Zimbabwe Review

Reflections on Zimbabwe

Posts Tagged ‘investment’

Investment rises, even in the midst of crisis

Posted by CM on September 27, 2008

No one could possibly want to invest in a country with as much bad press as Zimbabwe, could they? The ‘international media’ have been warning anyone who cares to listen that the country’s collapse will happen ‘tomorrow, next week, next month, in the next six months,  any day now,’ for close to a decade now.

And the ‘international media’ lovingly, in great detail and as regularly as possible, tells us about the social and economic hardships of life in Zimbabwe in a way they strangely forget to do in war zones like Iraq, where people have not just been experiencing hardships too, but also being killed in their thousands.

So surely no one in his right mind would invest in a country like Zimbabwe, would they? Well, according to a report about worldwide investment trends by the United Nations Development Programme, there are actually are some investors who think the country is a good bet, if only in the medium to long term. The Financial Gazette reports:

Despite the worsening economic conditions in Zimbabwe, a report by the United Nations Conference on Trade and Development (UNCTAD) has highlighted a marked improvement in foreign direct investment (FDI) in the country from US$40 million in 2006 to US$69 million last year.

These investments have, however, not translated in the overall growth of the country’s tottering economy, which means the funds could have been invested on the buoyant financial markets.

UNCTAD’s statistics came as the Zimbabwe Investment Authority (ZIA) indicated an upsurge in enquiries on the back of a political settlement reached between the country’s main political parties — ZANU-PF and the Movement for Democratic Change.  “We have seen a serious interest on Zimbabwe in the past few weeks,” said ZIA chief executive Richard Mubaiwa. “Next week in South Africa there will be a conference on investment in Zimbabwe to be held at the Development Bank of Southern Africa headquarters. It shows there is interest on Zimbabwe after the political settlement,” he added.

Confederation of Zimbabwe Industries president Callisto Jokonya revealed yesterday that the industrial representative body was due to meet a foreign investor keen to inject about US$250 million in investments in the country.

For a country of Zimbabwe’s former economic glory and its potential, a rise in investments in two years from $40 million to $69 million may seem impressive in percentage terms, but it is paltry in absolute terms, a mere shadow of the country’s boom times. And as the story guesses, much of this new investment may have been in the speculative financial markets rather than in production. The Zimbabwe Stock Exchange has weathered the country’s many storms to continue to reward investors with good, above-hyper inflation returns.

But it is the trend that is interesting. Instead of investment declining to near zero in response to the unprecedented propaganda, economic and diplomatic onslaught against not just Mugabe’s regime, but against the country itself, there are still some hard-nosed businesspeople who think Zimbabwe is an interesting place to put their money.

This partly illustrates how despite the very real hardships and decline of recent years, Zimbabwe remains more functional in some surprising ways than many ‘non-crisis’ countries that do not have such controversial rulers as it does.

If a convincing political settlement should emerge from the murky recent positions & perks deal between the political parties, the next few years should be very interesting business time in Zimbabwe.

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Future-looking investors look beyond the headlines

Posted by CM on September 2, 2008

The brief excitement about a Zimbabwean political settlement of some sort being near is beginning to fade. Even with a slight opposition majority in parliament, it does not look like anything practical is going to change except perhaps for the worse.

The Mugabe government continues in power with an astonishing detachment at the economy’s deep problems and the tremendous suffering faced by the majority of people. The reports of the extent of the shortage of the staple maize meal, almost nine months before the next harvest (whose size and quality cannot be guaranteed to relieve the present food crisis) are alarming.

But for investors, Zimbabwe’s interest is in its promise; the potential spoils it offers for those who are able to take a long term view.

I am continually amazed at the number of investors who overlook the sustained negative international news blitz about the country to look for and try to advantageously position themselves for a better day.

The latest example of this type of investor is carried in a Reuters article entitled Bidvest profit up 10 pct, eyes Zimbabwe, U.S.


South Africa’s biggest company by revenues, services group Bidvest, posted a 10.1 percent rise in annual profit on Monday and said troubled Zimbabwe is among the places where it is looking for growth.

Chief Executive Brian Joffe said Bidvest was looking to invest and would raise about 600 million rand ($78.04 million) from selling its stake in waste management group Enviroserv, which has received a private equity buyout offer.

“Internationally speaking, we are looking to expand our food service business and we had one or two opportunities we are currently pursuing,” he said.

Bidvest already operates in Zimbabwe and is optimistic about growth in the southern African country, which is mired in a political crisis and grappling with hyperinflation.

“It’s premature to talk about it,” Joffe said. “We are still looking for opportunities in the U.S. We are definitely looking for opportunities in Zimbabwe.”

Hard-headed investors do not talk like this out of sentimentality or political expediency. They would have carefully looked beyond the heated headlines of the day to see the bright prospects of tomorrow.

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Exit British/Dutch Shell, enter Malaysian/S. African Engen: investor re-alignments in Zimbabwe

Posted by CM on July 19, 2008

A recent news report by Bloomberg:

Royal Dutch Shell Plc, Europe’s biggest oil producer, will sell all its petroleum assets in Zimbabwe after President Robert Mugabe was reappointed last month in a disputed election following a decade of recession.

“It coincides with the political debate but that’s not the background,” Spokesman Rainer Winzenried said  from the Hague. Shell is reviewing refining and marketing businesses worldwide to “see whether they are profitable enough to meet our expectations,” he said.

Shell’s assets, including half of a venture with BP Plc that sells 172 million liters (45 million gallons) of fuel a year, 20.73 percent of an unoperational refinery and 226 fuel stations, will be sold to a unit of Petroliam Nasional Bhd., Malaysia’s state oil company, Winzenried said. BP has first rights to buy Shell’s stake in the venture.

Zimbabwe “still has good infrastructure which we believe will form the basis of renewed economic growth once the current political situation is resolved,” said Rashid Yusof, chief executive officer of Petroliam Nasional’s Cape Town-based unit Engen Petroleum Ltd. The Malaysian company is also known as Petronas.

In a recent post I asked: Would a pullout of Shell Oil from Zimbabwe amount to anything?

The gist of my post was that a pullout from Zimbabwe by Shell and other oil “majors” would not mean much as an economic sanctions measure because of how drastically reduced their influence on the country’s oil supply has become in recent years. A pullout by them as a sanctions measure would therefore not be felt much by the economy or by Mugabe’s government. I made the point that they were probably not benefiting from their investments there, and were holding on in the hope of better times when the country’s politics have been resolved.

I believe the Shell spokesman when he says the company’s decision to pull out of Zimbabwe “coincides with the political debate” but is not necessarily the reason for it. It must be pretty clear that Mugabe is not going anywhere any time soon, and that this is almost necessarily means economic normality is not on the immediate horizon. Shell’s are therefore not likely to begin earning the company dividends again any time soon, particularly when the “majors” have lost a lot of their formerly dominant market share to many smaller players.

The remark about Zimbabwe’s still good infrastructure (and the base this represent for possibly quick economic recovery in the post-Mugabe era) by Engen’s CEO is one reason why companies like Shell have held on to their non-performing investments for several years.

An interesting thing the pullout of Shell and the deeper involvement of Engen represents is the shift from the country’s sole dependence on Western investors, to the increasing stake taken in Zimbabwe’s economy by players from China, Malaysia, South Africa and other “emerging economies” who do not have quite the same political distaste for Mugabe’s government as Western countries do, and who think more in the economic long term.

The full implications of the fundamental re-alignments that are taking place will probably only become fully apparent in hindsight years from now.

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Why existing investors are unenthusiastic about Zimbabwe sanctions

Posted by CM on July 10, 2008

by Chido Makunike

The international diplomatic pressure by Britain for some kind of sanctions to be imposed on Zimbabwe is currently at fever pitch. It will be interesting to find out today if the sanctions resolution that is scheduled to be voted on at the UN Security Council will carry the day as British officials have been confidently predicting or be vetoed by Russia or China, as some reports suggest could happen.

But it is interesting that the proposed sanctions being called for are primarily a tightening up of the ‘targeted sanctions’ against Mugabe and his closest lieutenants, rather than an open, generalised embargo of the whole Zimbabwean economy . Only time will tell why such tightening is thought to have a chance of bringing Mugabe’s government to heel when it has been completely impervious to them before. They have almost become a badge of honor among the rulers, a way of showing anti-Western stripes that are currently highly valued in Mugabe’s circles, but not materially changing their lives much at all.

Globalization and the rise of a mostly friendly and sympathetic-to-Africa Asia have assured that travel and business bans imposed by the West on Mugabe and his close aides have been nothing more than a minor nuisance.

It is interesting that as newly determined to act against Mugabe as Gordon Brown’s government is, it has not called for the outright pull-out of the many British companies operating in Zimbabwe. In the last week have been reports of some of those British companies saying they are getting very mixed signals from the British establishment when they ask for clarification on what the government would like them to do with regards to their Zimbabwean operations.

In late june Brown warned British: “‘Where businesses are helping the Zimbabwe regime, they should consider their position now,” before making any investments in Zimbabwe. Some commentators thought that this was in direct response to reports that mining conglomerate Anglo American had plans to spend £200 million on a platinum mine there. The pressure forced the company to say it was “deeply concerned about the current political situation in Zimbabwe,” and that it was “reviewing all options” surrounding the development of the Unki platinum project.

One of the many reports about sanctions pointed out that Brown did not directly order British firms to withdraw operations from Zimbabwe. He is specifically said to have cautioned that any sanctions must be balanced against harming ordinary Zimbabweans by being targeted at the country’s leadership.

But perhaps there is more to this seemingly contradictory caution than concern about not worsening ordinary peoples’ hardships.

Investments are not a one way street. Asking British firms to stop doing business with or pull out of Zimbabwe will have negative consequences for those companies as well as effects on Zimbabwe’s economy. It is sometimes portrayed as if the continuation of those companies’ business in Zimbabwe is out of the kindness of their hearts, a sort of favor to poor helpless Zimbabwe, and that they would actually be relieved to leave such a poorly performing economy.

The truth is even if their operations are barely ticking along now, many of these companies have substantial long-term investments that they risk being expropriated by the Mugabe government should they pull out. Mugabe has on several occasions mentioned his willingness to do just that if pushed into a corner or ‘provoked’ enough. It is true that particularly in the current environment, there is no reason to believe the government would run those mines and other investments any better or profitably than the companies themselves. This would be especially so without access to the kind of international money required for capital-intensive things like mining. But at that stage the considerations would mostly be hot-headed political ones, as we saw with farm take-overs, not necessarily cool-headed economic ones.

Such takeovers would in the short-term be largely non-performing assets for the government, in the same way they are poorly performing assets for their current private owners. So any losses due to expropriation, fire-sale shedding of the assets or forced (by sanctions) pull-outs would not necessarily bite the investors hard in in the short term by the investors, since their assets are performing minimally now. But for the capital and long-term opportunity losses would be major.

Many companies in Zimbabwe, local and foreign, have barely held on for many years in the hope of positive  political change and a quick turn-around. They continue to do business there not so much for present day profits, but in the expectation of future gains if they can hang on until “normality” is restored. It would be much harder to close shop or pull out completely now and then try to re-enter when many other investors will be competing to for choice opportunities. So an important reason for many companies hanging on is to have an advantageous, competitive position when things start to work again and Zimbabwe is once again one of Africa’s hottest economies. This will happen because of the vast advantages over most Africa the country has in the basic economic fundamentals that have been hidden by the current crisis.

And it is not just sitting investors who see opportunity in Zimbabwe’s future. A recent Reuters report discussed how the ‘Zimbabwe contagion’ is not likely to significantly affect business and investment in the rest of Africa. The article, with the heading Hardier investors undeterred by Zimbabwe is dated July 1st, so is not ancient news from another time, but was written smack dab in the midst of the current crisis.

Here is a brief excerpt that bolsters the point I am making, that companies are cautious about their Zimbabwe portfolio but they are not exactly in a stampede to leave the country:

Zimbabwe itself has also seen something of an investment boom this year, with an estimated $150-250 million coming into the country from investors keen to buy cheap assets and position themselves for an eventual recovery.

Enthusiasm has since altered but those who have gone in say they are staying put and probably the largest investment fund, London listed LonZim says it still intends to raise another up to $100 million to fund new purchase.

“I’ve had no nervous phone calls from investors,” said LonZim executive chairman David Lenigas. “Quite the contrary. There is a loss of enthusiasm for what LonZim is doing in Zimbabwe. But it is a very long-term exercise.”

It must not be forgotten that the “collapse” of Zimbabwe has been written about for close to 10 years now. That the Somalia-like breakdown of all formal systems has not taken place is a sign of the little economy’s enduring strength in terms of the basic infrastructure, systems and skills, even though all these have taken a battering in the years of steep decline. But many still believe a resolution of the politics would result in a fairly rapid recovery of many sectors.

Therefore no company with long term investments in Zimbabwe is going to be in a hurry to walk away from them. Doing so would almost certainly mean forfeiting them to the state or the favored elite for nothing, or selling them off for a fraction of their value. It also means much greater difficult re-entering what may still be revived to be southern Africa’s most robust economy after South Africa.

Brown & Co. would have taken all this into consideration, and it must be one reason why they have not called for a total withdrawal of British companies: there is an awful lot for those companies to lose.

Bloomberg had a very good article about some of the big companies with a stake in the Zimbabwean economy on March 27, two days before the ‘harmonised’ election in which Tsvangirai outpolled Mugabe.  The article was essentially about how the mining industry remained confident that recovery of the sector would be quick with positive political reform.

“The (mining) industry and investors are betting that better times lie ahead. The key: the political future of President Robert Mugabe,” wrote Anthony Sguazzin.

“There are investment funds waiting in the wings” should Zimbabwe’s leadership change and the economic outlook improve, said Mark Wellesley-Wood, chief executive officer of Johannesburg-based Metallon Corp., Zimbabwe’s biggest gold producer. “We are hunkered down. It’s been survival and preparation.”

“Metallon and Impala Platinum Holdings Ltd. already are prepared to expand. Zimbabwe has some of Africa’s best roads and best-educated workforce, and the remnants of a manufacturing industry that once lagged behind only South Africa in the continent’s southern region.”

“Economic progress might come rapidly should Mugabe lose, or win and be pushed out. “I am certain that if there is political change, the turnaround will be quick,” said Greg Hunter, chief executive officer of Central African Gold Plc, which bought two Zimbabwean gold mines last year and is considering expansion.

“Relatively little investment is needed to rehabilitate the industry, Hunter said. Power production could be ramped up at Zimbabwe’s coal-fired plant at Hwange in the northwest and the Kariba South Hydropower plant with minor equipment replacements. Many of the country’s gold mines aren’t closed. Instead, they have been maintained even while they were idled or had production cut.

For now, Impala Platinum is delaying portions of an expansion plan in Zimbabwe valued at $750 million in 2005. As recently as 1999, Anglo American Plc planned to boost its gold production 10-fold in Zimbabwe. Instead, it has sold ferrochrome smelters and nickel mines.

In December 2006, Zimbabwe’s government sent police to seize a diamond concession from African Consolidated Resources Ltd., and last week Mugabe said the government may “act against” British companies to retaliate for U.K.-imposed sanctions, said the state-controlled Sunday Mail newspaper. London-based Rio Tinto Group owns a diamond mine in Zimbabwe.

“They have the mineral resources; it’s only the presence of Mugabe that makes the West uncomfortable,” said Sebastian Spio-Garbrah, an analyst at Eurasia Group, a New York political- risk firm. “Once he has gone, there will be a sense of relief.”

You get the drift.

The current loud talk of a type of sanctions which will not make much additional difference to the ‘targeted sanctions’ that are already in place is mainly just that, talk, for show. “Real” sanctions will not be imposed because some of those calling for them most loudly would have as much to lose as Zimbabwe’s already battered economy.

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Would a pullout of Shell Oil from Zimbabwe amount to anything?

Posted by CM on July 7, 2008

From the recycled-news-as-new-news department: Shell was considering pulling out of Zimbabwe amid claims that President Robert Mugabe was reserving the distribution of fuel at petrol pumps for party supporters.

According to The Observer, a source at the oil giant said it was looking at a plan to halt activities in the country, which are overseen in a joint deal with BP. One option being canvassed is for Shell to sell its stake to a third party.

Shell and BP supply 74 independent petrol stations in Zimbabwe. Supplies are piped from Mozambique and stored at four oil terminals. Both companies have bitter memories of the hostility they drew during the apartheid era in South Africa and minority rule in Rhodesia.

The political instability since last month’s rigged presidential election was one factor under consideration by Shell, the source said. ‘We have withdrawn from countries in the past where the situation was delicate,’ he said. ‘We are actively looking for a new solution.’

Y-a-w-n! Where is the beef in this story? Where is the news?

Favouritism in fuel allocations has been the order of the day for the eight years that Zimbabwe has been experiencing shortages. As someone who, like most other Zimbabwean motorists, has bitter memories of hours, and sometimes whole nights at service stations including Shells’, only for the fuel to allegedly “run out” just before one’s turn at the pump, I am offended at the suggestion that the reserving of fuel for ‘special customers’ is anything new discovered by the crack newspaper The Observer. Please!

If Shell is indeed mulling pulling out of Zimbabwe, it is out of viability concerns or the increased sanctions pressure since Mugabe’s awkward one-man re-election, not because of any governance concerns. My ass, the situation in Zimbabwe has been “delicate” for many years in which Shell held on very tightly to its investments, hoping for better times.

And I stand to be corrected, but the last time I checked, the pipeline that used to deliver oil from the port of Beira in Mozambique to storage facilities in Zimbabwe has not been operational for many years. I’m reasonably confident that all of Zimbabwe’s oil is now trucked in from Mozambique or South Africa. So The Observer’s report is misguided/false on that basis as well. Plain sloppy journalism, or propaganda targeted at readers the paper knows do not know enough about the facts of the situation being reported to question anything?

Selling off to third parties is something many of the multinational oil companies that once completely dominated that sector have done over several years. As a result, in less than ten years this sector now has substantial black participation whereas before, bringing in and peddling oil somehow had the false mystique of being a terribly sophisticated business that only the big multinational companies could do.

When the oil sector was liberalised at some point in the last eight years, the messy politics and the difficult economic operating environment meant the big oil companies no longer had a competitive advantage over the many smaller indigenous players who suddenly got into the industry. This was partly because the “liberalization” was limited, only opening up the possibility of oil importation to more players. But the selling price was still controlled, usually to below the cost of procurement!

These price controls meant that even with the forex ‘shortages’ that had begun to plague the economy, big companies like Shell with access to plenty of hard currency outside the country did not find that it made sense to use it to bring in oil into the country, only to sell it at a loss. This shifted the oil procurement advantage to the politically well connected who were able to access hard currency from the central bank at ridiculously low rates, so that even if they sold the oil at the ridiculously low controlled prices, they stood more chance of making profits than would companies like Shell that had to more or less do (or be seen to be doing) straight business.

Besides, the new operators (and many of the old ones as well) would get around the issue of unviable imposed selling prices by selling a little at the offiical prices, quickly claiming the fuel had “run out,” then selling the rest at much higher prices at night or in containers off the filling station, the infamous and thriving “black market.”

Because of all the problems and confusion with forex rates  and controlled selling prices, there was a time when all fuel vendors including Shell sourced their fuel not by direct exports, but from the state’s fuel then- monopoly, NOCZIM, which could afford to continue importing fuel because it had access to cheap “political” forex from the central bank that few others had access to. At some point it was far cheaper for the oil distribution companies to just wait for the ocassional allocation of cheap fuel from NOCZIM (‘occasional’ because the arrangement was so economically unrealistic and even the central bank’s cheap forex so hard to come by that it could not work to supply the country all the fuel it needed) than to buy forex on the expensive open market (or use offshore forex) and then be forced to sell it at unrealistically low ‘political’ retail prices.

All these things have eroded the dominance and advantage of companies like Shell in Zimbabwe’s oil sector. Additionally, at some point the not completely stupid Mugabe government realised that having the country’s oil supply be completely dependent on foreign companies based in nations hostile to it was strategically dangerous. So there was also a political dimension to having indigenous business people beholden to the ruling party having more control over fuel importation and distribution.

As sanctions talk from the EU and the US increases, that decision may be looked back on as prophetically brilliant, even though open sanctions will mean where even the new players can source oil from will be limited. But then again, for several years Zimbabwe has not been able to get oil on short term credit terms from the usual big world suppliers because of its known hard currency problems and poor payment record. So the oil trickles in from the few remaining friendly countries like Libya and Iran, and even then they often demand to be paid up front. All this is part of why there is a continuing fuel crisis. Under these difficult conditions it has simply not been possible to regularly and reliably bring in as much fuel as the country needs or to build a significant reserve.

Apart from most of the big oil companies selling off a lot of their stations to new independent operators, these new operators have in the main been the only ones building new storage infrastructure. This did not have to be huge because there has simply not been much fuel entering the country at any one time. Most fuel stations are usually empty now, with most of the country’s fuel being sold in various “off-court” ways.

I have to believe that Shell and other companies like it have held on not because their Zimbabwe enterprises were still hugely profitable, if at all, but in the hope that ‘regime change’ could happen at any time and that things would get back to fairly normal for them soon thereafter. It must be obvious after Mugabe’s recent election ‘win’ that change might not be any time soon!

The Observer could not be expected to know all these details about the big changes that have taken place in Zimbabwe’s fuel sector in recent years. They can therefore be forgiven for the naive belief that the pullout of companies like Shell will suddenly bring Mugabe’s regime to its knees. It won’t.

The uninformed twaddle of The Observer’s non-story may excite some of its readers into believing that a pullout would represent “doing something” against the Mugabe regime, but the situation in Zimbabwe has changed so much in the last few years that such a pullout would probably mean nothing at all.

Next excited Zimbabwe non-story please!

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Investors still eye Zimbabwe

Posted by CM on March 17, 2008

It is hard to keep a sense of perspective about Zimbabwe’s prospects as a nation in the face of the political repression and the steep economic decline and the hardships. I wince at careless statements about how commercial agriculture “might never recover.”

One reason that Zimbabwe has defied the frequent predictions of “collapse” is how strong an economy it was. It’s underlying strength only becomes more obvious with each passing day that the country limps on, no matter how dysfunctionally, despite all the determined efforts of Mugabe & Co. to kill it.

There is nothing guaranteed about the country’s recovery in the post-Mugabe era. That depends on how much longer the current decline continues, what kind of leadership takes over after Mugabe and so on.

It is hard for people dealing with the immediacy of daily survival issues in Zimbabwe to worry too much about future recovery. But there are eagle-eyed international investors who recognise what good prospects Zimbabwe would offer if it could soon sort out its current mess. Furthermore, even now there are some real gems to be found from investing on its stock exchange:

Investors still eye Zimbabwe
By Michael Hamlyn

An asset management company with offices in Harare reckons that European investors remain interested in Zimbabwe as an investment destination because of the promise of a relatively rapid turnaround in the economy once the politics return to normal.

John Legat, the Harare-based chief executive of Imara Asset Management, part of the Botswana-registered Imara financial services group, reported on positive feedback from presentations in investment conferences in London and Munich.

Legat said that there was a good deal of discussion about the Imara theory that parallels existed between Brazil in the 1980s and Zimbabwe today.

“Despite the country’s problems, international investors have still made impressive gains in Zimbabwe at a time when returns in many developed markets have been disappointing, ” Legat said. “One internationally focused fund with a strong stake in Zimbabwean equities last year made gains of 18% in US dollar terms with an 84% gain over three years.”

He said Zimbabwe still had a robust and relatively sophisticated equity market – with values at bargain basement levels. Seventy-nine companies are listed on the Zimbabwe stock exchange versus 54 in Kenya.

The Imara presentations also pointed out that a wealth of natural resources and tourist infrastructure offer ready-made building blocks for rapid economic revival, given the necessary policy adjustments.

Zimbabwe is not being written off,” Legat said. “It is being carefully scrutinised by private and institutional investors in major European centres.”

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Canaf ditches its Zimbabwe deal

Posted by CM on December 16, 2007

From MiningMx :

Canadian mining group Canaf Group Inc has abandoned a proposed plan to acquire Great Lakes Minerals and associated mining assets in Zimbabwe, citing the controversial Empowerment and Indigenisation Bill now awaiting assent from President Robert Mugabe.

Canaf president and CEO David Way said political risk in the country, now in its eighth year of a recession, was increasing, making the planned acquisition unattractive. The initial agreement with Midas Trust for the acquisition was adjusted after the announcement of the Indigenisation and Empowerment Bill, passed through parliament in Harare last month.

Way said in a statement. “After much discussion, we have decided that this acquisition is not in the best interests of our shareholders at this time,” he said. “We are committed to providing value to our shareholders and will focus on our now 90%-owned coal processing facility, with a view of increasing both our ownership stake to 100% and the overall profitability of the plant.”

Canaf is the majority holder of Quantum in South Africa, which currently supplies Mittal Steel with approximately 6,000 tonnes of coal per month.

“We will continue to search for new high-potential mining and mining related opportunities in Africa.” Midas Trust and Canaf remained on good terms and may choose to revisit the acquisition potential of Great Lakes Minerals at some time in the future, he said.

Canaf’s decision adds to increasing concern from foreign-owned mining companies over the effect of the proposed law on investment in the mining sector. Rio Tinto Plc recently indicated that it had put on hold plans for $250m of additional investment into expanding Murowa Diamond Mine pending the outcome of agreements with the government that will recognise and reduce the risks to Rio Tinto’s existing and future investments following passage of the proposed law through parliament.

Nothing at all surprising about Canaf’s decision. Long term speculative investments like Lonrho’s in areas like property may be fairly safe and smart in the long term, but high-capital productive investments like mining certainly look very dicey in Zimbabwe at the moment. There are all the uncertainties over policy and many other day to day, on the ground issues that would make a new investor in an area like mining very squeamish.

This is hardly likely to encourage the investors who the government is hoping will partner with locals in mining under the requirements of the Indigenisation Bill.

As with the take over of the farms, in mining Zimbabwe may be about to be reminded that physical possession of a resource is very different from having the capital, technology and managerial wherewithal to be able to exploit it for one’s benefit.

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Qatar oil refinery for Harare?

Posted by CM on December 16, 2007

If the following takes place, it would be a significant development for Zimbabwe:

Qatar’s Venessia Petroleum plans to build a 120 000 barrels-per-day refinery in Zimbabwe costing as much as $1,5-billion, the company’s general manager said on Monday.”We have signed the agreement with the Zimbabwe energy ministry and the feasibility study is nearly completed,” Jawhar Zaidi said.

Zaidi said the refinery, to be located in Harare, would move into the design stage by the end of the year. “We would look to import crude from Qatar or another Middle Eastern country,” Zaidi said, adding that the company had still to decide how the project would be financed.

Venessia Petroleum is chaired by Abdulaziz Bin Mohammad Bin Jabor al-Thani, a member of Qatar’s ruling family, Zaidi said.

Zimbabwe’s economy is on the brink of collapse with inflation running at an annual 6,600 percent, the highest in the world. Isolated from the West over its human rights record, the government has proposed a bill to transfer majority ownership of foreign companies to Zimbabweans. The bill, if passed by the Senate, would force mining and banking firms to give at least 51 percent control to Zimbabweans.

Another member of the Venessia group plans to build a hotel in Zimbabwe, Zaidi said, adding the company was not concerned about the political situation.

Engineering News

It is hilarious for Zaidi to say his company “was not concerned about the political situation.” That would make Venessia a very naive and foolish investor!

Obviously they would have received guarantees to safeguard their investment which they believe are credible enough to make it worthwhile. For a non-Western investor of that magnitude, and investing in the critical area of fuel, perhaps that is the case given the country’s energy desperation.

There is no question this is a good area to invest in in Zimbabwe given the chronic fuel shortages of the past eight years. And a Qatar company would certainly have no trouble with providing the crude oil for the refinery. An obvious issue would be whether for them to be allowed to charge fuel economic retail prices for the fuel. This has not been such a straightforward issue in the Zimbabwe of price controls often completely unrelated to production costs, and of a deep official mistrust of the business sector in general.

This would be a very good development for Zimbabwe if it came about.

Posted in Economy | Tagged: , , | 1 Comment »

Lonhro’s Zim investment arm to float shares on Aim

Posted by CM on December 16, 2007

In a vote of confidence for Zimbabwe, LonZim, a Lonrho subsidiary established to make investments in Zimbabwe, will list on the Alternative Investment Market (Aim) in London, and expected to start trading on December 11, 2007.

Market capitalisation would be £36,5-million, at the issue price of 100 p a share. The company raised £29,2-million though its book building process, and 7,3-million shares were acquired by Lonrho.

In June 2007, it was indicated that LonZim would seek to raise a minimum of £50-million before listing.

LonZim has said that it would not have a particular sectoral focus, but may make investments in the tourism, accommodation, infrastructure, transport, commercial and residential property, technology, communications, manufacturing, retail, services, leisure, agricultural and natural resources sectors.

“We are pleased to have concluded the book building process for LonZim and to have successfully raised the capital required to pursue the significant opportunities that exist in Zimbabwe. My fellow directors and I look forward to identifying opportunities, which we believe will provide long-term returns for our shareholders,” stated Lonrho chairperson David Lenigas.

It added that it would use the investment skills of the company directors and their advisers, and would “seek to identify individual companies in sectors best positioned to benefit should there be improvements in Zimbabwe’s economy.”

Although Zimbabwe boasts several tourist attractions, tourism in the country has been reported to have dwindled over the years.

Industry opportunities in Zimbabwe could include the mining of coal, gold, platinum, copper, nickel, tin, clay, ferrous and nonferrous metals, steel, as well as wood products, cement, chemicals, fertiliser, clothing and footwear, foodstuffs, and beverages.

Engineering News

Fine, several articles have recently been written on how some investors are willing to gamble that there will be some kind of political change soon in Zimbabwe, which will make having a foot hold there now worthwhile. The country’s basic infrastructure and many systems still have few parallels in Africa, even in the country’s current pitiful state.

But it seems a little strong to have begun the story with “In a vote of confidence for Zimbabwe!” It almost sounds like saying “we believe things are being done properly,” which they are not with 8,000%+ inflation, many areas of the capital going for days or longer without electricity and no local currency available even from the banks! Perhaps that first line was meant to convey a recognition of the potential the country still has to come around under the right conditions.

In any case, with Mugabe likely to remain at the helm for several more years, I think Lonzim has taken a pretty risky gamble. But then again the Lonrho chairman did make it clear that they are investing for the long term, and for now, Zimbabwe still remains a good long term prospect in areas like property.

It will be interesting to watch how things pan out for Lonzim over the years.

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Vulture investors banking on Mugabe’s fall

Posted by CM on December 12, 2007

For Zimbabweans, it is naturally hard to think beyond the present day to day economic hardships and political repression. As the opposition parties continue to weaken in their division and Mugabe’s government to strengthen its military hold on power, there appears little prospect of immediate relief.

But no matter how entrenched it appears today, the Mugabe era will come to an end. It is much easier to see this and try to strategise for a different time from a distance than it is today from ground zero with all its immediate pressures. This is what many investors are doing in readiness for the inevitable end of Mugabe’s time, even though that end will not necessarily guarantee normality in the short term. It is an indication of how much the source of Zimbabwe’s problems have been placed in the person of Robert Mugabe by some.

Here’s an example from Ethical Corporation of how some investors are waiting in the wings ready to swoop in for cheap, potentially lucrative assets in preparation for better times in Zimbabwe:

Banking on Mugabe’s fall

Vulture investors are ready to swoop on Zimbabwe’s cheap assets, but they are playing a risky game.

Zimbabwe has been in economic free fall since 2000 when the country’s ruler, Robert Mugabe, began his chaotic land reform. The policy was a disaster, largely obliterating the farming sector of a nation once dubbed the “bread basket of southern Africa.”

The country’s decline under Mugabe is plain to see. Unemployment is at 80 per cent and inflation at an estimated 7,000 per cent. A third of the country’s 13 million population has fled (three million of them to South Africa), while nearly as many of the remainder survive on international food aid.

But some outside speculators see commercial opportunities amid the poverty. Dubbed “vulture investors” they are ready to snap up Zimbabwe’s farms, industrial property and mining leases at considerable discounts using foreign currency. The vultures plan to buy now, sit tight, and await the end of Mugabe’s rule.

A typical vulture fund is London-based Lonrho. In October it launched LonZim, a “Zimbabwe investment fund to meet strong demand from around the world.” Australian-born chairman David Lenigas says most of his fund’s initial investments will be in property. “Commercial property is cheap as chips,” he observes. “The infrastructure in Harare is fantastic, but it’s fire-sale prices.” He sees other potential wins in resorts and game parks, hoping that once Zimbabwe’s economy recovers, the tourists will return.

One of Lonrho’s first purchases in late September was technology firm Celsys, for $5.45 million. Celsys owns Zimbabwe’s only Nokia repair facility and is the largest printer of security documents, cheques and air time cards. Although the company is now valued at half the purchase price, LonZim is interested in its “strong future growth potential.”

The Zimbabwe Financial Gazette said it was “particularly audacious” for a company with such a controversial colonial history to return to the country at this time. (Former UK prime minister Edward Heath once called Lonrho’s former chairman, Tiny Rowland, “the unacceptable face of capitalism” for the way he bought political influence with several post-colonial African governments despite his company’s South Africa and Rhodesian roots.) Lenigas says he wants to return the firm to its former status as Zimbabwe’s biggest employer.

Lonrho has had no shortage of interest from risk-hungry investors. Lenigas says even his broker was surprised at the responses and although he could raise more funds he would struggle to deploy them.

Another fund investing in Zimbabwe is Imara, an investment banking and asset management group represented in the UK and South Africa. In October the firm used its newly launched Botswana-based Zimbabwe Fund to invest $13.5 million in about 17 of the 82 companies listed on the Zimbabwe Stock Exchange. Imara’s chief executive, Mark Tunmer, says Imara decided to launch the Zimbabwe Fund after its high net worth investors showed an appetite for Zimbabwe in the company’s Imara Africa Fund, launched back in July 2005. That fund, aimed at African investors seeking to diversify out of South Africa and Egypt, seeks to have 10 per cent of its investments in Zimbabwe.

South African funds eyeing Zimbabwe include Sanlam Investment Management, the investment arm of Sanlam, South Africa’s biggest life assurance company, Rand Merchant Bank and BoE Private Clients of South Africa.

To a large extent, these funds hoping to capitalise on the country’s brighter, post-Mugabe prospects, are merely copying the strategy adopted by local Zimbabwean investors. In a market where exchange controls restrict domestic insurance and pension fund companies from investing outside the country, the market is kept liquid through hedging against inflation by buying property and shares.

One of the country’s longest-standing investors is Old Mutual Asset Managers, Africa’s biggest money manager. Chief executive Thabo Dloti warns: “If you have a short-term perspective, you should be extremely worried. We have a long-term view and we have restructured our portfolios to reflect that.” Old Mutual has been in Zimbabwe for 110 years. It began switching into stocks and property in 2000, when Mugabe’s seizure of white-owned farms gained momentum. Dloti declined to comment on what Zimbabwe assets the firm now owns.

But investors must understand the risks. Investing in Zimbabwe increases the flow of foreign currency the regime can lay its hands on, thereby prolonging the survival of Mugabe’s dictatorship. Zimbabwe’s laws force investment funds to buy various forms of government bonds. There is truth in the claim that the Zimbabwean subsidiaries of Old Mutual, Barclays and Standard Chartered have created what the London-based newsletter Africa Confidential calls a “$400 million financial lifeline to Robert Mugabe’s government over the past two years.”

In late October the South African-based Zimbabwe Solidarity Trust urged South African businesses to speak out against the regime’s human rights abuses. Acknowledging the constraints under which businessmen in Zimbabwe operated, the trust’s Brian Raftopolous argued that they could and should do more to avoid complicity. Privately business leaders in South Africa bristle at this because across the world political leaders from countries other than Britain, Australia, the US and Botswana have done little to end the crisis in Zimbabwe.

More worrying for investors in global firms operating in Zimbabwe is the fact that security of tenure cannot be taken for granted in the country. In October the Zimbabwean parliament passed the Indigenisation and Economic Empowerment Act, which requires all “foreign-owned business” to be 51 per cent owned by black Zimbabweans.

Already the government has cancelled the operating licence of Telcel Zimbabwe – the mobile phone operator that is majority-owned by Egyptian Orascom Telecom – because Zimbabweans “only” owned 40 per cent of the business.

The law’s supporters point to China, where the government’s approach of taking controlling stakes in foreign firms is said to have kept wealth within the country. But the crux of Mugabe’s law is that Zimbabweans wanting to buy the 51 per cent stake in an international business will still have to borrow the money, something they may find difficult to do at current levels of inflation.

By halving any potential returns, the Indigenisation Act has called into question the rationale of opportunistic investment in Zimbabwe. Even if Mugabe’s regime does respect changes of ownership, funds must consider that there may well be post-Mugabe claims against the beneficiaries of these enforced sales as the only ones with money to invest now are likely to have close links with or will at least have benefited from Mugabe’s regime.

In November observers were encouraged by reports of a breakthrough in talks between Mugabe’s government and opposition leaders at Lake Kariba. Both sides have finally began making concessions: the opposition MDC, because Mugabe’s security forces have nearly destroyed it as an organisation; Mugabe’s allies, because they know they will outlive their 83-year-old leader who once again has selected himself as his party’s sole candidate for the March 2008 presidential election.

Optimists see an outline of a post-Mugabe Zimbabwe emerging from the Kariba talks, but such hopes are not new. Over the past four years the South African government has repeatedly promised imminent deals and breakthroughs in the crisis in order to prop up its “quiet diplomacy” approach to the Zimbabwe crisis, which critics charge has kept the pressure off Mugabe.

The MDC knows it can count most of the business community, bar Mugabe’s cronies, among its supporters because every business leader wants a return to a normal, non-hyperinflation economy. But the pressure to speak out is mounting on business.

Vic van Vuuren, chief operations officer of Business Unity South Africa, sees a rationale for big business already in Zimbabwe to stay. He says: “They may take losses, but I think everyone has got the hope that there is going to be some light at the end of the tunnel, and that the corner is going to turn soon. And someone is going to then benefit from the long-term investment.”

Ordinary Zimbabweans living in exile in the UK have called for sanctions, especially from South Africa, to bring down the regime, pointing out that things can hardly get worse for ordinary people.

The real challenge for businesses in the country is corruption, says Mike Flax, executive director of Johannesburg-listed Madison Property Fund Managers, and one of those promoting investment in property in Africa. He says: “It is quite important to avoid the cycle of corruption at all costs. Once you are in, you are sucked into a vortex you can’t get out of.”

Vulture investors should beware that Mugabe has outlived many predictions of his demise before, warns Flax. If he survives long enough, foreign funds may find the moral costs of their investments rising as financial returns continue to lag.

If Zimbabwe were to come out of its political and economic morass in the next few years, there certainly would be huge returns for these investors. But given all the uncertainties, huge losses cannot be at all ruled out.

Many countries in Africa that are beginning to experience economic growth are severely constrained in that growth by insufficient or absent infrastructure. It is a crying shame that what one person quoted in this story describes as Harare’s “fantastic” infrastructure is being utilised at a small fraction of its potential. It is also ironic that with all the talk by the Mugabe government about how the country’s isolation is because the West is opposed to its moves to have indigenous Zimbabweans “own” the economy, after all is over it may still be foreigners who mop up the choicest assets of whatever would remain standing after Mugabe is gone.

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