eBusiness Weekly
Tinashe Nyamunda
The stock market has experienced a bull run recently. Many reports demonstrate that many counters are making very important gains and therefore high rates of return for investors.
Prima facie, this appears to be good news, but in real terms, it really isn’t when considering the broad economic implications for the country. I have always been a strong sceptic of the role of the stock exchange in the economy.
Indeed, the promise of high returns for investors was partially the basis upon which Cecil John Rhodes raised funds to finance the occupation of Mashonaland by the pioneer column in 1890, the expansion into Matabeleland in 1893 and to crush different uprisings amongst groups of Ndebele and Shona ethnicities in 1893 and latterly in 1896.
These shares were floated by Rhodes’ British South Africa Company (BSAC) on the London Stock Exchange. Granting the BSAC, a private company a royal charter to act as government in the new colony was the United Kingdom’s way of facilitating colonialism on the cheap, and this was achieved through the stock exchange.
But to market the land between the Limpopo and the Zambezi (named Southern Rhodesia in 1898), the BSAC, which claimed to have access to all the land and mineral resources in the country needed to prove to investors that the colony would be a paying concern.
To achieve this, the BSAC peddled media stories in British media that easily exploitable gold deposits were abundant in the colony but funds were crucial to the finance machinery, experts, labour and other things. And this worked for a while, a local bourse of the stock exchange was even established in 1893, only to collapse in 1896, hence a stock exchange in colonial Zimbabwe was only effectively established in 1946.
Meanwhile, Southern Rhodesia became a speculator’s paradise, with a bubble established by the positive and false media reports in leading newspapers in Britain in the 1890s. But bubbles always burst at some point. A combination of Rhodes’ ambitious military campaigns and imperial ambitions which were very costly, including the Anglo-Boer war of 1899 to 1902, the bubble finally burst.
The BSAC was under severe financial strain, failing to pay dividends even to the most loyal investors, thus exposing the reality that colonial Zimbabwe was no legendary valley of Ophir, and neither did it possess gold wealth equivalent to that of the Witwatersrand as had been suggested by the BSAC.
The gold that it contained lay in reefs that are difficult to exploit, require extensive labour and in some instances expensive machinery, heightening the costs of production.
But the stock exchange had made fortunes for speculators, allowed the BSAC to pursue its political and military adventures in Southern Africa, but cost the poor pensioner investor in the south of England who had bought BSAC stocks valuable life savings.
Of course, the chartered company rebranded itself and turned towards settler agriculture, accelerating a chain of events that would result in the settler government amassing most of the country’s fertile land resources while generally pushing Africans to the brink by the end of the colonial period. Fast forward to today.
The stock exchange is still an important financial intermediary for companies wishing to raise finance for their diverse operations. It is a very important institution, but like other financial intermediaries, its functions are also informed by broader economic fundamentals and its performance can tell us a lot of what is happening in the economy.
In 2007, as the economy was imploding under hyperinflationary pressures, companies moped up whatever finance was in the economy to facilitate their activities, some of which they transformed into cash through sales of actual products.
But the investor needed to wait a certain amount of time for his investment to mature.But given the rate of inflation, the average small investor lost their investments in real terms, especially when translating their earnings into hard currency. The same situation is prevailing now. A bullish stock exchange encouraged the average investor to put their savings in the stock exchange.
Speculators who are used to the game may make a killing for as long as the bubble lasts, but the poor client looking to use his trapped deposits into something more useful requires a bit more time to realise a return on his investment. Of course, under this climate of increasing uncertainty, even the listed companies may not escape unscathed, but the biggest loser will be the ordinary investor doing it for the first time or who has done this only a few times before.
What bothers me is that the way the stock market is performing is reminiscent of the eve of 2008. I am not going to explain the technicalities of this as a number other reports have covered this over the past week or two.
But I will complain about the lack of concern from the country’s financial authorities. It appears as if they have their heads buried in the sand. It is about time they re-emerged and faced the challenges that face and try to confront the problems the country faces.
Many will argue, correctly, that the problems of this country are not economical per se, but at least from the economic lens, a discussion must start by those that have the welfare of Zimbabweans at heart. All the signs were there to show that the stock exchange would not indefinitely sustain its bullish run.
Hyperinflation could, in some views, be really knocking on Zimbabwe’s doors; kuburner is now really compromising currency values on the one way street to economic implosion.
As this happens, Government must stop putting on a show of normalcy, and confront the real challenges that face the economy and the ordinary people of Zimbabwe. These problems are no big secret, they are known to us all and do not require me expending energy in explaining them. Ignoring the signs being given by the stock exchange in an unstable economy is just one of the ways the problems are being ignored.
