8 February 2018

Zimbabwe: RBZ Measures Will Bring Monetary Stability


The 2018 Monetary Policy Statement that was presented yesterday by Reserve Bank of Zimbabwe governor Dr John Mangudya, is another clear testimony, the call by President Mnangagwa that Zimbabwe is "open for business" is not just a mantra, but that it has every intention to "walk-the-talk."

In his inaugural speech, President Mnangagwa specified that foreign investors remain key to the country's economic reform agenda and that all foreign investments will be safe in the country.

He repeated the same message when he attended the 2018 World Economic Forum in Davos, Switzerland when he said: "I am aware that most of our businesses require injection of new capital from foreign investors and I want to reiterate that all investments will be safe and secure in Zimbabwe. Foreign investors will be able to repatriate profits from all their investments in our country."

The new measures that have now been put in place by the RBZ as explained in our story elsewhere in the paper, will now put action to the President's words and will act as panacea for tight foreign currency availability as they are expected to entice investors to bring into the country the much needed foreign direct investment as well as Diaspora investment.

In the 2018 MPS, Dr Mangudya introduced 23 measures that are meant to bring confidence and enhance economic recovery. One of the measures was to enhance the nostro stabilisation facility by $400 million as well as ring-fence investment inflows.

Dr Mangudya said the measures to enhance the facility will provide assurances that international remittances and individual foreign currency inflows received through normal banking channels are available for use when required by the owners. This decision, to ring-fence some of the nostro stabilisation facilities to meet investment outflows, will go a long way in promoting investments into the country.

The RBZ also introduced measures that are meant to refine the operation of the Portfolio Investment Fund by ensuring that all portfolio investment inflows are ring-fenced to meet the portfolio investment outflows, which shall be processed by giving priority to capital before capital appreciation (profits) and dividends.

According to RBZ, "this policy measure is necessary to augment the current $5 million that has been provided in the Fund as seed capital and to further provide assurances to investors that Zimbabwe is open for business."

Of late foreign investors, who would have brought foreign currency into the country for various investments, were facing challenges in repatriating principal investments, profits, dividends and sale proceeds.

This resulted in some resorting to buying Old Mutual Plc shares on the Zimbabwe Stock Exchange and opt to remove them from the Zimbabwean register for onward sale on the London Stock Exchange or the Johannesburg Stock Exchange. The move by the RBZ to ring fence some of the nostro stabilisation facilities will thus go a long way in boosting investor confidence.

Ring-fencing foreign investments will enhance liquidity on the local markets. Market liquidity is very important for investor inflows as investors don't want their capital or gains locked into an illiquid market. An economy where investors can easily enter and exit in a manner that is least disruptive to their plans will ensure a higher degree of investor confidence.

The above measures were also buttressed by the provision of investment guarantees that are meant to protect investors' funds.

The central bank is working with the African Export-Import Bank (Afreximbank) to put in place guarantees worth $1 billion to investments coming into the country. As Dr Mangudya said: "Such guarantees and liquidity support are necessary to protect investors' funds from country risk, and in doing so, enhancing investor confidence."


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