Zimbabwe stock market rout:Are we headed for recession?

by Justice Zhou

The local stock market—rated as one of the best on the continent— experienced a sharp drop in the first half of the year. This has made things look quite unpleasant, especially for an economy grappling with a drought of liquidity.

Stock markets keep facing turmoil the world over, though, but the Zimbabwe Stock Exchange (ZSE)’s lacklustre performance has set many a tongue wagging. Could this fall-off be a sign of worse times ahead?

Based on the share market as a leading indicator, one would surely wonder if this rout is a bad omen for the broader economy.

The onset of the bear market in the first half of 2015 saw a massive sell-off, led by foreign investors, wiping away about 11 % of the ZSE’s market value. So, are we really headed for another recession?

Opinion is divided on why share prices have taken an abrupt knock. Some analysts argue it’s just a correction that’s underway as assets were overvalued, and won’t last very long. On the contrary, others point to a looming economic crisis.

Whatever the situation might be, policymakers should know if Zimbabwe is lurching towards a slump so that they may find ways to stem it.

Online magazine African Business Central (ABC) ranked the local bourse 5th in the top 10 most active stock markets in Africa in 2014.The ranking was according to the average weekly volumes of shares traded.

But the ZSE’s benchmark index has retreated by roughly 28% since a rally that saw it touch record highs in 2010.

Such a drop in stock market activity is a stumbling block to recovery, as share markets play a key role as a source of investment capital that businesses need.

Equity finance is widely thought to be safer than debt, primarily because there’s no guarantee that loans and interest would eventually be repaid.

Given the dent the flagging economy has put on company earnings, it therefore came as no surprise that even the bourse’s “all-weather” blue chips suffered a beating.

In general, the rest of the counters on the ZSE seem so highly leveraged that something more drastic really needs to be done on the government’s side.

The firewalls policymakers need to set up just in time to prevent the economy falling into a recession would depend on what might be stirring it up.

Here’s a few ways how the government may deal with a likely downturn before it roils the economy into a tailspin and wreaks needless havoc:

First, the issue of who would take over as president once Robert Mugabe steps aside should be resolved urgently. It doesn’t help for us to keep the succession strategy under lock and key.

Secondly, investors also need clarity on the indigenisation policy.There can be no doubt we needed foreign investment in the wake of a liquidity crisis.

The severe lack of capital injection is one of the reasons why the economy is melting down and therefore chances of recession are high.

Furthermore, the renewed spate of farm grabs should come to an end. How can we expect to boost agriculture and stem food shortages when mayhem thrives unabated on farmland that is meant to be productive? 

Expansionary fiscal policy— the cutting of taxes to boost consumer spending and disposable income and the increase in government spending — would probably have been an ideal measure.

But how would it be possible to execute measures that might stimulate the economy and avoid a downward spiral if the incumbent appears to be out of sorts?

The room for monetary policy to manoeuvre is very limited when taking into account the constraints posed by the current multi-currency regime. Reserve bank governor John Mangudya is certainly doing his best to stem the tide.

Ironically, the state media are having a field day pontificating about the numerous “mega deals” that the government has inked over the years with the Chinese.

Denying a brewing crisis, the hype is as if these deals would miraculously translate into an avalanche of investment, but alas!

Forget the gospel of Chinese "mega deals". Rather, let’s focus on putting our house in order first. The government must resolve the succession issue and be clear on its future policy direction.

Of course, the stock market may stage a dramatic comeback and outperform the economy. But it doesn’t always follow that the economy will likewise enter a recovery path.

The stock market isn’t a perfect forecaster of economic trends, but there’s every reason to believe Zimbabwe might soon find itself in yet another morass.

Why Zimbabwe and Greece have nothing in common

by Justice Zhou

Zimbabwe and Greece have in recent years attracted heated global debate and offered typical case studies due to their on-going economic problems.

Some people have gone as far as suggesting that the two countries have similar problems. Those who say they have something in common are missing the point, and here is why:

Zimbabwe is facing problems that are a result of bad governance, bad policies and international isolation. In other words, the crisis in Zimbabwe is deliberate and can be fixed when those inflicting it are no longer in political power.

Nothing will stop Zimbabwe rising from the ashes if a proper leadership is elected in future and abides by proper principles and procedures of running a country and economy.

Unlike Greece, the Zimbabwe government has nowhere to borrow money from at the moment to balance its fiscal books.

The IMF and other international creditors are reluctant to lend to the southern African country because they believe it doesn’t have the ability to repay loans.

Even its better-off neighbouring states haven’t had any intentions of pouring substantial amounts of loans they know will only end up in a bottomless pit.

So there is no way Zimbabwe would become as indebted as Greece if nobody is lending it more money it obviously would fail to return.

On the other hand, Greece is reeling from a structural problem that isn’t necessarily a deliberate political infliction.

Greece has already received a staggering €240bn worth of bailout funds that, quite frankly, have hardly extricated the country from its mess as earlier intended.

Greece has a duly-elected government, it isn’t subject of international isolation.If there are any investors avoiding the country, it would be for reasons other than bad governance, not upholding the rule of law and election-rigging.

Every government has a responsibility to see to it that it lives within its means, thereby avoid crippling insolvency which might lead to dire economic consequences.

Following years of unchecked government spending, Greece’s sovereign debt has soared. When the global financial crisis hit in 2008, the Eurozone state was caught unawares and has since struggled to emerge from the crisis.

In some respects, Greece has a stubborn debt crisis that nobody has ever come up with a tangible solution to although there is political will to deal with it. Despite loads of generous cash being funnelled into that country’s coffers, there doesn’t seem to be a let up to its debt conundrum.

But that doesn’t make Greece’s problems interminable, nor do Zimbabwe’s woes make it a hopeless economic wasteland as some would mistakenly have the world believe.

Don’t get me wrong, I’m not trying to downplay the calamity that Zimbabwe is currently mired in. My point is that we have to be realistic when making comparisons.

The more careful we are when dealing with facts, the more we are likely to keep people well-informed about what is really going on in this world.

While the origin of Zimbabwe’s economic meltdown is bad politics, bad governance and self-inflicted international isolation, these can easily go away if the country overcomes its leadership problems.

Any attempts to compare the economic metrics of a country in the developed world with those in a developing country would sound rather unfair, if not alarmist.

Well, it’s true the government of Robert Mugabe has destroyed Zimbabwe beyond denial. At the same time, that doesn’t mean its economic crisis cannot be overcome.

Zimbabwe has ample natural and skilled human resources and isn’t beyond repair. The bottom-line is it just can’t easily be compared with Greece as the nature, origin and possible solutions to their problems are completely different.