Denis Worrall has organised six conferences in London and Johannesburg over the past two years to attract investors to Zimbabwe. He is angry and disappointed because there is nothing to show for his efforts. Zimbabwe has a lot of potential, he says, but most investors are not ready to put their money into the country because of the twists and turns in its economic policies.
“It is really a sad situation. It depresses me because I have put in a lot of hard work into this,” says Worrall, chairman of Cape Town- based Omega Investment Research.
The boom that most people expected after last year’s political settlement has not materialised. President Robert Mugabe, Prime Minister Morgan Tsvangirai and Deputy Prime Minister Arthur Mutambara entered into an inclusive government in February last year which has seen the economy stabilise and grow for the first time in a decade.
Inflation is down to single digit level from an official peak of 231 million percent in July 2008 when the government stopped releasing inflation figures. The country has introduced the use of multiple hard currencies but foreign investors continue to shun it.
Figures released by the Zimbabwe Investment Authority (ZIA) look impressive. ZIA approved 82 projects in the first nine months of 2009. Twenty-two were foreign and 58 joint ventures. The projects were valued at $846.2 million with foreign partners contributing $673.4 million.
The majority of the projects were into manufacturing (35) followed by mining (25) and services (16). Most of the money went into mining which gobbled $794.2 million but $564.4 million of this was spent on buying equipment from abroad.
Tsvangirai and Finance Minister Tendai Biti have made several trips to Europe and the United States to lure investors but with little success. Mugabe, it appears, is the stumbling block. Investors are not prepared to put their money into Zimbabwe while he is still on the scene.
“I am a little disappointed with Morgan because he is not strong enough to push out Mugabe,” Worrall says. “Of course there are some investors who have decided to come in because they say Mugabe is history. But generally, I think there is a lot of concern and anger about what is happening in Zimbabwe. Anger with the international community but especially with the South African government because there is a feeling that South Africa is a bulldog with rubber teeth. It is making a lot of noise but is doing nothing about the situation in Zimbabwe.”
Worrall, a former Member of Parliament and former South African ambassador to Australia, has every reason to be bitter with his government. South Africa has the power to change things in Zimbabwe. It is Zimbabwe’s biggest trading partner, though at the moment trade is heavily skewed in favour of Pretoria. But more importantly South African companies are virtually keeping Zimbabwe afloat.
Dianna Games, director of Africa At Work and author of a study on South African companies with investments in Zimbabwe, says 60 percent of the companies listed on the Zimbabwe Stock Exchange (ZSE) are South African.
There are more than 40 South African companies with investments in Zimbabwe. The top five companies on the ZSE – Old Mutual, Pretoria Portland Cement, Econet, Delta and Innscor are either South African controlled or have a major South African investment.
Insurance giant, Old Mutual (OM), is the single largest investor on the 80-counter ZSE and has a stake in almost every listed company. It can make or break Zimbabwe’s economy. OM constitutes 18 percent of the market capitalisation of the ZSE which stood at about $4 billion in December. It had a market capitalisation of $938.2 million this week.
Only recently there was an outcry over Old Mutual’s investment in the ZSE-listed but government-controlled Zimbabwe Newspapers group (Zimpapers), publisher of the country’s only two daily papers which are used as Mugabe’s propaganda machine. OM is the second largest shareholder in Zimpapers after the government. It has an 18.23 percent stake. The government has 51.09 percent.
Pretoria Portland Cement (PPC) is the dominant player in the cement manufacturing industry in Zimbabwe and is wholly-owned by a South African company of the same name. It has two competitors, Lafarge in Harare and Sino-Zimbabwe Cement in Gweru.
PPC is the second largest company on the ZSE with a market capitalisation of $223.1 million. The company was operating at 45 percent of capacity last year but it can produce up to 760 000 tonnes of cement a year. PPC is spending R80 million on the Zimbabwe operations this year and R40 million next year.
Locally-owned mobile phone operator Econet is the third largest company on the exchange. Old Mutual and Standard Bank of South Africa through its Zimbabwe subsidiary Stanbic has a stake in the company. Econet’s market capitalisation was $94.5 million.
The company embarked on a massive expansion programme following the introduction of the multiple currency system. It now has more than double the number of subscribers than its two competitors combined. Its competitors are the government-owned NetOne and Telecel in which Egypt’s Orascom has a 60 percent stake.
Econet is the best performer on the exchange. It recently secured a $50 million loan from the African Export Import Bank (Afreximbank). CEO Douglas Mboweni said the company was planning to use the money to expand its subscriber base from 3 million to 5 million by June this year.
SAB Miller the fourth largest brewery in the world has a 36.8 percent stake in Delta, Zimbabwe’s only beer brewer and the largest beverage maker. Delta is the fourth largest company on the stock exchange with a market capitalisation of $49.8 million.
SAB Miller spokesman Nigel Fairbrass said the parent company invested $12 million in a new bottling plant for Delta last year. The plant has a capacity to roll out 42 000 bottles of beer an hour and was commissioned in August. The company increased its production capacity for lager beer from 35 percent in February to 78 percent in September, that of sorghum beer from 32 to 59 percent and that for soft drinks from 20 to 60 percent.
It had a turnover of $146 million in the six months to September. CEO Joe Mutizwa said the company was planning to increase its annual sales to $1 billion within the next five years.
Although South African companies have a very small stake in Innscor, the fifth largest company on the ZSE, they play a major role in its products. Old Mutual has less than 10 percent in Innscor Corporation, Zimbabwe’s fast food giant, but Innscor operates two key South African fast food franchises, Steers and Nandos.
South African companies have investments in other ZSE counters and non-listed companies that play a major role in the Zimbabwean market. These include Murray and Roberts in construction; Stanbic and MBCA Bank in banking; Alexander Forbes in insurance; Tongaat Hulett in sugar; and Truworths, Edcon and Pick ‘n Pay in retail. But it is in the mining sector that they hold the key. It is also in this sector that South African investors are likely to face conflict with black Zimbabweans.
The mining sector is currently driving Zimbabwe’s economic recovery programme. Biti said he expected the sector to grow by 40 percent this year after a decline of 22.1 percent in 2008 and a growth of only 1.7 percent last year. Tsvangirai said if well managed the sector could generate $16 billion by 2015, enough to turn around the country’s economy without outside aid.
But the sector is full of minefields. South Africa’s Metallon, for example, is the largest gold producer in the country. It accounts for more than half the output. It owns five mines including Shamva in Mashonaland Central and How Mine just outside Bulawayo.
Metallon closed down its operations in 2008 but was back in production last year after getting a $15 million loan Afreximbank and a Zimbabwe bank. By December it was producing 4 000 ounces a month, a quarter of its production capacity, but the company said it was planning to increase production to 12 000 ounces a month by February and 250 000 ounces a year within three years.
Executive chairman Collen Gura said the company could easily notch 650 000 ounces a year. “It’s easy for Metallon to reach 650 000 oz. Just give us a solution on power, that is the catch,” Gura said.
Zimbabwe is suffering intermittent power shortages which are affecting both mining and agriculture. Gold production slumped from a peak of 27 tonnes in 1997 to 3.1 tonnes in 2008. It is expected to increase to 6.4 tonnes this year.
Another South African mining company Mmakau owns Eureka Gold Mine near Harare. It is, however, in one of the newest finds, platinum, that South African companies dominate. Anglo Platinum, the world’s largest platinum producer, is developing the Unki Mine in Shurugwi near the Midlands town of Gweru.
It has invested about $400 million into the project which should come on stream towards the end of this year and will produce 65 000 ounces a year. Despite the uncertainty following the passing of Zimbabwe’s indigenisation law, Anglo Platinum CEO Neville Nicolau said his company was looking for other opportunities in Zimbabwe.
“We certainly are looking at other opportunities in Zimbabwe, as we are in South Africa,” he said.
Impala Platinum (Implats), the world’s second largest platinum producer, has an even bigger operation. It runs Mimosa Mine near Zvishavane jointly with Aquarius Mining and owns 87 percent of Zimbabwe Platinum (Zimplats) near Chegutu. Implats has invested $340 million into Zimplats. This should see production increase from 96 000 ounces a year to 170 000 by June and to 180 000 after that. Mimosa produces 91 500 ounces. Zimbabwe currently holds 43 percent of Implats’ platinum reserves.
Although the company entered into an empowerment agreement under which it set aside some of its reserves for credits in indigenisation, a company spokesman said they were reviewing what impact the indigenisation act would have.
Zimbabwe introduced a new law which says companies with investments above $500 000 should cede 51 percent of the ownership to indigenous people within five years. But there are currently disagreements over the new law between Tsvangirai and Mugabe. This is also putting off investors.
Mark Tunmer CEO of Imara Capital Holdings which has been promoting investment into Zimbabwe, however, says it is not only indigenisation that is making investors jittery. There are other things like outstanding issues within the global political agreement that ushered in the inclusive government, the continued taking over of mainly white farms as well as the harassment of political activists.
Tunmer said another major impediment was that local businesses felt they were being pressured to sell their concerns cheaply. “They believe their businesses are worth much more than they are being offered. But foreign investors on the other hand feel that almost every business in Zimbabwe needs recapitalisation. So there is a stand-off between local and foreign investors,” he said.
Academic, Brian Raftopoulos, one of Mugabe’s strongest critics, says while there is lack of movement on the political front, investors have been known to put their money in countries with worse conflicts.
“I think therefore that though investors are worried about the indigenisation law and the failure to implement the GPA in full, investors may not be coming to Zimbabwe because there are better business opportunities where they can get better returns elsewhere.”
Roger Wakefield, a cross-border litigation specialist for Lex-Africa, a 26-country network of African law firms, says South African investors have nothing to worry about because they are protected by an agreement that Zimbabwe and South Africa signed in November last year.
“Although it does not assist South Africans who have already lost investments in Zimbabwe, the Bilateral Investment Promotion and Protection Agreement (BIPPA) does at least provide protection going forward,” Wakefield said.
“Firstly, the BIPPA treaty clearly states that investments may not be nationalised or expropriated except for public purposes, under due process of the law, on a non-discriminatory basis and for prompt, adequate and effective compensation. “Secondly, any investor affected by expropriation will have the right to state their case in a court of law or other independent and impartial forum.”
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