Why I wouldn’t invest in Zimbabwe!!14 Aug 2023 22:56
Just had good Old Johnny on kodal telling us about Mali so I though I returns the Favour about Zimbabwe!
In 2015 alone, the ZSE market capitalization declined by approximately 30% from around USD4.3billion to US$3billion as at 31December 2015.Despite its poor performance on the back of poor operating fundamentals in the economy as reflected by company closures, retrenchment, scaling down of operations, negative inflation and limited access to affordable long term capital and others, there are several reasons that make me have a strong dislike of the ZSE as an investment option. Below are the reasons though not in order of importance.
Poor corporate governance : When a company is listed on the ZSE, the assumption is that there will be transparency and general improvement in corporate governance issues. This however is not the case with most of the ZSE listed firms. One of the major issue is with the appointment of board members which is normally viewed as being “old boys” clubs cliques of friendship, and college colleagues (Mugamu, 2005).The board should be composed of individuals of integrity, who can bring a blend of knowledge, skills, objectivity, and commitment to the board (Chella, 2007).
Another common feature of boards of ZSE listed companies is the existence of a significant number of individuals sitting on many boards of companies in different sectors of the economy. This is not ideal because even if the individuals concerned have the knowledge, skills and experience, they need sufficient time to analyse issues so that they can contribute meaningfully and add value to the companies they serve.
Audited financials are not reliable:Audit firms are paid by listed companies for their role in reviewing their financial statements to fulfil ZSE listing requirements but serious anomalies may sometimes be "swept under the carpet" to avoid alienating a client that may be contributing a significant portion of its revenue. In one of the biggest corporate scandals in the US, Andersen admitted that Enron was one of its biggest and most desirable clients such that they actually helped in concealing evidence from investigators to protect their client.
Integrity is the hallmark of the accounting profession and various stakeholders rely on what the auditors say before making investment decisions. Given the possibility that issues such as that in the Enron scandal, how can I trust these audit firms to bless the financial statements of companies listed on the ZSE?
High level movement of staff from audit firm into the industry: A look at organograms of most firms listed on the ZSE show that there is a serious movement of staff from the audit firms to listed companies which may compromise the integrity of the financial statements . In the Enron scandal, Enron on regular basis recruited key accounting staff from their auditors, Andersen and other Big 5 firms including the company's chief accounting officer and its CFO.
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