Election anxiety grips economy

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AS THE date of Zimbabwe’s yet-to-be-announced 2023 general election draws closer, anxiety is growing within the market amid fears that the polls will disrupt the economy, piling on other challenges that have marred the domestic business environment.
The country has a history of contested and violent elections, as well as polls “high jinks” by elected officials, which have affected economic stability and growth.

In a recent note, FBC Securities (FBC) said the economy remained fragile as the country nears elections and navigates an uncertain global outlook.
“Despite positive developments in inflation and exchange rate volatility following government measures implemented last year, the local currency has faced increasing pressure on the parallel market. The continued devaluation of the local currency on the black market, outpacing the official exchange rate and resulting in widening of the black-market premium, may lead to arbitrage,” FBC said in its 2023 first quarter report.
Globally, recovery also remains fragile despite positive developments such as slowing inflation and the reopening of China.
“Moving forward, developments in geopolitical matters as well as fiscal policies implemented by authorities will be key,” FBC said.
Earlier this year, economic research firm Morgan & Co cast a gloomy economic outlook for Zimbabwe ahead of the upcoming general elections, citing the effects of political tensions already brewing.
This also comes as analysts have said Zimbabwe’s tourism industry could be hit by a wave of cancellations in the run-up to the polls due to fears that they may turn violent.
Meanwhile, FBC highlighted that generally bullish sentiment is likely to prevail on the Zimbabwe Stock Exchange, with gains being, however, moderated by inflation-tightening measures and liquidity constraints.
“The prevailing uncertainty drives the case for investment in defensive stocks with a proven track record of performance, even in times of downturn. Investors will derive value from holding positions in counters with diverse business models, inflation hedging capabilities foreign currency generation capacity and stable dividend policies.”
During the last quarter, the local bourse registered improved performance, with the year-to-date All Share Index rising 98 percent to 38 568,48 points at the end of March, while the Top 10 Index rose by 87 percent year-to-date, to close March at 12 311,13 points. Market capitalisation grew 65 percent from $2,04 trillion to $3,34 trillion.
According to the report, the Victoria Falls Stock Exchange (VFEX) remains a viable option for investors with US dollar liquidity, offering returns and value preservation in a more stable currency than the ZWL.
“The exchange currently hosts several quality listings and has a healthy pipeline of expected listings shortly. Despite the liquidity challenges, we anticipate improved activity owing to the increased flow of US$ in the formal economy and the growing number of listings on the bourse in the medium to long term.
“Moving into next quarter, we expect to see more migrations to the VFEX, as the theme of dollarisation continues locally,” FBC Securities said.
“As the number of quality listings on the VFEX continues to grow and the flow of US dollar liquidity increases in the formal economy, we anticipate improved activity on the VFEX in the medium to long term.”
The local currency has suffered a continuous decline against the US dollar on both the parallel market and the official market, despite the slowdown in official inflation figures.
FBC Securities noted that the local currency has depreciated circa 58 percent against the dollar during the first quarter on the parallel market and the parallel market premium has also widened to 61 percent at the end of the quarter.
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