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.
