/ 31 May 2012

Zimbabwe investors find glass half-full

Zimbabwe Iron and Steel Company workers walk to its plant in Redcliff
Zimbabwe Iron and Steel Company workers walk to its plant in Redcliff

For foreign investors willing to take a risk on Zimbabwe, it is always a question of which news to trust. Just as foreign investors at a conference in Harare last week were being plied with the good news – a growth forecast of 9.4% and a property and consumer boom – an order given by the central bank ordering the country’s biggest investor to close all its foreign bank accounts brought reality home.

But Zimbabwe looks attractive to some investors, despite the unpredictability.

Reserve Bank governor Gideon Gono has ordered local banks to cease dealing with Zimplats, the 78%-owned Implats unit and the country’s largest foreign investor, to force the company to close its foreign accounts and repatriate all its funds to Zimbabwe.

The government hopes that, by ordering mines to close all their offshore accounts, the repatriated funds will ease the liquidity shortage that has slowed growth.

Zimplats was deliberately targeted to force others into line. “If it defies, everyone else will defy,” Gono said.

Looking for reassurance
Such controversies have a habit of popping up when investors are in Harare, sniffing around for opportunities and looking for reassurance about the safety of their interests.
The news came as about 100 investors from around the world, including South Africa, were gathered at a conference arranged by Imara, one of Zimbabwe’s biggest fund managers. Tino Kambasha, head of sales at Imara, said: “Some are jetting in from the eurozone, which just reported zero first-quarter growth. They arrive at a time [when] Zimbabwe is predicting 2012 growth of 9.4%.”

Much of the growth will be driven by mining, which is set to grow by 15% despite worries about empowerment, and agriculture, which will grow by 11% as increased funding begins to undo the damage land reform caused. 

John Legat, head of asset management at Imara, said many investors were taking the leap.

“What is encouraging is the seriousness of the investors who are already here,” he said.

The country is experiencing a consumer boom. Its two largest firms, telecoms firm Econet and brewer Delta, are used by analysts as a barometer to gauge the state of the consumer market. Their most recent financial results were above expectation, with Delta reporting that beer sales had beaten the previous record set in 1998.

Consumer boom
The president of the Retailers’ Association of Zimbabwe, Themba Ndebele, who heads Truworths Zimbabwe, said, although capital inflows remained slow, they would pick up over the medium term.

To take advantage of the new money driving the consumer boom, South African companies are raising their investment in Zimbabwe. Pick n Pay has increased its share of TM Supermarkets, one of Zimbabwe’s big three retailers, and plans to open several Pick n Pay stores.

A proposed $100-million mall development in Harare’s upmarket Borrowdale suburb, to be built by a consortium including South African investors, has already had half its space taken up by South African retailers.

Some investors are looking past the uncertainty and stepping up their game. Harpal Randhawa, whose private equity group, Global Emerging Markets, recently bought 25% of miner RioZim, is bidding to buy the diamond assets Rio Tinto is selling in Zimbabwe.

“We’re now in discussion with Rio Tinto to acquire the 78% of Murowa [diamond mine] that it wants to offload,” Randhawa said.

Mass exodus
The threat of nationalisation has not caused the mass exodus that many predicted and many have learned to accept the uncertainty.

Empowerment Minister Saviour Kasukuwere has shown two faces in his crusade: the belligerent hardliner when speaking to Zimbabwean audiences and the conciliatory technocrat when meeting with investors. Speaking to investors in Harare, he addressed what he called “the elephant in the room” – the indigenisation law – but stressed it was not nationalisation.

“Let us [have a] dialogue and not confront each other over the matter. Let us have dialogue, let us find each other. Companies should not run away from us,” he said.

But the trouble large investors such as Zimplats have faced has kept Zimbabwe from realising the major investment deals it had hoped for when the unity government was formed.
Essar Africa had hoped to invest $4-billion in Zimbabwe over four years after it was allowed to buy the country’s biggest steel-maker, but the deal remains bogged down by a row over access to ore reserves.