Officially launched in December 2021, the Victoria Falls Stock Exchange (VFEX) is the first stock exchange in the subcontinent to trade exclusively in US dollars.
So far it has just four listings – three miners and an agricultural processing company – but the pipeline of upcoming listings is growing week by week, says the exchange’s CEO Justin Bgoni.
“Our goal is to have 10 listings by the end of this year, and we believe South African companies would benefit from listing on VFEX, particularly because we trade exclusively in US dollars.
“It is an undeniable fact that African countries are handicapped by weak national currencies, and this is something we set out to address.”
Read: Zimbabwe’s largest bank to list on Victoria Falls Stock Exchange
VFEX currently falls under the Zimbabwe Stock Exchange (ZSE), which trades solely on the rapidly depreciating Zimbabwean dollar. This makes it unattractive for ZSE-listed companies to raise capital, which is one of the main purposes of the exchange, Bgoni says.
After adopting hard currencies like the US dollar and rand for several years, the Zimbabwean dollar was reintroduced by the government in 2019 at parity with the US dollar, but now trades at 115 Zimbabwean dollars for a greenback, and the double on the black market, according to Bloomberg.
Additionally, several ZSE-listed companies, such as Old Mutual, PPC and Seedco International, have been suspended over allegations that they are being used as a means to funnel funds out of the country.
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Although the government says there is no evidence that the companies themselves were involved in this practice, investors could have purchased these fully fungible shares on the ZSE and cashed them on other exchanges on which they are listed. listed.
Old Mutual, which was listed in London a few years ago, is currently listed on the Johannesburg Stock Exchange (JSE) as well as in Botswana and Namibia. PPC is listed on the Botswana Stock Exchange and the JSE. These companies have released statements saying they are working with authorities to resolve the situation that gave rise to the suspensions.
One of the suspended companies, Seedco International, has since transferred its listing to VFEX.
“The problem we had on the ZSE is that companies are not raising funds through new equity issues because of the currency issue. If you launch new shares, you can only do so in Zimbabwean dollars, and when as a foreign investor you sell those shares, you must convert the local currency into US dollars through central bank auctions. “says Bgoni.
“It’s very bureaucratic and there’s a limit to the amount of foreign currency available.”
Listing on VFEX versus ZSE has certain tax advantages: 5% withholding tax on dividends (compared to 10% on ZSE) and exemption from withholding tax on capital gains (1 .5-2% on the ZSE).
The capital raised by a company listed on the VFEX can be held in an approved local or offshore account with an internationally recognized banking institution.
The latest listing on the VFEX is Caledonia Mining Corporation, which raised nearly $8 million last December exclusively from Zimbabwean investors.
Bgoni is encouraged that the capital raise has been oversubscribed, demonstrating that there is a pent up appetite in Zimbabwe for quality listed investments.
VFEX offers companies the ability to list different securities such as debt, stocks, exchange-traded funds (ETFs) and real estate investment trusts (Reits).
Read: SA Reits: performance, trends and outlook
“ETFs and Reits are particularly attractive to Zimbabweans, who find it difficult to invest in offshore assets. We also see huge opportunities for the listing of mining companies that have operations in Zimbabwe and are struggling to gain full access to revenue generated from mining,” Bgoni said.
“We overcame this issue on VFEX, as miners now have 100% access to hard currency revenue generated from incremental commodity sales.”
Among the companies in discussion with the exchange are several miners seeking a dual or secondary listing.
Revitalize the economy
Bgoni sees the newly launched VFEX playing a crucial role in revitalizing the struggling Zimbabwean economy.
A chartered accountant who spent 10 years in Johannesburg before moving to New Zealand, Bgoni was drawn to his native country by the prospect of launching the new stock exchange and spearheading an ambitious project to change the country’s economic trajectory.
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About a million people visit Victoria Falls each year, although this figure has dropped due to Covid. The region is largely immune to currency issues in other parts of the country due to the volume of US dollars generated by tourism.
Victoria Falls has also been designated a Special Economic Zone (SEZ) and International Financial Center, with plans to confer city status on the municipality.
This is all part of wider plans to reposition Victoria Falls, not just as a major tourist destination, but as a new financial center in Zimbabwe, similar to that of Mauritius.
Approved SEZ investors pay 0% tax for the first five years and 25% thereafter, with various tax breaks and allowances for foreign investment in certain segments.
This is part of the new town of Batoka, a key part of the Zimbabwean government’s drive to guide development in Matabeleland North, particularly the Victoria Falls-Hwange-Binga corridor.
Bgoni says there are many good reasons for African companies, including those from South Africa, to explore a listing on the VFEX.
“It’s one of the most beautiful places in the world to start. You can raise capital in hard currency, you get tax benefits, and I think we’ve solved a lot of the problems that South African companies are facing in the region, by making it easier to access the capital they need need to operate and keeping the revenue they produce without having to go through central bank auctions.