Prosper Ndlovu, Business Editor
BUSINESS confidence in Zimbabwe is at its “highest level in years” as economic reforms being championed by the Second Republic led by President Mnangagwa have started bearing fruit, a South African-headquartered leading investment fund management firm, Coronation, has said.
In a bold endorsement of the Government’s tough fiscal and monetary policy reforms, which were carried out in the last two years under the auspices of the Transitional Stabilisation Programme (TSP), the SA investment think tank, says Zimbabwe is poised for strong recovery from historic years of economic stagnation and ruinous political policies.
Within the last two years, the country has successfully managed to replace budget deficits with fiscal consolidation (reducing Government deficits and debt accumulation), broadening of revenue base and curbing of leakages towards equilibrium, which is evidenced by budget surplus, according to Finance and Economic development, Professor Mthuli Ncube.
The fiscal reforms have been complemented by comprehensive monetary policy changes, which have seen the local dollar being restored while the introduction of the Foreign Currency Auction System last year in June has been credited for stabilising the exchange rate. These, alongside measures to clamp down on illicit mobile money dealings, have aided price discovery resulting in slowdown in inflationary pressures, economic experts have said.
The country has also significantly risen up the ladder on the World Bank global ease of doing business rankings and is now ranked among the highest on budget transparency in Africa.
These milestones have laid a solid foundation for the implementation of the National Development Strategy (NDS1:2021-2025), a successor first five-year policy guideline towards attainment of an upper middle-income economy by 2030.
Following the good rains in the 2020\21 season and prospects for mining sector recovery, Zimbabwe is projected to register modest economic growth of up to seven percent this year despite the adverse impact of Covid-19.
Positive dividents from positive reforms
In its brief report titled: “Zimbabwe And The Investment Case For Zimplats – April 2021,” Coronation identifies positive dividends achieved by Zimbabwe’s economic reforms as a crucial incentive for local and foreign investment.
“Business confidence in Zimbabwe is at its highest level in years. Improving currency stability is at the heart of this nascent recovery, the challenge is to alter perception anchored in a very bleak recent history,” said Coronation, which manages about US$42.6 billion in client assets (as at end-March 2021) and is credited for having a long-term valuation-driven investment approach.
“The stability of the currency has brought stability to the economy. Month-on-month inflation has dropped to low single digits and it has suddenly become much easier for businesses to plan. For the first time in years, companies in Zimbabwe are telling us that they are confident enough to start investing and expand capacity.
“The Government is showing a lot of discipline in resisting the temptation to print large amounts of money and in addressing the fuel and maize subsidies. The benefit of removing the fuel subsidy was not just the saving on each litre of fuel consumed, but also a large reduction in the total fuel consumed as market-related prices stopped cross-border smuggling, where people bought fuel cheaply in Zimbabwe and sold it at higher prices in neighbouring countries.”
Noting the doubling of capital markets’ share prices in the first three months of 2021, the leading asset management firm said “for the first time in years, we believe that this performance is, instead, largely driven by fundamentals”.
However, the general perception is still that of a country where money printing and hyperinflation is the norm, where indigenisation destroyed property rights and where foreign investors never get their money back, said Coronation, stressing that this perception must be reversed. Now more needs to be done to change the impression that Zimbabwe is uninvestable, it said.
“Over the past few months, we have spent a lot of time talking to businesses in Zimbabwe. These conversations highlighted the gap between perception and reality. Firstly, they emphasised how Zimbabwe has completely disappeared off the radar of international investors.
“Many companies mentioned that no other investors had spoken to them recently – some had not spoken to investors in almost two years,” said Coronation.
Despite the historic and unforeseen setbacks such as Covid-19, Coronation said Zimbabweans and the international community should not underestimate the significance of the positive achievements made by the country’s leadership.
“We suspect that the international investment community is completely unaware that management teams in Zimbabwe are the most upbeat they’ve been in years,” it said.
According to the think tank, the introduction of the forex auction system in June 2020 was a biggest improvement as the Government focused on what was right despite fierce criticism and skepticism, which coincided with the suspension of dual-listed shares on the Zimbabwe Stock Exchange.
“The difficult decision was taken to allow the currency to devalue to a level that more closely (although not completely) reflects demand and supply dynamics…it is our understanding that transaction volumes in the parallel market had declined meaningfully,” it said.
“Thus far, this has been more successful than what we could have hoped for. Transparency has improved, with the Reserve Bank disclosing the highest and lowest accepted bids and, more recently, even publishing a list of 788 entities.”
The total traded out of 788 auctions was about US$639 million between June 2020 when auction stared and March 2021.
As a result of the supportive business environment, Coronation said over the past year foreign investors have found it much easier to repatriate funds from Zimbabwe but suggests there is a room to further enhance free floating of currency.
Zim now much more investor friendly
The Coronation group, whose executives met with Finance and Economic Development Minister, Professor Mthuli Ncube, during a recent Zimbabwe global investor roadshow in Cape Town, South Africa, said it was convinced the country has become much more investor friendly.
“It was also clear that the positive developments we are seeing today are the result of a plan that was started three years ago. Zimbabwe is on track to run a current account surplus for the third year in a row and they have started to repay small amounts to international lenders – the first step in restoring Zimbabwe’s ability to access international funding,” it said.
Exciting prospects ahead
The group said with better planning by the Government, coupled with the projected bumper harvest and good mining outlook on the back of commodity price recovery this year, presents exciting investment opportunities for Zimbabwe. On the platinum mining sector in particular, Coronation said Zimplats, the country’s largest PGM producer and subsidiary of Impala Platinum, was a real gem for Zimbabwe. The company is “currently the largest holding in our Africa Frontiers strategy”, said the group, making an investment case for the giant miner.