‘Time to get into Zimbabwe’ – Investors urged
http://www.thezimbabwemail.com/
TINA WEAVIND – BUSINESS TIMES 51 minutes ago
Economic growth estimated at 9.4%, with mining sector set to rise 15.9% this
year and agricultural sector by 11.6%
‘Fortune favours the brave” is the adage printed on the cover of Imara
Africa Securities’ Zimbabwe Stock Exchange overview. It might seem a little
pithy, but it captures a growing ethos in South Africa’s northern neighbour.
As real returns fall to unsustainable levels in the world’s traditional
safe-haven markets, investors have turned increasingly to emerging markets.
And the truly brave are once again seeking their fortunes on the frontiers.
Last week institutional and private investors from Hong Kong, the US, South
Africa and Mauritius gathered in Harare to hear about developments and
expectations in corporate Zimbabwe. The stories from companies like BAT
Zimbabwe, Seed Co, Dairibord and Econet make it clear that, despite an
uncertain political future and the potentially deal-breaking policy of
indigenisation, fortunes are likely to be made.
The World Bank expects the global economy to grow by 2.5% in 2012 and 3.1%
in 2013. The eurozone is contracting fast and slowing growth in emerging
markets, the average growth potential of which is expected to be less than
5.4%. Meanwhile, Zimbabwe is growing at an estimated 9.4%, with the mining
sector expected to grow 15.9% this year and the agricultural sector 11.6%.
Physical evidence of this growth is apparent in the now congested roads, the
increased demand for telecoms services and the well-stocked shelves in
upmarket clothing and food stores such as Edgars and OK. Money is trickling
back in, from a returning diaspora, from economic pioneers with an appetite
for risk and from the informal sector.
John Legat, head of asset management at Imara, which hosted the conference,
said that since adoption of the US dollar as the single unit of currency in
2009 most companies have remained afloat and are growing fast.
They are coming off a low base though, with most having ground to a halt and
closed doors during the so-called “lost decade” of hyperinflation and price
setting. While the GDP of many African countries has doubled in a decade,
Zimbabwe’s has halved.
There are “elephants in the room” scaring off foreign investors who would
otherwise be streaming into the country. One is the indigenisation policy,
the final form of which is yet to be finalised. Another is uncertainty over
President Robert Mugabe’s successor. His illnesses have been officially
denied, but he is 88 and will not be around much longer.
There are two schools of thought about succession. One is that defence
minister Emmerson “The Crocodile” Mnangagwa will take power following an
apparent “gentleman’s agreement” with Mugabe. This would be unconstitutional
and many believe unlikely because of Mnangagwa’s minimal support base. His
unpopularity arises from when he was head of the ruthless intelligence
service during the suppression of the rival Zapu party in 1980s, when
thousands of civilians were killed. Mnangagwa has more recently been
involved in the alleged arrangement of lucrative gold and diamond mining
concessions. In March he went to Iran apparently to broker a deal in which
diamonds and uranium would be swapped for weapons.
If the constitution is followed, Joice Mujuru, one of the two
vice-presidents, will take charge for three months until elections are held.
It is likely to be Mujuru, rather than counterpart John Nkomo, who assumes
the position as the latter is elderly and unwell.
Mujuru is business friendly and has solid support. If she becomes her
party’s leader, opposition leader and Prime Minister Morgan Tsvangirai’s
position is likely to become less precarious – with the coalition government
being revised and elections being held.
Imara says it is time to get into Zimbabwe. Companies are cheap, assets are
valuable and there is a deep understanding of the environment – politically
and operationally.
Murray Winckler, portfolio manager and co-founder of Laurium Capital, works
with Gavin Vorwerg to advise the offshore Zambezi Fund that has $17-million
in Zimbabwe.
The pair launched into the country in December 2009 and the fund has seen
significant returns in just over two years.
The pros and cons
Why it’s hot
The country’s GDP growth is outstripping most regions of the globe at an
anticipated 9.4%, largely driven by mining and agriculture, which are
projected to grow at 15.9% and 11.6% respectively this year.
Zimbabwe has the highest literacy rate in Africa. Schooling continued
against all odds during the so-called “lost decade” when the rest of the
country slowed down or stopped altogether.
Inflation is low. It was pegged at 4.9% in December 2011. It fell to 4.3%
for January and February of this year and in March it dropped further to
3.98%.
The country has a wealth of natural resources, with about 30 different
mineral deposits dispersed throughout the country. There are substantial
deposits of coal, platinum and chromium ore, as well as smaller deposits of
asbestos, gold, nickel, copper, iron ore, vanadium, lithium and tin.
Commodity prices came off to an extent in 2011, largely on the back of a
contracting Europe and a slowing China. However, the IMF anticipates that
prices will flatten for the rest of this year and into next. But the
Zimbabwean economy, which is just back on its feet after an all-time low,
will revive even if commodity prices drop further.
Zimbabwe was once known as the breadbasket of Africa because of its fertile
soil and farmed produce made up a significant part of the country’s GDP.
While drought has affected harvests this year, farmers such as BAT Zimbabwe
and Tongaat-Hulett are ramping up operations in the country.
While little has been done to upgrade roads and power supply in the past 15
years, a lot of infrastructure is still workable. Many of the mines that
were shut down for years have operable equipment and minimal capital
expenditure would be required to get them going again.
Why it’s not
The unclear political landscape regarding elections and succession and the
policy of indigenisation which holds that 51% of any operation must be
locally owned. The weak performance of the Zimbabwe Stock Exchange in the
past year, in particular in the mining sector, is attributable to this
uncertainty.
Electricity is in short supply and what is available is erratically
delivered. While efforts are being made to increase power security, this is
still likely to be one of the biggest hurdles to growth in the immediate
future.
A serious dearth of liquidity is another stumbling block in the way of
Zimbabwe’s recovery. Zimbabwe has no lender of last resort and the
government uses a commercial bank for its operations, which becomes
particularly problematic at year-end when bonuses need to be paid out and
state departments rush to spend their quotas. Credit is not easy to get and,
while deposits have increased, a great deal of mistrust still exists as a
hangover from the days of hyperinflation.
The weather has also played a part in hobbling growth, increasing the trade
deficit as the country is forced to rely on food imports, and exports are
hamstrung. – Tina Weavind