KEY POINTS
- Zimbabwean companies must now report financials using the ZiG currency.
- Businesses warn that hyperinflationary accounting will add financial complexities.
- Firms are calling for a hybrid approach to allow U.S. dollar reporting.
Zimbabwe’s financial market is grappling with new regulations requiring companies to report their financial statements using the country’s gold-backed currency, the Zimbabwe Gold (ZiG).
The Securities and Exchange Commission (SEC) is in discussions with the central bank to clarify the impact of these rules, which have raised concerns about hyperinflationary accounting.
John Mushayavanhu, governor of the Reserve Bank of Zimbabwe, mandated that all Zimbabwe Stock Exchange (ZSE)-listed companies immediately adopt ZiG for their 2024 audited financial statements.
The directive comes as ZiG transactions account for 30 percent of all economic activity in Zimbabwe, with the remaining transactions conducted in U.S. dollars.
Until now, listed companies have been reporting in U.S. dollars, reflecting the currency’s dominance in the economy.
Many firms, including major corporations like beverage giant Delta Corp, had transitioned to U.S. dollar reporting after repeated collapses of the Zimbabwean dollar.
Concerns over hyperinflationary accounting
Financial experts and business entities show significant concerns about the adoption of ZiG reporting. ZSE-listed FBC Holdings warned that the new requirement could introduce accounting complexities, inflation translation risks, investor uncertainty, and regulatory hurdles.
The Harare-based financial institution noted that adjusting accounting software, financial models, and auditing procedures would be costly for companies.
Furthermore, firms may need to apply International Accounting Standard (IAS) 29, which governs financial reporting in hyperinflationary economies. This standard requires frequent asset revaluations, adding another layer of complexity.
FBC Holdings urged authorities to reconsider, suggesting that companies should be allowed to choose between ZiG and U.S. dollars for reporting purposes.
Given the instability of Zimbabwe’s currency, businesses argue that a hybrid reporting system would be a more practical solution.
The ZiG, introduced in April 2024, has already lost 95 percent of its value due to exchange rate volatility. This instability has led to frequent devaluations, further complicating financial reporting and business operations.
Impact on business confidence and investment
Zimbabwe’s business environment remains challenging, with the latest reporting requirement adding another burden on companies.
According to New Zimbabwe, the economic uncertainty has already driven global accounting firms Deloitte LLP and PwC LLP to exit the Zimbabwean market.
Professional analysts anticipate that moving to ZiG reporting systems could discourage foreign capital inflows while making investors doubt financial transparency levels.
Many businesses rely on stable financial reporting to attract investors, and the uncertainty surrounding ZiG could negatively impact market confidence.
The central bank advocates for ZiG adoption because it strengthens the currency, though businesses doubt its impact on operational expenses and business financial stability.
Financial expert, analysts and business leaders call on decision-makers to establish flexible guidelines for financial disclosure.
