Investors bet on new dawn for Zimbabwe

Source: Financial Times, London

Investors bet on new dawn for Zimbabwe

By By William Wallis in London and Alec Russell in Johannesburg

Published: July 20 2007 20:38
Last updated: July 20 2007 20:38

Foreign investors tend to avoid imploding African economies. But a small crew are bucking the trend in Zimbabwe, lured by plunging asset prices and a belief that once 83-year-old President Robert Mugabe goes, recovery could be swift.
Leading the charge is Lonrho, the conglomerate that has been seeking to rebuild the African empire created by the late Tiny Rowland.
It announced on Friday that it had raised an initial £32.3m ($66.4m, €48m) from shareholders towards a new subsidiary – Lonzim – to buy up assets in Zimbabwe with a “significant opportunity for future growth”.
David Lenigas, Lonrho’s executive chairman, told the Financial Times that he aimed to raise a total of £100m for the company through a share offer to be launched in London soon.
He said demand for Lonzim shares was coming from Europe, South Africa and the Middle East. But it had been strongest among institutional investors including pension and hedge funds in the US.
He thought this was driven by a broader appetite for African risk.
“They see Africa as the last big investment frontier. Africa is where Asia was 30 years ago,” he said.
Looking beyond current figures for Zimbabwe – 15,000 per cent inflation and an economy shrinking by 12 per cent a year – he said the country’s infrastructure, skilled workforce and farming potential provided the basis for a solid recovery.
Lonzim would focus on recapitalising companies that had been starved of credit, buying up and rehabilitating hotels and game parks.
It would also target commercial property and build stakes in transport, construction and aviation. “We are trying to hold these things together and wait for recovery,” said Mr Lenigas.
Lonrho – whose name derives partly from the old British colony, Rhodesia – has a long history in Zimbabwe. But others with less experience are betting on the country, too. Botswana-based Imara asset management launched a $13.5m (£6.57m, €9.8m) fund to invest in Zimbabwe earlier this year, the day after Morgan Tsvangirai, the opposition leader, emerged battered from a Harare jail.
It is a “punt”, concedes Mark Tunmer, Imara’s chief executive. But he adds that the country’s natural and human resources are still there and people are “prepared to put their cash down on that in the expectation of a return to free markets”.
One such punter is Sean Jackson, a British entrepreneur based in Cambridge, who invested in land in Poland when prices were cheap in the aftermath of communism there. His stake has increased by about 20 times since then, he says. He is now looking at Zimbabwe as a similar long-term investment opportunity.
Kola Karim, chief executive of Shoreline Energy International, a Nigerian group, says he hopes to seal two deals in Zimbabwe in the next month – both with European companies who have had enough there.
“We are not going to asset-strip. We can buy big international names for cheap and stay in partnership with locals to drive the business as we have done, for example, in Tanzania and Uganda,” he said. In one case he hoped to acquire a company for roughly a tenth of its 1997 value.
There is concern among some Zimbabwean businessmen that properties will be sold off at rock-bottom prices.
“But the investors are not seen as vultures,” said the chief executive of a Bulawayo-based small manufacturing firm. “It gives us hope for the future that people from the outside are interested.”
At a Bulawayo business forum this week, many members seemed determined to batten down the hatches and not to sell.
There may be other disincentives to investors on the way. Possibly the greatest would be the Indigenisation and Empowerment Bill, which the government has promised to pass into law within a month. This would authorise the authorities to seize 51 per cent of the shareholding of foreign firms in order to “empower” black Zimbabweans.
Dianna Games, director of Africa@Work, a southern African business consultancy, expressed caution, saying that the bill – and Mr Mugabe’s recently enforced price cuts on many commodities – had changed the climate from one of an “investment opportunity to a bit of a fire sale”.
“There is a lot of talk around dinner party tables [in South Africa and Zimbabwe]” about opportunities, she said. But it was far from clear that the situation would be transformed when Mr Mugabe finally left power.
“Everyone seems to think that when Mugabe goes, all kinds of doors may open . . . but we don’t know.”