Zimbabwe has been through a decade of economic decline, largely the result of ill-informed policies taken by the authorities. The major scourge during this era of decline was hyperinflation, which towards the end of 2008 and early 2009 was reported by some accounts to be around 200 billion percent! This was largely due to the uncontrolled printing of money. The rapidly declining purchasing power of the Zimbabwean dollar led to redenomination of the currency on three occasions, in 2006, 2008 and finally in 2009, removing an unbelievable 25 zeros in all. During this period, GDP declined by over 40 percent, while unemployment was reported to be around 80 percent. The authorities’ attempts to control the markets resulted in goods, even th
e basics, disappearing from shops, only to be found on the black market where one had to pay extremely exorbitant prices.
However, the situation drastically changed overnight in September 2008 when the three main political parties in the country signed the Global Political Agreement (GPA) to form a Government of National Unity (GNU). More realistic and prudent policies have since been adopted which have the seen the country record GDP growth for the first time in decade, albeit from a low base. Official GDP growth of 7 percent is forecast for this year. The main driver of the turnaround was the introduction of multicurrency or “dollarization” early in 2009. This effectively eliminated hyperinflation, with inflation closing out the year at around minus 7.7 percent. Inflation is expected to close out the year at around 6 percent, a far cry from the days when prices were changing by the hour. The GPA, for all its flaws, also brought about an improved level of political stability and peace. The market is currently more liberalized than it has ever been, as the authorities have allowed market forces in virtually all sectors, reduced taxes(corporate and personal) and also reduced or eliminated import duties on items such as raw materials and other essential industrial inputs, in a bid to stimulate the economy.
Most sectors are already responding to the improved economic environment — in particular, consumer facing industries such as retail, telecommunications and banking. These are perhaps the first areas investors need to be watching. There are also opportunities in agriculture, mining and infrastructure. Years of decline have resulted in a lot of the country’s infrastructure being in need of refurbishment or development/expansion. Power and water are constraining business operations and there is an urgent to augment the country’s power generating capacity and also improve its water supply and sanitation. While the major highways are fairly intact, there is a need to repair roads in urban areas, improve and extend the road network linking the country’s major centres as well as with neighbouring countries. As far as mining is concerned, very little prospecting has been done in recent times. However, Zimbabwe has the second largest known reserves of chrome and platinum in the world. Recently there has been a major diamond find. Even rare earth minerals, such as lithium and tantalum, are known to exist in commercially viable quantities.
The country is coming off a low base, but the recovery is real all the same. Because of perceived country risk, asset prices are still heavily discounted. Despite the decline of the last decade, Zimbabwe probably still has the most developed infrastructure in sub-Saharan Africa and the most sophisticated banking and financial system. While there has been a major brain drain, the country still has one of the continent’s most educated work forces. The political developments will no doubt continue to be a factor and it is hoped that prudent and business-friendly decisions will continue to be taken. The recently announced indigenization laws somewhat dampened investor sentiment, as they sought to compel investors to give majority equity in ventures to the indigenous people. However, after much pressure, the authorities have agreed to review and revise the regulations. Sectoral committees have been set up to do that and make recommendations to the government. This is a good sign for business and virtually unprecedented for the authorities to reverse policy in this way.
Most investors say that are waiting for things to improve in Zimbabwe. My response is that things are improving right now. Waiting will result in one being caught in the stampede that is sure to come. By then, I believe asset prices will re-rate and while good opportunities for investment will still exist, the really attractive upside will no longer be available. The time to invest is now.
About the author: Chai Musoni is Chief Executive Officer of Southern Central Capital Limited, an investment company focused on making private equity investments in Zimbabwe and the region. He is a founding member of the firm which was established this year in January. Before coming to SouthernCentral, Chai was Managing Director – Corporate Finance at Securities Africa, a pan African focused investment banking firm head officed in Bermuda and before was with Imara Capital, a regional investment banking firm, in a similar position. He has over 15 years of corporate finance experience on the continent. He has travelled extensively in Africa. He believes that Zimbabwe can be the catalyst that brings further economic development and prosperity to the region due to its strategic geographic position and the resources