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Betting on Zimbabwe

March 24, 2010

ZIMBABWEWith global risk aversion decreasing there has been renewed interest in frontier markets.

They don’t come much more frontier than Zimbabwe, which is where Investec Asset Management is looking to make one of its newest investments – buying into a supermarket chain – and then for other potential opportunities.

Despite the continued political troubles since President Robert Mugabe and old rival Morgan Tsvangirai put together a power sharing government just over a year ago, Zimbabwe’s economy grew last year for the first time after a decade of debilitating decline. Growth was estimated at nearly 5 percent.

Returns on the stock market have been even better, although trading remains thin. The ZSE Industrials Index is more than 160 percent above where it was a year ago if down 20 percent from its high last October).

Chris Derksen, head of frontier markets at South Africa-based Investec Asset management, which has $1.5 billion invested across the continent, saw strong further potential given gross domestic product in 2008 was half that of a decade before and Zimbabwe’s share of the economy in the Southern African Development Community had shrunk even more dramatically.

He sees the consumer sector as particularly promising.

“The Zimbabwean consumer is coming from a very low base and the potential for catch-up growth is strong. The difficulty, of course, is getting the timing on a sustainable change right,” Derksen said.

But anyone investing in Zimbabwe also has to keep an eye on the political situation. The fragile coalition has been marred by policy differences and has yet to implement political reforms. That has stood in the way of gaining access to foreign donor funding and to fresh elections. A 2008 ballot won by Mugabe brought condemnation from around the world.

Some investors have been unnerved by a push by Mugabe’s supporters to implement a law requiring foreign owned businesses to give up a controlling stake to locals.

Derksen pointed out that most of the assets he was looking at were already indigenous and theoretically compliant, but he did raise the question over what such a law could mean for sustaining the improvement in the economy that had been seen over the past year.

What are your expectations for Zimbabwe? Is now a good time to be putting in money?

Picture: Children walk through a maize plantation in Harare. Reuters/Philimon Bulawayo.

“Some investors have been unnerved by a push by Mugabe’s supporters to implement a law requiring foreign owned businesses to give up a controlling stake to locals.” In addition to his general corruption and ballot stuffing, Mugabe is targeting the illiterate masses in the country side and bribes them with corn and threatens the more resistant into believing that these vigilante missions of taking commercial farms from the qualified white farmers will benefit their country and slowly and cruelly cripples the economy. With such laws implemented, of course Foreign investment will disappear altogether.
Such a sad story.

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