WAIT­ING GAME

The Zim­bab­wean govern­ment has in­tro­duced a num­ber of aus­ter­ity mea­sures in an at­tempt to re­sus­ci­tate the ail­ing econ­omy. In­vestors, how­ever, re­main wary

Financial Mail - - FEATURE - Tawanda Karombo

In­vestor sen­ti­ment is dim­ming as Zim­babwe’s econ­omy plum­mets, dragged down by a grow­ing lack of con­fi­dence in the ad­min­is­tra­tion of Pres­i­dent Em­mer­son Mnan­gagwa. In an at­tempt to stem the tide, the govern­ment has in­tro­duced a raft of aus­ter­ity mea­sures, in­clud­ing a tax on elec­tronic money trans­fers and a re­duc­tion of the civil ser­vice.

Mnan­gagwa was bet­ting on a cred­i­ble elec­tion to un­lock in­vest­ment in­flows. In­stead, fund hold­ers seem to be un­nerved af­ter a con­tested re­sult.

In the ab­sence of mean­ing­ful in­vest­ment, the econ­omy has nose-dived — de­spite Mnan­gagwa’s ap­point­ment last month of a tech­no­cratic ad­min­is­tra­tion. Ex­perts say prospec­tive in­vestors are not keen on the coun­try at present, while those al­ready ex­posed are re­think­ing their strate­gies.

Min­ing ex­ec­u­tive Jack Mure­hwa says some in­vestors are wait­ing un­til the en­vi­ron­ment im­proves. “No-one will put [in] any new money un­der the cur­rent sce­nario, which is frus­trat­ing,” he says.

Zim­babwe’s econ­omy is suf­fer­ing from for­eign cur­rency short­ages, scep­ti­cism over the quasi-lo­cal cur­rency of bond notes and in­fla­tion­ary pres­sures that have been wors­ened by ris­ing par­al­lel-mar­ket for­eign cur­rency rates.

New min­is­ters drawn from the pri­vate sec­tor, such as highly re­garded econ­o­mist Mthuli Ncube (fi­nance min­is­ter) and for­mer Mi­mosa mine di­rec­tor Win­ston Chi­tando (mines min­is­ter), have not yet won the trust of in­vestors, who are de­mand­ing cer­tainty in the oper­at­ing and in­vest­ment frame­works.

“Un­cer­tainty is what is hin­der­ing progress. We have had to re­ori­ent our cap­i­tal planned for ex­pan­sion be­cause we can’t bring in any new cap­i­tal un­til we are cer­tain of the cur­rency regime and the eco­nomic pol­icy di­rec­tion,” says a man­u­fac­tur­ing com­pany ex­ec­u­tive who asked to re­main anony­mous.

Fund man­agers say in­vestors are re­strate­gis­ing their port­fo­lios, mov­ing into lo­cal eq­ui­ties as mone­tary as­sets be­come risky. For­eign firms such as Bri­tish Amer­i­can To­bacco Zim­babwe, Delta Corp and oth­ers have failed to re­mit div­i­dends abroad due to the for­eign cur­rency short­age, and in­vestors are opt­ing to rein­vest on the Zim­babwe

Stock Ex­change (ZSE) or sink their money back into op­er­a­tions.

The move into eq­ui­ties pushed the ZSE above $16.7bn this month — its high­est mar­ket cap­i­tal­i­sa­tion since Novem­ber. Year on year, ZSE cap­i­tal­i­sa­tion is up an im­pres­sive 36.36%, with heavy trad­ing in Econet (up 26.06%), Delta (4.4%) and Innscor (4.44%).

But Imara As­set Man­age­ment Zim­babwe CEO John Le­gat be­lieves it will take time to get a proper read of con­di­tions. “It is still too early to tell how in­vestors are re­act­ing to the new sit­u­a­tion and the new ad­min­is­tra­tion.”

Mnan­gagwa has said he be­lieves his ad­min­is­tra­tion has “the ca­pac­ity to de­liver”. While mea­sures such as rais­ing taxes on elec­tronic money trans­fers are be­ing re­sisted, other mone­tary poli­cies have been wel­come news for in­vestors and ex­ec­u­tives.

Ecobank Zim­babwe head of trade op­er­a­tions Fran­cisca Karanda has sought to re­as­sure for­eign-cur­rency de­pos­i­tors that they will get their money, af­ter it was an­nounced that lo­cal and for­eign cur­rency bank ac­counts will be sep­a­rated — a tacit ac­knowl­edge­ment from the au­thor­i­ties, it seems, of the dis­par­ity between the value of mo­bile money and bond notes against the US dol­lar. By the sec­ond week of Oc­to­ber the pre­mium on bond notes to the dol­lar had soared above 400%.

But the govern­ment is still “tak­ing peo­ple’s for­eign ex­change money and giv­ing them bond notes”, Mure­hwa says.

“At the end of the day, cap­i­tal is a main is­sue for min­ing com­pa­nies for both op­er­a­tional ex­pen­di­ture [opex] and cap­i­tal ex­pen­di­ture [capex],” he says. “For opex, one would want to bor­row from banks, which is dif­fi­cult, while for capex in­vestors are not will­ing to put in money.”

Ncube has said he will rein­tro­duce the US dol­lar as the ma­jor cur­rency of trans­ac­tion in the coun­try, though no time frame has been pro­vided to re­as­sure in­vestors; he also plans to re­move the bond notes from cir­cu­la­tion.

But for some, the is­sue is fis­cal in­dis­ci­pline. Bu­sisa Moyo, an in­dus­tri­al­ist based in Bu­l­awayo, says the move to the dol­lar is nei­ther here nor there, given that the cur­rency has been in use since 2009. “The ques­tion is how [Ncube] is go­ing to deal with the fis­cus — that’s the cause of our prob­lems — and re­vert to cash bud­get­ing. Cur­rency is nei­ther prog­no­sis nor rem­edy.”

It’s a sen­ti­ment shared by econ­o­mist Brains Muchemwa, who says: “We need fis­cal dis­ci­pline — [then] most of our chal­lenges [will] be­come man­age­able.”

For Zim­babwe Na­tional Cham­ber of Com­merce CEO Christo­pher Mu­gaga, re­lief will come from a shift in the oper­at­ing en­vi­ron­ment. “What makes in­vestors happy, and us happy as com­merce, is not the faces [in cabi­net] — it’s the en­vi­ron­ment, the work­ing en­vi­ron­ment, be­cause this is not the first time we have a cabi­net of tech­nocrats.”

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