceeds into Zimbabwe and the repatriation of foreign investors' proceeds from the ZSE.

"The bank shall place an initial seed capital of US$5 million in this Fund to kick-start the repatriation mechanism and improve investor confidence," Mangudya said. "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."

Mangudya revealed the central bank shall have an oversight role for monitoring purposes and to maintain integrity and transparency in the functioning of the Fund.

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