Investors trade cautiously as poll date draws closer

The election momentum in Zimbabwe has become more pronounced as the poll date draws nearer; however, the atmospheric anxiety is driving cautious investor sentiment and slowing business, analysts have said.

President Mnangagwa says he has put in place all the key fundamentals to hold free, fair and credible harmonised elections.

However, analysts believe that while the pre-election period has somewhat shown signs of restraint, ongoing court challenges may be a precursor to the post-election period, which will have a negative impact on the economy.

“Free and fair elections are good for the country’s ratings, which will have a positive impact on the social and economic transformation of the economy. But assurances on positive investor sentiment post the elections will happen over time,” said Batanai Matsika, an investment analyst.

He said ongoing court challenges are processes happening within the election dynamics and will have minimal impact on sentiment. While businesses are praying for a peaceful and credible election, they believe if the economy slips, even peaceful elections will not result in a rapid economic turnaround.

Analysts also believe the prevailing local economic stability remains fragile, hinged on the government’s ability to continue to control the money supply as well as insulate the economy against global supply and inflation shocks.

In its June monthly report, Old Mutual Investments said the number of court challenges associated with the nomination process has heightened political tensions ahead of the polls; however, a few cases of political violence have been reported thus far.

“There is a need for a collaborative effort between the political parties and government to build trust and promote a peaceful and credible electoral process.

Generally, we anticipate a fragile political and business operating environment as we draw closer to election day,” it said.

FBC Securities, in its economic review, said elections will headline the country’s growth this year.

It said historically, there has been a trend of increased government expenditure in election years, and for instance, in 2018, the country’s budget deficit more than doubled to 11.1 percent of GDP from an initial 5 percent forecast.

This was due to a spike in election-related expenditures, most notably increased public sector salaries and the purchase of farming inputs.

On the equities market, FBC anticipates investors to remain cautious moving into elections and the second half of the year, which may increase selling pressure and limit the amount of foreign currency directed to the USD-denominated bourse.

It was noted that the performance on the Victoria Falls Stock Exchange has remained largely subdued in the first half of the year, with selling pressure generally prevalent.

Research firm, Fitch Solutions, believes the main security risks for investors in Zimbabwe stem from illicit financial flows and political violence, which tend to flare up around election periods and during times of macroeconomic downturns.

“Disruptive protests, underpinned by high levels of political polarisation, threaten productivity and supply chains, particularly in urban areas,” the Fitch report read.

According to Equity Axis, in Zimbabwe, there have been concerns about the fairness of past elections, with allegations of vote rigging and intimidation; however, the focus of the upcoming elections should be on working toward economic stability and creating a more prosperous and equitable society.

Economist, Prosper Chitambara, said from past experiences and even from other countries, electoral-related spending has a destabilising effect on the macro-economy, but this differs from country to country.

“We expect that spending related to elections may result in inflationary pressures being generated,” he said recently, adding what is needed is the removal of inefficiencies in public spending.-ebusinessweekly