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Zimbabwe Stock Market Plunges After Mugabe Victory

posted 6 Aug 2013, 10:06 by Mpelembe   [ updated 6 Aug 2013, 10:07 ]

Shares at the Zimbabwe stock market plummeted as the bourse reopened on Monday (August 5), days after Robert Mugabe won elections by a landslide. Investors have expressed fears that Mugabe may accelerate foreign company take-overs and concerns about a return to Zim dollar.

 HARAREZIMBABWE (AUGUST 05, 2013) (REUTERS) -  Zimbabwe's stock market plunged on Monday (August 05), the first trading day since President Robert Mugabe was re-elected, reflecting investor concerns he might target foreign-owned businesses or stop using the U.S. dollar.

The bourse's Industrial Index fell 11 percent, a dubious market reaction to the landslide win by Mugabe and his ZANU-PF party whose economic policy centres on the "indigenisation" of foreign firms - forcing them to cede majority control to local blacks.

Nine of the top 10 companies on the 5 billion US dollar bourse fell.

Before the July 31 election, the index hit a series of highs on hopes Prime Minister Morgan Tsvangirai might unseat the 89-year-old Mugabe at his third time of trying.

Instead, Mugabe, Africa's oldest head of state, won a crushing 61 percent in the presidential vote and a huge majority in parliament that allows ZANU-PF to change the constitution at will.

Tsvangirai has dismissed the poll as a "farce" and his Movement for Democratic Change (MDC)party is preparing a legal challenge to what it says was massive vote-rigging, although analysts say a court bid is unlikely to succeed.

There has been no sign yet of the violence that followed the last election in 2008 when 200 MDC supporters were killed.

Even without unrest, investors fear an emboldened ZANU-PF could accelerate its indigenisation programme by targeting foreign banks that it says are refusing to lend money to black farmers and small businesses.

In an interview with Reuters, U.S. Ambassador Bruce Wharton said the eyes of the world would be on Mugabe's cabinet choices for clues as to his overall policy direction.

"I think what happens in the next few weeks is going to be really important. I know there was talk prior to election of Zimbabwe pursuing the indigenisation policy, I suspect that a lot of potential businesses and investors want to know exactly where that programme is headed. I think that continuing this atmosphere of peaceful non-violence is very important and will have an effect on the future. I think that whether the new government seeks to include new voices, technocratic voices will also have an effect on where the country goes," he said.

The MDC must lodge its legal challenge by Friday and the constitution says the courts must rule on the case within 14 days. Only after the all-clear can Mugabe be sworn in.

The election has left the 14-year-old MDC, the only serious challenge to Mugabe's 33-year hold on the former British colony, in tatters.

Party Secretary General Tendai Biti, the outgoing finance minister, wrote on his Facebook page, "Of all our experience, nothing could have prepared us for the 2013 election and the systematic and scientific dismembering of the people's wishes."

Biti's exit casts doubt over the future of a recovery he helped engineer after a decade-long crisis marked by 500 billion percent inflation.

The rot only stopped when the 15-nation Southern African Development Community (SADC) forced Mugabe and Tsvangirai into a power-sharing government in 2009 that made scrapping the worthless Zimbabwe dollar one of the first things it did. The country currently uses the U.S. dollar and South African rand.

Many Zimbabweans fear reintroduction of the Zimbabwe dollar, a possibility alluded to by Mugabe.

Some western and African economic observers have warned that Zimbabwe needs to to create "predictability" to at least ease investor fears.

"I've said for sometime that i thought that the credibility of this election was vital to establish international confidence in Zimbabwe and I think that businesses can deal with complicated and difficult situations if there is predictability and I think that the challenges that this process has to its credibility, may make it difficult for businesses to look at Zimbabwe and think about investing here," said Wharton.

"We will have to see what the investors, both local and foreign make of what is happening. I would hope though that the government can put in place policies which are predictable, which create certainty so that investors do not sit on the sidelines for too long, because that economy requires a big push forward," said Africa Development Bank President Donald Kaberuka in an interview with Reuters Insider in London.

SADC has given general approval to the election, but Botswana, a tiny but vocal critic of Mugabe, said the way it was conducted was unacceptable.

Eurasia Group, a political risk consultancy, said the results dashed any hopes for more liberalisation, but did not necessarily mean a return to the chaos of the early 2000s, when pro-ZANU-PF militias overran white-owned commercial farms and the central bank printed money on an industrial scale.