Not so long ago we talked about how the Zimbabwean dollar (ZWL) is not long for this world. It is being slowly strangled by inconsistent, incoherent, arrogant and incomprehensible government policies and sooner or later it will depart this world or be relegated to memory just like its predecessor was during the GNU days. The Zimbabwe Stock Exchange is facing a slightly different but similar fate thanks to similarly warped policies. More and more companies are moving to its subsidiary the Victoria Falls Exchange (VFEX) and it is thanks in part to the fact that the ZSE is only allowed to use the ZWL because some “clever” policymakers thought was a brilliant idea that would protect the economy and save the ZWL.

We have already written in-depth articles on why we think the VFEX will ultimately replace the ZSE just like the ZWL has now been displaced by the ZWL.

  • VFEX has proven to be a stable alternative to the Zimbabwe Stock Exchange (ZSE).
  • VFEX is not susceptible to abrupt policy changes and currency volatility, which the ZSE has faced.
  • The VFEX has experienced rapid growth in recent months, with more listings and increased foreign currency liquidity.
  • Improved investor sentiment towards the VFEX has led to increased interest from both issuers and investors.
  • VFEX offers policy arbitrage opportunities that have been key factors in attracting migrations from other exchanges.
  • Sectors such as consumer staples, tourism, agriculture, and mining have generated improved foreign currency, making them attractive for listing on VFEX.
  • More companies are likely to make the move from the ZSE to VFEX, leading to the expectation that at some point in 2023, there will be more companies on VFEX than the ZSE.

Recently African Sun another top brand also wrote about their reasons for moving to the VFEX and these reasons closely mirror some of the reasons we believe the ZSE will soon become irrelevant:

  • The VFEX has the potential to be a regional exchange (thanks largely in part to them using an international currency like the USD) this will allow companies to attract capital from the region and beyond instead of just from Zimbabwe.
  • The VFEX has more options for raising capital including debt listing foreign currency
  • The VFEX has lower trading costs of 2.12% compared to 4.63% on the ZSE which will allow shareholders to retain more value
  • VFEX allows shareholders to easily repatriate their earnings
  • VFEX offers tax incentives such as a 5% withholding tax and no capital gains tax on the disposal of shares
  • Forex-based dividends are generally more attractive and will mean more investors for companies on the VFEX compared to ZSE
  • It easier to measure and benchmark performance because everything is in USD
  • Accounting and financial reporting are easier in USD

It’s hard to see how the ZSE will overcome it’s many shortcomings which are brought by the ZWL requirement. Unlike the ZWL, the ZSE will not die but I suspect at some point the government will see the light and turn the VFEX into the main ZSE exchange.

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