Tourism: Just one of Zimbabwe's untapped resources

Zimbabwe has many obstacles to overcome before it can hope of reclaiming its once envious position as the breadbasket of Africa, but after years of economic decline and an inflation rate that has spiralled out of control, the country is now taking its first steps towards that goal.

A year ago it seemed almost impossible to imagine Morgan Tsvangirai in a position of power in Zimbabwe, yet now – after months of negotiations – the leader of the Movement for Democratic Change is Prime Minister.

The emergence of South Africa from its legacy of apartheid and Mozambique and Angola from their respective civil wars should have marked the start of a bright future for southern Africa, but the decline of Zimbabwe has thus far blighted the SADC region.

With the government of national unity (GNU) in Zimbabwe now in place, hopes are high that for perhaps the first time in its history, countries comprising the SADC region have the opportunity to be democratically elected, peaceful, and able to reap the benefits of their own natural resources.

Investors eyes on Zimbabwe

Investment into Zimbabwe has been heavily constrained in recent years following the effect of sanctions from Western powers. Despite the economic decline, however, many South African and international companies still have a presence there.

Nicky Moyo, director of the Development Enterprise Africa Trust, says that “as many as 27 of South Africa’s 40 largest companies currently operate in Zimbabwe, with a particularly strong presence in the country’s mining and financial services sectors.”

British companies including Barclays Bank, supermarket group Tesco, household goods firm Unilever and ad agency WPP all operate in the country, and last year mining giant Anglo American came under fire after it announced a £200-million investment into its mine at Unki.

Aside from a corporate presence, many western investors have also been attracted to the potential of high returns in Zimbabwe. Sean Gammon, Managing Director of Harare-based equity fund Imara Capital Zimbabwe, says “We saw a great deal of interest in investing in Zimbabwe across our business model in the period mid 2006 to mid 2008.”

Gammon estimates that between US$200-million and US$250-million was invested in the Zimbabwe stock exchange by foreigners between 2006 and 2008, most of whom were from the US and UK, he says, refuting claims that western investors have stayed out of the country for political reasons.

Investment peaked in March 2008, as investors foresaw political change on the horizon, however this evaporated a few months later following the disputed 2008 elections and policy changes by the Reserve Bank of Zimbabwe that restricted investors’ ability to exit certain investments.

Obstacles to investment now

While the UK and US have remained fierce critics of President Robert Mugabe, both countries agreed to honour the power sharing agreement. In fact, the Zimbabwean government recently revealed that it is in talks with the US and Europe over the possible repeal of sanctions.

Professor Daniel Makina, of the University of South Africa, says he still does not expect significant aid and investment into Zimbabwe while Mugabe remains in power however. “Prospective donors and investors are going to adopt a ‘wait and see’ attitude,” he says.

The GNU has already announced that it plans to approve a new constitution within 18 months and to hold fresh elections in two years time, however Nicky Moyo notes that that could be a tall order for the government.

“The repair of the economy requires structural reforms which are politically difficult to implement in a transitional administration of two years,” he says, adding that politicians may be less willing to implement radical reforms for fear of the benefits not materialising within the two-year time-frame.

Ahead of these reforms, however, are two legislative obstacles that it is widely agreed have to be changed in order to encourage investor sentiment.

“To overcome investor reluctance … the protection of property rights will need to be re-established, and current legislation already in the statute books concerning investors’ requirement to relinquish 51% of their shares to indigenous shareholders will have to be repealed,” says John Robertson, the Harare-based economic consultant.

Who is lining up to invest?

While it is true that the expected flood of investment into Zimbabwe has been held back on concerns about the viability of the GNU, investment has already begun to flow into the country.

One firm currently eying investments in Zimbabwe is Botswana-based venture capital fund VPB, which is raising a new €150 million SADC regional private equity fund to target mid-market sized private equity investments.

Ndaba Mpofu, chief investment officer at VPB, says that “although Zimbabwe was not originally on the target investment list for this fund, it is now in the radar given the recent changes which would hopefully usher in a period of sustained economic growth and stability for that country.”

While VPB is yet to make any investments into Zimbabwe, Mpofu suggests that there will be some investors looking to get in now. “I would expect what I would call ‘opportunistic capital’ to start seeking investment opportunities now whilst asset prices are still relatively cheap.”

John Robertson takes a similar view, suggesting that while certain legislative obstacles need to be overcome, coupled with the formation of an independent news media, there will likely be interest ahead of those reforms.

“In the interim period, it is likely that most investment will be by companies trying to acquire assets that can be either sold at a profit when a recovery gathers momentum, or by companies that hope to capitalize on the gaps now present in the delivery of services,” says Robertson.

A mine of opportunities

Traditionally mining has attracted the biggest investments in Zimbabwe, and despite the imposition of sanctions, the sector remains the biggest contributor to exported goods, accounting for more than 50% of Zimbabwe’s exports.

“In a post-crisis Zimbabwe, mining has the potential to become the fastest-growing sector of the economy,” says Professor Daniel Makina, adding that the country has large untapped deposits of platinum group metals.

Interest has already been sparked in the mining sector, says John Robertson, with platinum mining in particular having attracted the most ambitious levels of investment in recent years. “One of these ventures is well on its way and a second is poised for considerable expansion when conditions improve,” he says.

“Within Zimbabwe itself, there is an unbelievable air of optimism on the ground given the policy reforms that have already taken place,” - Ndaba Mpofu

It’s not just platinum group metals that the country is yet to exploit, though. Zimbabwe also has vast untapped natural resources of coal, chromium, gold, nickel, copper and iron ore, which many mining companies would be keen to utilise.

Makina notes that aside from employment within the sector itself, mining also has the potential to create a number of downstream industries such as retailing and other services, which South African firms would be able to exploit.

More opportunities for investors

Aside from the obvious mining opportunities, Ndaba Mpofu also notes that the investment potential in Zimbabwe is “huge, particularly given the fact that the country’s economy is coming off a very low base.”

For South African companies interested in entering the economy, John Robertson suggests that initial investments are likely to be within the retail and wholesale sectors, rather than from mining or manufacturing.

“Later, if the SADC trading bloc arrangements take their intended route, duty-free access to the regional markets, and possibly a common currency and fewer migration controls, will make Zimbabwe an attractive manufacturing option,” says Robertson.

Nicky Moyo has a broader view, saying the best opportunities for foreign investors are in sectors such as agriculture, mining, tourism, ICT and Manufacturing. However, he highlights the Zimbabwean ICT market in particular as a sector waiting to be tapped into.

“The market penetration rate is 9% in the mobile sector,” says Moyo, “compared with regional penetration rates of 101% for South Africa and over 60% for Botswana.”

Tourism is yet another undeveloped prospect. Moyo suggests that with its natural beauty Zimbabwe offers vast opportunities for investors, adding that “years of underinvestment in tourist facilities means most assets are available to buy at a bargain.”

An air of optimism

In spite of what has been called Zimbabwe’s ‘lost decade’ the country has strong foundations on which to base a recovery plan including excellent, if neglected, infrastructure and agricultural land.

“Zimbabwe still has the second most developed industrial infrastructure in Southern Africa, and it has the potential of immense growth, as it is geographically located to be able to service the needs of over 400-million people,” says Nicky Moyo.

Certainly SADC countries are expected to benefit from a properly functional Zimbabwean economy, not only as it would bring a halt to the millions of refugees that have fled the country, but would also signal a stronger regional base, improving regional trade flows.

The Zimbabwean population also has a reputation of being very well educated, and it is hoped that political stability could attract its diaspora to return, bringing with them much-needed skils to help rebuild the economy. Statistics from the CIA estimate Zimbabwe as having an adult literacy rate of 90%.

“Once Zimbabwe’s recovery is well on its way, SADC states will certainly start attracting additional investment interest,” says John Robertson, though he cautions that any recovery is not going to reach impressive dimensions until property rights assurances are back in place.

Perhaps the best outlook for Zimbabwe comes from the grassroots up. Ndaba Mpofu says he expects a number of Zimbabwean companies to diversify their operations into the region once they can access capital.

“Within Zimbabwe itself, there is an unbelievable air of optimism on the ground given the policy reforms that have already taken place,” says Mpofu.

In spite of its difficult recent past, if progress being made by the current unity government continues, it seems the optimism being felt in Zimbabwe is set to ripple through SADC and the wider world, as companies hope to cash in on the recovery of Africa’s bread basket.