Belated Happy New Year


I’m back from Zimbabwe and full of vim and vigour. Amazing what seven weeks in a failed state will do for you. Nothing much seems to have changed here. Busy chasing up leads for stories and getting old ones run. So any ideas gratefully received.

It wasn’t all fun in  Zimbabwe. I went down to South Africa to cover the Peter Roebuck suicide and found there was much more to the story than first thought. – The Roebuck Tragedy: A tale of love, beatings and blackmail

Later I did a story on Zimbabwe’s recovery which is rather inconvenient to those who had written off the wonderful people of my second home. Any smart investors should be looking at Africa and there is plenty of evidence to say they are. Here’s my take from the Weekend AFR this month.

Adam Shand in Harare

In January 2009, Zimbabwe was a virtual failed state with world record hyperinflation.

It was ruled by a leader, President Robert Mugabe, seemingly hell-bent on wrecking the economy and brutally suppressing democracy. The currency was in free fall and the central bank had issued the biggest note in the history of mankind, a 100 trillion dollar bill.

Inflation in Zimbabwe hit 89.7 sextillion percent – that is 89 700 000 000 000 000 000 000 %, smashing the previous mark recorded by Hungary after World War II of 12.95 quintillion or 12,950,000,000,000,000 per cent.   

It got so bad shoppers would run up and down the aisles of the supermarket grabbing goods to make it to the till before prices rose. Workers who had paid into pension schemes over 30 years were handed cheques of just a few dollars.  As banks failed and accounts were frozen, even businesses with sources of foreign currency went to the wall.

Now, in spite of all that, the southern African nation is experiencing a nascent economic boom.  

Two thousand years ago, Roman author Pliny the Elder said there was “always something new out of Africa” but the resurgence in Zimbabwe’s fortunes might have stretched even his imagination.

After junking its worthless currency for the US dollar in 2009, Zimbabwe’s economy is forecast to grow by 9.4 per cent this year, with inflation below 5 per cent, the lowest in the region.  Even from a tiny base, these predictions seem extraordinary, given GDP crashed from US$10 billion in 1997 to just US$2 billion in 2008 before recovery began.

Martin Jinya, research director of Harare stockbroking firm Renaissance Securities, expects that in the next five years Zimbabwe will recover ground lost since 1997 and then growth will accelerate.

“This economy is ready for a takeoff. It’s like a plane on the runaway, waiting for the signal to move,” he says.  Corporate earnings and average disposable incomes will enjoy double-digit growth this year.   In a sure sign of recovery, local brewer Delta Corporation failed to meet demand for beer over the festive season. Two new bottling lines planned for this year will not be enough to slake the growing thirst either.  

This resilience has surprised those who endured the dark days of 2009.

“It was a period to forget. We did not know whether tomorrow was going to come. Now we are confidently saying that Zimbabwe is back on the map,” says Jinya.  

Recovery is being driven largely by local demand and investment, fuelled by residents returning from overseas willing to bet their savings that the worst is over. Some are former white farmers who were violently dispossessed of properties during Mugabe’s chaotic land reform programme. Whites still control a large chunk of the economy including strategic stakes in manufacturing, agricultural processing and tourism, says Jinya.

And former white farmers are returning, even though some of their peers are still losing their properties. The violent invasions are at an end, locals say.  But the majority are educated middle class black people who can see the opportunities.

With world class assets in iron ore, coal, gas, gold, diamonds, platinum and chrome, Zimbabwe’s potential is yet to be tapped.

However, foreign investors are holding back amid uncertainty as to whether Zimbabwe will hold presidential and general elections this year.  Onlookers are still very nervous of any government with Mugabe in it.

Mugabe’s Zanu-Pf party was forced into a government of national unity with Morgan Tsvangirai’s Movement for Democratic Change (MDC) after refusing to accept its loss in the 2008 national elections.

The MDC, supported by the regional SADC Grouping led by South Africa, is insisting on a new constitution and a range of guarantees before any fresh elections.   Mugabe is pushing hard for elections, but no longer has the power to unilaterally set a date, and is being white anted by his own party members who fear losing their seats.   

Some political observers say the military could step in to shore up Mugabe’s rule as he is widely regarded as unelectable in a free and fair election.  The best result for business is a delay in any elections until at least next year, says Jinya. However, political risk is no longer weighing heavy on investor sentiment.

“Business has started to discount anything the politicians have to say. They have been having these quarrels for a long time. It’s business as usual, we believe,” says Jinya.

“Dollarisation” of the economy will also restrict Mugabe’s ability to steal future elections with state-sponsored violence and bribery. Previously, the government financed its dirty, violent campaigns by ordering the Reserve Bank to print money which is no longer an option with the greenback in circulation.  

Prominent political analyst Dr Ibbo Mandaza says that dollarisation and the power sharing agreement have ushered in “the post-Mugabe era” for investors even as the President remains in State House.

Attitudes to Zimbabwe will remain negative while Mugabe stays on the scene, but the increasingly frail 87-year old’s grip on power is loosening, says Dr Mandaza.  

“Despite its detractors, the government of national unity has worked for Zimbabwe.  It has pulled the country back from becoming a failed state and opened the way for international engagement.” says Matthew Neuhaus, Australia’s Ambassador in Harare.

Recovery in Zimbabwe matters to Australia because it will provide a gateway into Africa for investors with an appetite for risk. With Europe and the United States facing low economic growth, investor interest must finally turn to Africa, long plagued by sovereign risk and political instability.

“Zimbabwe is Africa for beginners,” says Australian businessman Andrew Macpherson, contemplating sunset from the veranda of his rambling homestead on the outskirts of the capital Harare.

Macpherson says that in 2009 his comfortable two-storey house on seven hectares of land would have fetched less than US$50 000. Today, it’s worth more than US$1 million as real estate prices have soared amid renewed confidence.

For the past 20 years, Andrew Macpherson and wife Judi have used Harare as a base for doing business across Africa in agriculture and higher education services.  

“Fifteen years ago, Zimbabwe had the best opportunity of any emerging African country to become a mature, diversified economy backed by strong foreign investment. There was a peaceful, highly literate population, abundant natural resources and some of the best infrastructure on the continent,” says Macpherson, once a farmer from Quirindi NSW.

Macpherson estimates that Zimbabwe has squandered US$100 billion in capital value in the past decade, but the positive factors that brought him here remain. Although large scale commercial agriculture will take 20 years to recover from Mugabe’s attempt to drive out the white farmers but Zimbabwe could still be an attractive base for regional investment in farming, mining, tourism, manufacturing and information technology.          

“Since 2009 Zimbabwe has dropped below the radar of international media. The first question Australians ask you is: ‘Is it safe?’ ” he laughs. The perceptions are outdated, he says. There are no longer roaming bands of thugs invading white-owned farms and businesses.

 Macpherson is brokering deals between black and white farmers who are willing to unite to access foreign capital.   

“Freehold title on land does not really exist after the farm invasions, but there are vast tracts of government land where investors can do solid deals with communities to increase productivity. There’s no labour or land cost to the investors and you will get a big handshake from the local communities and government for coming in,” he says. 

Macpherson believes there is an opportunity to supply local demand for fresh food to replace imports from South Africa which has supplied most of Zimbabwe’s needs since the collapse of its economy from 2000.  There are also excellent opportunities to recover lost ground in high value floriculture and fresh vegetable exports as well as in more mainstream broad acre crops such as maize, soybeans and wheat.

Consumer demand for processed and packaged food is also surging. For example grocery importer Lake Harvest, owned by another Australian expatriate John Gardiner, enjoyed a 70 per cent increase in sales in 2011 to US$50 million. With Zimbabwe importing almost everything, Gardiner says he expects growth to continue indefinitely, funding an offshoot of his business in neighbouring Malawi.

Diplomats say the financial and travel sanctions against the Mugabe regime, supported by Australia, are increasingly irrelevant and now serve to hinder access for our entrepreneurs.  It is understood Australia and other western powers, at the urging of the MDC and SADC, are currently reviewing these.

 “The sanctions have been a perfect propaganda tool for the regime to blame all the country’s ills on outsiders. It’s now time to focus on sponsoring economic activity and development assistance to Zimbabwe to uplift and empower its long suffering people,” says one diplomat in Harare.

A tour of Zimbabwe by the Australia A cricket team in July last year was the first sign that relations between Canberra and Harare were thawing.

In December, after a decade long hiatus, the Zimbabwe Australia Business Council was re-established in Harare and the Australia Africa Business Council is mounting a trade mission for this year.

“A window of opportunity is opening within the next 18 months. This is one of the richest mineral provinces in the southern hemisphere and there will be a scramble for assets,” according to a leading economic analyst, Dr Eric Bloch. Zimbabwe can become the fifth strongest economy in Africa within five years, if key reforms are undertaken, he says.

Zimbabwe has luck on its side. Finance Minister Tendai Biti recently added US$600 million to his US$3.4 billion budget for 2012 – additional revenue forecast from diamond sales.

Last November, the trade watchdog, the Kimberley Process, cleared Zimbabwe’s stones for international sale, despite lingering concerns over human rights abuses.  Zimbabwe has the capacity to supply 25 per cent of the world’s demand for diamonds in years to come. The government claims to have 400 applications for diamond leases alone.    

Dr Bloch says numerous foreigners are waiting to invest in Zimbabwe but the next six to eight months would prove crucial to the scope of economic recovery.

“There are many signing memorandums of understanding with local companies but they are waiting before taking the final step,” he says.

Zimbabwe won just US$105 million of foreign direct investment out of US$10 billion that flowed into southern Africa in 2010. Dr Bloch says that if Zimbabwe were to comply with investment protection agreements it has ignored over the past decade, capital inflow would increase dramatically.

“They could be seeing US$1 billion coming in each year for the next decade,” says Macpherson.

A stumbling block has been the Government’s indigenisation laws that order foreign investors must plan to cede 51 per cent of any enterprise to black Zimbabwean interests. Government has failed to clearly articulate this vague policy, sparking fears of another violent grab of foreign owned assets as occurred with white-owned farms.

The deputy chairman of platinum miner Zimplats, Mr Muchadeyi Masunda, says it is unrealistic to force such deals on investors as local shareholders would be quickly diluted in capital raisings anyway. However there would be “no-one who is Zimbabwean to the core who would take a dim view of the rationale behind the concept,” he says.

“I look at it more as empowerment of the local people, both black and white, giving them a fair share of the cake. This should have been embarked upon at the advent of independence in 1980 and done gradually,” he says.

It’s understood that Zimplats, which is 87 per cent owned by South African giant Impala Platinum,  will end up ceding an effective interest of only around 10 per cent to locals through royalty payments and the building of local infrastructure.

Zimplats had enjoyed “a close and symbiotic relationship with government” investing heavily to develop a town, near its mining operations, which had become the fastest growing in the country.   

Zimplats has taken “due cognisance of the communities in whose areas we do business because business is not done in a vacuum,” says Masunda, a lawyer who also doubles as mayor of Harare.

Still, Impala Platinum which is the world’s second largest producer, is watching the process closely and is said to be delaying investments of up to US$10 billion in Zimbabwe until the local ownership questions are resolved.                

Dr Mandaza says the indigenisation policy owes more to rhetoric than reality. Mugabe is not the hardline Marxist that his tirades against the West might indicate, he says.  

“Mugabe is in fact a conservative. He never really entertained thoughts of indigenising land or empowering the people until very recently. They (his clique) just assumed they would take over what the Rhodesians had,” says Dr Mandaza.       

But investors remain nervous. Last October, Rio Tinto agreed to hand over 51 per cent ownership of its small Murowa diamond mine to locals but is said to have shelved a planned $200 million expansion of the mine as a consequence.

Meanwhile, investors from resource-hungry China and India have been permitted to buy majority stakes in local companies indicating there is flexibility for the right investors.

 “The indigenisation process looked ugly from a distance to investors but now they see increasingly pragmatic deals are being done, if the deals are big enough,” says Macpherson.

India’s Essar Steel has won approval to buy a 60 per cent of the government-owned Zimbabwe Iron and Steel Co (Zisco) which will give it access to 45 billion tonnes of iron ore worth US$7 trillion for the bargain price of US$750 million. Despite concerns that Mugabe cronies were clamouring for kickbacks, most of the money will go into reviving Zisco’s mothballed blast furnaces to produce 2 million tonnes of steel annually.

It seems that investors can turn a blind eye to the history of political instability, not mention decades of violent repression by the Mugabe regime. Such is the lure of Zimbabwe, known “the jewel of Africa” in its colonial days as Rhodesia.  While more than half of the population still lives below the poverty line, the optimism is a far cry from the days when the country teetered on the brink of anarchy.

Zimbabwe remains starved of capital and liquidity is extremely tight. Yet there is a growing sense that a new chapter is beginning and the period of  isolation is at an end, says Masunda.

“After the hyperinflation, people said enough was enough. We can never ever, ever go back to that time. One has to be an eternal optimist to live in Zimbabwe and I’m one. I know things are going to work. It’s a question of time,” he says.  


2 thoughts on “Belated Happy New Year

  1. Excellent story, Adam. Thanks for sending it to me because I never read the Fin Review. There was so much in the story that I didn’t know, so I found it most educational. It was also well constructed and easy for the financial dummy like me to follow, so a pleasure to read overall. Well done. You get an A+ plus from me:)

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s