How business is reading the Zimbabwean situation
Posted by CM on October 12, 2007
There is no shortage of analysis of the Zimbabwean situation by scholars and laymen. Most of that analysis focuses on the political.
But it is also useful to pay attention to the “analysis” provided by the actions that large business players make by their investing decisions. Many companies have given up operating in Zimbabwe over the years, with Heinz being one of the most recent ones to sell off its stake at what many considered a song. Zimbabwe corporate stalwart, Edgars, has just announced that it is closing down many of its branch stores country-wide in the wake of the damaging operating realities that have been imposed by price controls.
But there are also a surprising number of companies who may have pared down their operations to the bare minimum, but who seem to intend to be in for the long haul, seeing Zimbabwe as still a worthwhile future prospect, even if it is a discouraging one now. The Indeginization Bill that is waiting for Mugabe’s signature into law has further thrown a spanner into the works, with its requirement that majority ownership must be in the hands of Zimbabweans. Yet even the reaction to that has been more muted than I would have expected.
In any case, here are excerpts from an Engineering News (South Africa) story:
African investment firm Lonrho has acquired an 80% stake in offshore company Blueberry International Services for $5,45-million in cash. Blueberry controls 60% of Zimbabwe Stock Exchange-listed telecommunications operator Celsys, and 100% of Zimbabwean industrial chemicals manufacturer and distributor Gardoserve (trading as Millpal).
Lonrho`s acquisition of an interest in Celsys and Millpal represents its first investment in Zimbabwe following the launch of LonZim, which is a separate and specific fund that Lonrho is establishing to build a portfolio of investments in Zimbabwe and neighbouring countries.
Lonrho noted that the flotation of LonZim on Aim is planned for late October. The holding in Blueberry, and any other transactions meeting the investment criteria of LonZim already completed by Lonrho, will be offered to LonZim at cost.
“Lonrho believes that there is a significant opportunity to bring foreign direct investment to grow existing businesses in Zimbabwe,” said Chairperson and CEO David Lenigas. “Now is the time to be establishing and supporting businesses that can develop. The economy has suffered from severe underinvestment.”
On the subject of the political and economic turmoil in the country Lenigas said that Lonrho is mandated to operate in difficult business environments, and that, as the economies of the African continent improved, the company wanted to be part of that rebuild. Lenigas said that he believed that the company would experience an “economic recovery,” eventually. He also noted that, given the current situation, businesses were less expensive to purchase.
At the end of September, Zimbabwe’s Parliament passed an indigenisation bill, which gives local owners majority control of foreign-owned companies, including mines and banks. Lenigas said that he did not expect that the bill would have much of an impact on Lonrho’s new acquisitions, but he noted that the company would operate in accordance with the policies of the country if changes were required. He added that the company had a particular interest in investing in local skills, and that it aimed to empower the businesses’ employees to keep growing.
These sorts of decisions are made by hard-headed people who would have examined them from every angle. The companies involved have a lot to lose and hope to gain far more, so the decisions are not made lightly. Lonrho, of course, has long and deep roots in Africa, so it is perhaps not surprising that it ventures where many others fear to tread.
What can be read into these sorts of business decisions about the future may be even more interesting than what is revealed by more conventional political analysis.