EMMANUEL Munyukwi, CE of the Zimbabwe Stock Exchange (ZSE), has had a stressful time during Zimbabwe’s lost decade — keeping interest alive in a stock market increasingly disconnected from the rest of the world. Hyperinflation, peaking far north of the last official rate of 231-million percent, a government driven by political expedience and a currency in freefall were just some of the other headaches Munyukwi, along with the rest of the country’s business sector, had to cope with over the past 10 years.
The ZSE saw foreigners pulling out and local companies using the exchange as a hedge against inflation. In 1997, 30% of trading was driven by foreigners; in 2008 it was closer to 2%. The exchange became a repository for trapped local savings. The scramble for assets saw share prices rise by hundreds, and sometimes thousands, of percent daily. The ZSE was touted as one of the best-performing exchanges in the world, with the benchmark industrial index rising more than 12000% in 2007 — although few outside the country were prepared to trade on it.
But Munyukwi says he is relieved the ZSE is back in the real world, dealing in a different kind of dollar — and in the kind of numbers not just Zimbabweans can follow.
The ZSE chief was recently appointed chairman of the Committee of Southern African Development Community Stock Exchanges (CoSSE), taking over from Geoff Rothschild, head of international relations and government at the JSE. Munyukwi hopes the position will put Zimbabwe back on the investor map and increase the visibility of the stocks on one of Africa’s oldest and biggest exchanges.
CoSSE was established in 1997 to increase co-operation and links between stock exchanges in the Southern African Development Community (Sadc) region and to find ways to make Sadc stocks more attractive to investors. Its members are SA, Namibia, Botswana, Mauritius, Mozambique, Swaziland, Tanzania, Malawi, Zambia and Zimbabwe.
The ZSE, which Munyukwi has headed since 2002, has more than 80 listed counters and its market capitalisation at the end of 2009 was 4bn, a big jump from March 2009 when it stood at 1,6bn. High transaction costs, more than double those in the region, have been cut and the ZSE is poised for growth.
Analysts predict the value of the exchange will rise to nearly 12bn over the next three years. However, Munyukwi is not setting his sights too high just yet. The political environment is far from settled, he says, and that means investors are not plunging into the market.
Investor skittishness has been compounded by the recent gazetting of the Indigenisation and Economic Empowerment Regulations, which will force larger companies to give at least 51% of their shareholdings to black Zimbabweans. The industrial index has shed a cumulative 20% since the move and political leaders’ contradictory statements on the issue have not helped to allay investor fears.
Munyukwi says the “big bang” approach to indigenisation has revived fears of asset seizure. He believes the approach should be a carefully managed process. He said the government itself had, by halting privatisation a decade ago, thwarted local empowerment through the ZSE.
Munyukwi cut his teeth in the financial world as a banker at Standard Chartered Bank in Zimbabwe. He moved to listed manufacturing conglomerate Art Corporation as group treasurer before joining the ZSE as deputy CE in 1998. He was promoted to CE in 2002. He lists the highlights of his time at the helm of the ZSE as being the creation of an independent market regulator, the Securities Commission, and the regional harmonisation of listing requirements.
But his tenure has been marked more by challenges than highlights. “It has been a very stressful time, particularly the past three years which have seen some big challenges,” Munyukwi says.
The bad times for the ZSE, and the economy as a whole, began on Black Friday — a day in November 1997 when the Zimbabwe dollar lost more than 70% of its value against the US dollar and the stock market crashed as investors fled. The crisis was largely precipitated by the government’s unbudgeted payouts of millions of dollars to 50000 protesting war veterans at a time of mounting economic problems. The economy has only gone in one direction — down — since then.
While the ZSE saw brisk local trading, its relative success at home made it a government target. In 2008, it was accused by the Reserve Bank of Zimbabwe of being a “weapon of economic genocide” for attracting money away from government instruments, which were not producing sufficient yields to counter rising inflation, unlike the ZSE.
In November 2008, it was instructed by the central bank to suspend trading amid allegations of improper dealings by stockbrokers. When it resumed trading in February last year, transactions were denominated in US dollars, reflecting the dollarisation of the broader economy since late 2008.
The move to a hard currency has removed significant currency risk for investors. Munyukwi says companies that had stocks on the ZSE benefited from an automatic revaluation of their assets from the worthless Zimbabwe dollar and some firms, such as Econet, have done exceptionally well. Other challenges include low liquidity in the market — about 1,5% currently — and the fact it has yet to become automated.
He says the market needs to grow and become more diversified. Currently, only 10 companies make up 65% of market capitalisation — Delta, Innscor, Barclays Bank, Old Mutual , Econet, Aico (formerly Cottco), CBZ, Hippo Valley, Seedco and Lafarge Cement. Trading has picked up in the past year as interest in Zimbabwe’s undervalued assets grows and rights offers have been well subscribed, although Munyukwi says local institutions still dominate the market — something that he would like to see change. “Over the past 10 years we have not been affected by international events but now we are re-engaging, companies have to be better geared.”
One of Munyukwi’s key responsibilities as chairman of CoSSE is to oversee the launch of a hub and spoke interconnectivity platform driven by the JSE, which will enable stocks to be traded across 10 exchanges in the region. Munyukwi is upbeat about the prospect of closer integration with Africa’s biggest exchange. He says it is necessary to give bigger companies in smaller markets the visibility they need to raise capital and improve information flow.
He says there have been concerns about the JSE dominating smaller exchanges. “But its intentions are good and it is really a win-win situation, particularly as it will give comfort to foreign investors who want to reduce their risk. It is a reality that what the JSE trades in a day, other Sadc exchanges do in a year.”
Future plans include the establishment of bond and futures markets and there are plans to demutualise the exchange. The Securities Commission of Zimbabwe is also working on statutory instruments to address insider trading and disclosure issues.
“We have lost 10 years. But we are now confident our economy will recover and the stock exchange must play its part in that recovery by helping companies to raise capital and to enable the country to rebuild its infrastructure.”