Budget sends jitters in the market

The 2003 budget announced on November 14 and the monetary policy statement of November 20 seem to have sent jitters in the once booming stock market. New measures announced by the government to steer the country back onto economic recovery unsettled investors who abandoned the market resulting in the key industrial index plummeting from 130 900 points to 93 230 at the end of the month.

The main thrust of the two instruments was a clampdown on the parallel market, a price freeze and an interest rate regime that favoured the productive and export sectors while discouraging consumptive spending and importation of goods.

The clampdown on the parallel market saw the government close bureaus de change which were accused of fuelling that market. There was also a concerted effort to round up currency traders in what is known in Bulawayo as the World Bank. The two measures seem to have worked with black market rates plummeting by more than 50 percent.

Exporters have every reason to be jittery. They are now required to surrender all their foreign currency at the official rate of $55. Previously, they only sold 40 percent at the official rate and traded the remainder at market rates, thereby ending with a healthy blend rate.

The government also announced a blanket price freeze but it appears traders are finding loopholes. Because of shortages, real or created, it might be more difficult to enforce these price controls as most shoppers empty supermarket shelves of controlled products and then sell them on the black market at prices three to four times the controlled ones.

The new interest policy will see the rate for the productive sector reduced to 15 percent while that for the export sector would be at 5 percent. A revolving fund of up to $25 billion is to be set up.

Analysts say, however, the new measures are not likely to work because savings are continuing to dwindle. Finance Minister Herbert Murerwa said national savings of above 25 percent of gross domestic product were critical for domestic investment to support industrial take-off. But right now overall savings were below 9.2 percent.

The latest Famine Early Warning System says savings are down to 5 percent of GDP. They were 15 percent two years ago.

But despite lack of clarity on the new measures, the market has begun to pick up, largely because investors have very few options. The stock market still offers the best return. Before its drop, the key industrial index had risen by 168 percent since the beginning of the year, beating inflation. Even at 93 231 points, this was still a 106 percent increase, a much healthier position than the 30 percent obtained on savings.

Some stocks have, however, continued to do well. The star performer was Astra Industries whose price had soared by 2414 percent. Cable company BiccCafca followed closely with a 1667 percent increase while once troubled Mashonaland Holdings was third with a 1 579 percent increase.

Diversified Apex was fourth with 1517 percent and David Whitehead, which was threatened with delisting at one stage, saw its price soar by 1067 percent. Retail chain Truworths was fifth with a 1168 percent increase.

On the downside were mostly companies in the financial sector. Topping the list was Kingdom, down 67 percent followed by the Commercial Bank of Zimbabwe with a 42 percent decline. NMB Holdings was third with a 34 percent drop, but the biggest casualty seems to have been the newly listed Nicoz-Diamond whose price has already fallen 33 percent.

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