New tax triggers panic buying in Zimbabwe

Zimbabwe’s markets have been roiled after a tax increase last week triggered panic buying of goods such as petrol and spurred people to turn to equities as a refuge against rising prices.

The value of bond notes – introduced two years ago amid a shortage of hard cash in a country that does not have its own formal currency – has plummeted. The country accepts a range of currencies including the dollar, the euro and the rand as legal tender.

It now takes 2.8 bond notes to buy one US dollar, which is the weakest exchange rate on record, according to the Zim Bollar index, a local website. In early September the rate was 1.75. Bond notes represented the value of one greenback when they were first printed.

The stock market is also signalling increased stress in the country’s financial system. The main equities index rose 8.7% last week to its highest since November.

In Zimbabwe’s skewed markets, rising stock prices are a sign that foreign-currency shortages are worsening. Local traders pile into equities when bond notes depreciate and they fear inflation will accelerate. It is a phenomenon that has forced foreign investors including Franklin Templeton, JPMorgan Chase and Allan Gray – who cannot repatriate their money because of strict capital controls

– to write down the value of their assets.

One way analysts assess how out of sync Zimbabwean equities are is by measuring the difference between the London and Harare stock of Old Mutual, Africa’s largest insurer. The Harare shares are now 3.2 times the price of those in London, when converted to dollars, the widest gap since November.

Zimbabweans have stocked up on goods after the authorities increased a tax on money transfers to two cents per dollar transacted, from a flat rate of five cents per transaction, at the beginning of the month.

Vehicles formed long lines at fuel stations at the weekend, prompting the head of the national oil company to say there is enough petrol to last six months and the hoarding “is uncalled for”.

On Sunday, the central bank said it was drawing down part of a $500m credit line from the African Development Bank to pay for imports of fuel, electricity and wheat.

The weakening of bond notes “is being caused by some people bent to dupe the public of their hard-earned income”, said Reserve Bank of Zimbabwe governor John Mangudya./