Is Robert Mugabe’s health failing? As Zimbabwe’s president celebrated his 90th birthday on February 21, media outlets around the world speculated that Mugabe might actually be weaker than Zimbabwe’s authorities are letting on.
That’s an encouraging sign to the many foreign investors who have been eyeing Zimbabwe but are waiting to see what happens post-Mugabe before they commit funds to a country that many believe offers tremendous potential, even as it is one of the toughest places to invest in right now.
It isn’t just the government’s contentious indigenization program—the platform on which Mugabe campaigned in the last elections but that has reportedly proven more of a dampener on than a boost to the economy— that’s frightened most investors, even those who specialize in Africa, away from Zimbabwe. It’s the country’s weak macroeconomic fundamentals indicating a precarious situation making Zimbabwe particularly subject to the volatility in the global economy.
Nevertheless, the Zimbabwe story is becoming increasingly interesting to a growing number of investment managers, and investors such as Faisal Rafi, head of research at RisCura, a boutique investment firm in London, who are already invested in the country, believe that investing now is a great idea, and it’s just a matter of knowing one’s way around Zimbabwe and navigating the system to take advantage of great opportunities there.
Rafi visited Zimbabwe about a year ago “and we came back quite excited by what we saw,” he said.
He highlighted a number of companies, including OK Zimbabwe, a supermarket chain, and Econet Wireless’s Zimbabwe subsidiary, that are extremely well run and profitable. Their current share prices don’t reflect their true value, he said, and they are trading at a fraction of the multiples at which their African and emerging market peers are trading, even as they’re supported by the same, long-term growth dynamics.
Furthermore, these companies are also in sectors that are not directly subject to the risk that Mugabe’s indigenization policies pose, such as banking, telecom and the consumer sector, all of which are good investment opportunities and are poised for great growth.
On the other hand, Rafi said sectors like mining are to be avoided. Zimbabwe has a huge mining sector but it’s one of the areas that is most subject to risk, he said. “Although Zimbabwe has been through a lot in recent years and the economy is in dire straits, it has all the pillars in place to make a quick corporate recovery – and there’s no need to wait post-Mugabe,” Rafi said. “People have just got to live with Mugabe being the leader of the country and know that Zimbabwean companies have learned to work with ‘Mugabe rules,’ so as an investor, it’s a question of working with these rules rather than against them. This is why it’s important to have a local presence because the locals know which companies may be victims of indigenization and which ones won’t and will be great buying opportunities.”
Rafi also noted Zimbabwe’s history and some of the solid institutions it has in place. “We forget that this is a country that once upon a time and not too long ago, was the most advanced economy in Africa alongside South Africa,” he said, “so it has institutions that typically take most countries a hundred years to build.”
Larry Seruma, chief investment officer and managing principal at Nile Capital Management, also said Zimbabwe’s highly educated population—it has an adult literacy rate of 90%, one of the highest in Africa—is one of the country’s greatest strengths and a building block for the future.
“There is a silver lining in that whoever succeeds Mugabe will see the need to have a different environment and a need to change the growth profile of country,” he said. However, the current policies are counter-productive for Zimbabwe and frustrating for foreign investors, and they are affecting a number of Zimbabwe’s key industries, Seruma said, notably agriculture.
Several years of repossessed farms and land grabs have resulted in experienced Zimbabwean farmers leaving the country and taking their expertise elsewhere. Rampant corruption and weak institutions have exacerbated the situation, and while other African nations are now benefiting from Zimbabwe’s agricultural expertise, the country itself has gone from being a food exporter to a food importer and is facing a massive food security issue that’s a drain on an already stretched economy, Seruma said.
In Africa, too, regional cooperation is becoming more and more important, but a number of countries have made it plain that Zimbabwe is on outs of that dynamic. This will make it tougher for the country to attract investment, no matter its potential.