Analysts commend ZSE for results presentation in USD

Oliver Kazunga

ANALYSTS have welcomed the approval by the Zimbabwe Stock Exchange (ZSE) that listed entities on the bourse now have an option to present their financial statements in United States dollars.

The latest move means that listed entities on the ZSE now have a choice to report their financials either in local currency or the greenback.

Zimbabwe’s economy has rapidly dollarised with 80 percent of transactions conducted in United States dollars.

This is due to the hyperinflation that the country has experienced in recent years, which has eroded the value of the Zimbabwe dollar.

As a result, the US dollar has become the de facto currency for most transactions.

ZSE chief executive officer, Justin Bgoni, whose bourse trades in local currency, has been quoted in some sections of the media this week stating that listed companies are now allowed to report financials in US dollars.

“Reporting issues are for the board and shareholders… they can use any currency that they feel best represents the performance of their organisation.

“We are in a multicurrency country so that (financial reporting) could be in US dollars,” he was quoted as saying.

Attempts by this publication to get a comment from Bgoni were unsuccessful as his mobile number was not reachable.

In separate interviews, market analysts said the move by ZSE was commendable as it would go a long way in deepening the equities market.

“This approval is indeed a milestone achievement which will go a long way to deepen the equities market, making it more efficient, transparent and credible.

“This shall be true especially to the outside investors who were worried with our financial reporting in a currency, which is unstable and under hyperinflation.

“Listed companies were spending a fortune in undertaking inflation adjusted accounts and subjecting the same to external auditor’s independent verification and analysis.

“The option, therefore, to report in US dollars shall be opted by the majority of listed companies for it saves costs, is simple to undertake and makes great improvements in stocks valuation which is key in attracting investors to the Zimbabwe Stock Exchange,” he said.

As a result, Nhepera said it is likely that significant trading in shares on the ZSE would lead to wealth creation for individual and institutional investors who presently hold stocks within their portfolios.

“We should applaud ZSE for this good economic and financial reasoning which obviously has been approved by the Government through the Securities and Exchange Commission, the ultimate regulatory body for the equities market,” he said.

Economic commentator, Trust Chikohora, noted that the Zimbabwean market has increasingly become dollarised and thus the Government recently gazetted the regulations that entrenches the use of the US dollar until 2030.

“The other challenge is that Zimbabwe dollar financial statements have become largely meaningless because it depends on what exchange rates people are using, even if they are using the official exchange rates, those are not the real exchange rates that they are trading at.

“They may not be the real exchange rates that prices are pegged at because prices are generally pegged at parallel market rates.

“So, the accounting and reality in Zimbabwe dollars then gives a mismatch and it ends up giving financials which are not very meaningful.

“There is hyperinflation as well, so you will have inflation-adjusted financial statements and it’s very difficult for one to make sense in terms of the reality on the ground,” he said.

Inflation indices, Chikohora said, again may be based on official exchange which may not have a bearing on the true reality which may be based on the parallel rates.

“Those indices used for inflation adjustment may be misleading again, so perhaps when most of the transactions are being done in United States dollars, it makes more sense so that they become more useful to all users of the financial statements and they reflect more realities on the ground.

“I think that’s what informs that decision and I think more companies will end up going that route in the circumstances.”

He said companies are also going to the Victoria Falls Stock Exchange to raise capital in United States dollars, which is a more stable currency and thus every business generally would prefer to make money in hard currency.

“VFEX consequently also attracts a lot of international investors because everybody would want to be able to trade their shares in real terms and so even international investors would be attracted to the Victoria Falls exchange,” said Chikohora.

Another financial market analyst Grey Munetsi highlighted that inflation is tied to a currency and thus while US dollar inflation in Zimbabwe is relatively high, it does not fall into the category of hyperinflation.

“It is therefore easier to make sense of financials in the more stable US dollar than the highly volatile ZWL$, in fact most businesses were already budgeting and planning in US dollar terms and an abandonment of ZWL$ reporting is a really attractive proposition to both those preparing the financials as well as the consumers of the reports,” he said.

“The move (US dollar financial reporting approval) does not provide a new signal, but it rather confirms and solidifies the signals that authorities have been giving ever since the frank and bold admission by RBZ when the level of dollarisation in the economy crossed the 75 percent mark.”

Due to the obtaining operating environment in the country, conversion of accounting sales has of late been problematic for Zimbabwean entities.

On the one hand, the businesses are required to use the official exchange rate – which trails the more realistic street exchange rate – for their pricing but also have to pay their suppliers and vendors’ invoices quoted using the grey market exchange rate.

“Financials should reflect what is happening on the ground. Further financial statements should be comparable period to period.

“The volatility of the ZWL$ and the hyperinflation makes the reliability of financial reports in ZWL$ highly compromised.

“The challenges are even evidenced by most of the financials receiving qualified audit reports,” said Munetsi.