The idea of the Victoria Falls Stock Exchange has slowly started to take shape. There was initial excitement over the foreign currency denominated stock exchange and its tax advantages for issuers and investors alike. The exchange has been on a search for a settlements partner and yesterday it was revealed that the Reserve Bank of Zimbabwe would be the settlements partner. The optimism has been replaced with low murmurs in the wake of this announcement.
The new exchange had been on the search for a settlements partner and had made it known of their preference for an international partner. However, they have gone with the RBZ. We know not why or any other details as to who was available for the role but they have gone with RBZ and the Memorandum of Understanding was signed. The VFSE has the ambitious target of launching by the end of October and it’s easy to see how they went this route because of the time involved.
A settlements partner in this case would process the transactions for the exchange with external parties. International exchange will involve different players from many countries and their banking institutions. So a settlement partner would connect the VFSE to the rest of the world.
To say that Zimbabweans lack trust in the RBZ is an understatement. No matter which way you look at things the RBZ is seen as the cause of our economic problems. The bond note, government borrowing, money supply growth, raiding of foreign currency accounts and changing of balances from US dollar to Zimbabwean (then RTGS) dollars are all associated with the RBZ. The same goes for international investors who may have had an eye on the Victoria Falls Stock Exchange after being disappointed by the way things have worked out the Zimbabwe Stock Exchange.
An international settlements partner was preferred to lend some credibility to the fledgeling exchange. While it will be set up in an Offshore Finacial Centre which will have different tax and exchange rules from the rest of the country you certainly need more than that to convince people. Especially if you have a history of picking and choosing which rules to follow and you have the same people working on this exchange as the Zimbabwe Stock Exchange which was abruptly closed for a month on allegations of influencing the parallel market exchange rate. Foreign investors too will feel they have been burnt by the ZSE and all around it and would not be in a hurry to reinvest in that market after successfully exiting the ZSE as many have done.
The big question for locals is their ability and eligibility to invest on VFSE. In early utterances, Finance Minister Professor Mthuli Ncube made it clear that domestic investors would be discouraged from the VFSE as the target was to bring in new investors, preferably from offshore, rather than cannibalise the small investor base the ZSE has. This stance seems to have softened with the mention of those with free funds being allowed to invest on the exchange. The devil is in the details and until the full details are published it is too soon to celebrate, as we have just been reminded.
The VFSE forges on however and it seems they are doing everything to get it over the line. As we countdown we await further clarity on the rules and how this will work.