The Government of Zimbabwe through the Minister of Finance and Economic Development Professor Mthuli Ncube has suspended the fungibility of Old Mutual, Seedco and PPC Limited shares with effect from 1 June 2020 for a period of one year.
“I Hon. Professor M. Ncube in my capacity as an exchange control authority under Part V (“Securities”) of the Exchange Control Regulations, 1996 (Statutory Instrument 109 of 1996). hereby order the suspension, for a period of twelve months from the publication of this General Notice ending on the 12th March, 2021, of every authority, directive or order grunted by any exchange control authority allowing the fungibility of shares of the following companies listed on the Zimbabwe Stock Exchange—(i) Old Mutual Limited; (ii) PPC Limited; (iii) SeedCo International Limited. This Order does not affect the settlement of any transaction in the above listed securities conducted on any registered securities exchange on or before 13th March, 2020, in respect of which settlement was outstanding,provided that settlement must be effected by the 18th March. 2020,” read part of the statement.
The Lingo
You maybe wondering why the suspension of the fungibility is a big deal to warranty classification as breaking news. Let us first explain what fungibility is. Lets use Old Mutual as an example. Old Mutual Limited shares are listed on the Zimbabwe Stock Exchange, Johannesburg Stock exchange and the London Stock exchange. Take the share as a loaf of bread or just a commodity. Currently, the Old Mutual share costs 69.06 Pounds on the London Stock Exchange, and in ZWL 5,297.37 in Zimbabwe. one pound is equal to USD1 .23 Hence Old Mutual share costs USD 84.87. If we use simple mathematics, the implied rate is 5297.37/84.87. The Current exchange rate today should be ZWL 62 for USD 1.
The Finance Minister is of the opinion that the parallel market rate is chasing the Old Mutual Implied Rate of 62 as we have calculated. He is trying to stop that.
History Repeating Itself
Mthuli Ncube is not the first to implement that in Zimbabwe. Former Reserve Bank Governor Gideon Gono did the same when he suspended the fungibility off dual listed shares in May 2008. Zimbabweans are fearing the same could happen to Zimbabwe in 2020. Mthuli Ncube if following in Gono’s footsteps. Gono presided over the economy when inflation reached astronomical levels.
Management By Statutory Instruments
Ncube has been consistent on using statutory instruments to manage the exchange rate, without addressing the fundamentals. Savanna News calls it Management by Statutory Instruments. In 2019, the treasury boss suspended publishing of year to year inflation figures. His argument was that we were not comparing like to like as prices which had been previously pegged in USD were not pegged in ZWL. The suspension did not stop the inflation rate from rising. Experts believe the suspension of the fungibility of shares is another move that is meant not to address the fundamentals but the flow of information in the economy.
What did the Mthuli Ncube say about suspending fungibility of shares?
Mthuli Ncube said, ” Treasury issues General Notice 583 of 2020 suspending Fungibility of Certain Listed Shares with immediate effect. This is part of broad and bold measures to weed out some of the visible sources of currency instability.”
Old Mutual repeatedly targeted
Old Mutual has always been a target by ZANU PF Ministers. First it was former Youth, Indigenisation and Economic Empowerment Minister Saviour Kasukuwere who pursed Old Mutual in order to force it to cede 51% of their shares to locals. His fellow comrade Patrick Zhuwao who happens to be former President Robert Mugabe’s nephew took over the portfolio and clashed with Former Finance Minister Patrick Chinamasa as he sort to gain from Old Mutual’s indigenisation directive. The revelations were made by former Ministry of Finance Communication Taskforce member Ace Lumumba who revealed that Zhuwao wanted 5% of the largest financial service provider in the country. Former Information Minister Christopher Mutsvangwa once accused Old Mutual of manipulating OMIR to raise the rate on the black market.