Zimbabwe’s ruling party says diversified financial services company Old Mutual Zimbabwe Limited has been “ejected” from the country’s financial system.
In a rather unclear update Zanu-PF spokesperson and former Finance Minister Patrick Chinamasa announced the development, which is likely to unsettle investors.
“The Politburo welcomes the decision to eject Old Mutual from the financial system of this country and the closure of Ecocash agents who had caused runaway inflation through illegal parallel market exchange rates,” he said.
The Politburo is a 49-member body, formulates and decides policy for the Zimbabwe African National Union – Patriotic Front.
The country’s official inflation rates stands at 785.55% as at the month of May.
Last month, the country’s monetary and fiscal authorities closed the stock exchange – Zimbabwe Stock Exchange – and suspended mobile money agents in a move they said was to fight illegal foreign currency market activities.
The ZSE is yet to resume trading.
Closure of the stock market was likely targeted at multiple-listed Old Mutual Zimbabwe, which provided proxy exchange rates (the Old Mutual Implied Rate – OMIR) implied by their prices on foreign bourses such as the London Stock Exchange.
Most local businesses have been using this implied rate to forward price their goods and services, a development that is seen by the authorities as exacerbating inflationary pressures.
Analyst Batanai Mastika of Morgan & Co has said this kind of logic is flawed:
“We have also been perplexed by claims purporting that the OMIR has served somewhat as a benchmark for the determination of parallel foreign exchange market rates.
“The crux of the matter is that the OMIR is a simple calculation that involves comparing the Old Mutual Limited share price on the ZSE to that on the JSE (Johannesburg Stock Exchange).
“The point here is that implied exchange rates have nothing to do with a stock market since the concept can be applied on almost any standard product or item (such as a burger, boiled egg, TV or even a pint of beer) that is priced across different markets.”
It remains unclear how the Government has or intends to “eject” Old Mutual from Zimbabwe’s financial system, although indications are that it could be removed from the local bourse.
Old Mutual Zimbabwe is the largest financial services company in Zimbabwe.
The group has captured the largest market share of the life assurance and asset management industries, and controls a significant portion of the market capitalisation of the ZSE.