You have to give it to the team charged with handling our economy, they may not be doing well but they are certainly working hard. Deep into the weekend an exchange control order was gazetted that cancelled the fungibility of dual-listed shares. As sentiment increases that Zimbabwe continues to repeat its history the authorities have taken us back to a policy instituted by Gideon in 2008 prior to the then Zimbabwean Dollars collapse.

What does it mean?

Certain shares on the Zimbabwe Stock Exchange are dual-listed to other exchanges, namely Old Mutual, Pretoria Portland Cement and SeedCo. In simple terms, one can buy shares of these counters on one exchange such as the Zimbabwe Stock Exchange and sell them on another exchange where they are listed such as the Johannesburg Stock Exchange. This is fungibility.

Old Mutual Implied Rate and mischief

Old Mutual shares, in particular, come into the spotlight with the Old Mutual Implied Rate (OMIR). This is the exchange rate for the Zimbabwean dollar implied by the price comparison of ZSE Old Mutual Shares with Old Mutual shares on the Johannesburg Stock Exchange or the London Stock exchange. At the close of business on Friday 13 March, the OMIR was 60.13 versus a parallel market rate of 42 and an interbank rate of 18.39 to the US dollar.

You will look at that OMIR and wonder why it is 60 when the parallel exchange rate is only 42. In 2019 the ZSE rules were changed to include a vesting period for sales of shares such as the fungible Old Mutual. This rule would mean that a transfer of such shares could only be initiated after 90 days of holding them. Hence the OMIR uses a forward rate of sorts that compensates for the 90-day holding period. The reason this rule was instituted is that Old Mutual and other fungible shares were being used as a method to move money into and out of Zimbabwe without going through strict exchange control regulations. For the two reasons listed here, these shares have always received attention of the authorities.

Why ban it?

It seems the ministry of Finance and Reserve Bank of Zimbabwe have made a considerable investment in the interbank market. Most recently announcing the implementation of the Reuters based electronic reporting system which was implied to go live on Thursday the 12th of March but is to date a no-show. As discussed in this article, there seems to be a deliberate effort to make the interbank the only game in town when it comes to foreign currency exchange rates. While previous attempts to clamp down on parallel market traders have fared poorly this time there is a dogged determination in the policy approach. Eliminating OMIR would go a long way towards culling the competition for the interbank market.

If indeed the intent is to snuff pout competition for the interbank rate we should expect to see further action. Expect some sort of move against the parallel market traders or those who disseminate parallel market rate information at the very least. The parallel market has proved resilient, however, ultimately because of the failings of the Reserve Bank of Zimbabwe’s approach to foreign currency.