Zimbabwe worth second look

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It was noted at the Indaba Mining Conference in February that Africa would stage about 17 elections this year, and that the continent could become a hotbed of political and economic instability.

It was easy to talk in such terms. The civil eruptions of North Africa were already in full flow, even though Hosni Mubarak had yet to be ejected from his 30-year seat of power in Egypt, and Muammar Gaddafi, Libya’s dictator, had not launched a bloody war upon his people.

Elsewhere, there was escalation in the disputed election result in Cote d’Ivoire but election-related troubles in Nigeria and, to a lesser extent, Uganda, were yet to play themselves out.

Set against this context, one wonders how Zimbabwe fares, especially its resources-based economy, given the massive vote of confidence analysts have in Ghana and Kenya which have established political economies?

Undoubtedly, Zimbabwe has turned from bread basket of Africa to basket case, a well-worn aphorism. But it’s not quite the mess it was once in.

The adoption of foreign currencies, the US dollar principally, has eased liquidity in the country and notwithstanding the creakiness of the Zanu PF/MDC coalition, there is evidence of private investor positioning.

“The introduction of multiple currencies has assisted most of the mining entities within the country to afford purchases of the required machinery to increase production output,” said Frost & Sullivan’s James Maposa.

Mining consumables are now more easily imported from South Africa.

Maposa felt this was a key economic policy reform. Building on the 47% increase in mining production last year, the mining sector could record a further 44% output improvement in 2011.

Platinum, coal, and controversial diamonds remain the key commodities but the resumption of activities by Zimbabwe’s gold industry is also helpful.

Said Renaissance Capital in a recent note: “Mining output presently constitutes 7% of gross domestic product (GDP) ; however, we forecast that double-digit growth over the medium-term will boost mining output to 12% to 13% of GDP by 2015.”

Private equity firm Musa Capital is currently seeking between $45 million and $60 million to finance development of a suite of assets for a single client operating in Zimbabwe’s gold sector.

“Some of the assets were once explored by Anglo but mothballed; others are shallow workings while yet another asset is state-owned and provides the client with the opportunity of a management contract,” said Antoine Johnson, one of Musa Capital’s founders.

“There’s no doubt the Zimbabwe government wants to revive the economy and it sees the importance of a more sane economic policy,” he said.

Why then rattle investors by scheduling ambitious timetables for indigenisation, Zimbabwe’s answer to the empowerment legislation of South Africa?

A second gazetting of indigenisation lawmaking recently suggested properties might be expropriated, a shock that shaved off 7% to 8% in one day from the stock prices of prominent platinum miners.

Johnson believes the risks posed by indigenisation can be navigated by proper structuring. “You have to come up with a mechanism whereby the funder gets the economics that it wants, taking into account past and future capital injections, while complying to the proposed or any other legislation,” said Johnson.

The key to Zimbabwe, perhaps, is that its political risk is so towering that positioning in the country carries no premium.