HARARE (Bloomberg) \u2013 The share price of one of Africa\u2019s oldest insurers is taking center stage in Zimbabwe\u2019s battle to bring order to its chaotic foreign-exchange system.<\/p>\n
In the latest in a series of attempts to stabilize its currency, the government wants to eradicate the Old Mutual Implied Rate. The gauge, used by domestic companies to determine the future cost of goods and services, calculates a potential forward rate for the Zimbabwe dollar by measuring the difference between Old Mutual Ltd.\u2019s share prices in Johannesburg, London and Harare.<\/p>\n
The indicator is among many \u201ccontrived phantom exchange rates\u201d in use that \u201cconspire to defeat fiscal policy,\u201d the government said in a June 26 edict that halted trading on the Zimbabwe Stock Exchange and stopped most mobile-banking transactions.<\/p>\n
The OMIR is one of multiple exchange rates Zimbabweans use daily to navigate the nation\u2019s myriad economic challenges, including annual inflation of almost 800%.<\/p>\n
A perennial shortage of cash means anyone who has physical banknotes is able to negotiate exchange rates with brokers who pay the funds onto mobile-money platforms. The brokers can then sell the hard cash at an even higher rate.<\/p>\n
That\u2019s resulted in a widening gap between the official rate of 63.7 per U.S. dollar, and the amount at which it trades on the streets of Harare, which is now at 100.<\/p>\n
\u201cPeople have relied on making money from buying and selling Zimbabwe dollars, and not from any real production,\u201d said John Robertson, an independent economist based in Harare. \u201cIt\u2019s what has created these distortions.\u201d<\/p>\n
The OMIR also feeds into the black-market Zimbabwe dollar rate, which the nation\u2019s bourse uses, along with the official rate, to determine the value of stock prices.<\/p>\n
Old Mutual’s Zimbabwe stock rallies as a hedge against currency
\nOld Mutual, founded in Cape Town in 1845, is not involved in determining the rate. Market participants take the company\u2019s share prices in South Africa, the U.K. and Zimbabwe, convert each of them into the U.S. dollar, which should typically trade near par.<\/p>\n
The finance minister, however, in March restricted trading in the shares of Old Mutual and two other companies by making the stocks no longer fungible, or regarded as being equal in value to those traded on other exchanges, in a bid to prevent outflows caused by the dual listings.<\/p>\n
Despite the move, investors poured into Old Mutual, using it as a proxy to the U.S. dollar because of its offshore listings, pushing the Zimbabwe-listed stock up 90% since the beginning of May. The shares in Johannesburg and London were little changed, resulting in the implied rate doubling to 122 as the gap between the securities widened.<\/p>\n
Zimbabwe\u2019s benchmark industrial index has risen more than sevenfold this year, reaching a record on June 24, and giving the overall bourse a market value of about 229 billion Zimbabwean dollars ($3.6 billion). None of the stocks in the 57-member index have declined this year as Zimbabweans seek a haven from runaway price increases and the weaker currency, which has slumped to 63.7442 per U.S. dollar after a 25:1 peg put in place since March was abandoned.<\/p>\n
Suspend Listing<\/p>\n
Authorities now want to eliminate the OMIR before allowing any trading to resume on the Zimbabwe Stock Exchange, people familiar with the matter said, asking not to be identified because the talks are private. The OMIR was the focus of various meetings on Monday between members of Zimbabwe\u2019s stockbrokers\u2019 association, the stock exchange, the Securities and Exchange Commission and the Treasury, the people said.<\/p>\n
Measures being considered include suspending Old Mutual\u2019s shares from the Harare-based bourse, having the securities traded only in dollars, or moving the listing to the Victoria Falls Stock Exchange, a market that will only trade in foreign currency once it opens later this year, the people said.<\/p>\n
Nick Mangwana, the government\u2019s spokesman, referred queries to the finance ministry. Several calls and text messages sent to Finance Minister Mthuli Ncube and central bank Governor John Mangudya seeking comment weren\u2019t answered.<\/p>\n
\u201cThere has not been any official communication from authorities in Zimbabwe to Old Mutual,\u201d the Johannesburg-based company said in an email \u201cWe have asked our local subsidiary to reach out to our stakeholders in Zimbabwe to try and understand the circumstances around ZSE closure and other related matters.\u201d<\/p>\n","protected":false},"excerpt":{"rendered":"
HARARE (Bloomberg) \u2013 The share price of one of Africa\u2019s oldest insurers is taking center stage in Zimbabwe\u2019s battle to bring order to its chaotic foreign-exchange system. In the latest in a series of attempts to stabilize its currency, the government wants to eradicate the Old Mutual Implied Rate. The gauge, used by domestic companies […]<\/p>\n","protected":false},"author":84,"featured_media":19012,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[3,6],"tags":[990,748],"class_list":{"0":"post-24864","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-all-news","8":"category-economy","9":"tag-mangwana","10":"tag-zse"},"yoast_head":"\n