Imara, the African investment banking and asset management group, considers Zimbabwe’s outlook for 2011.
While the main political theme in 2010 had to do with the new indigenisation laws in Zimbabwe, our take is that the “talk” of elections in 2011 will be the main theme in political and business circles.
We have read divergent statements relating to the possibility of elections in 2011, with the three main political parties echoing different views. This, in our view, has somewhat revealed a disarray within the Zimbabwean Government itself.
The 2008 Global Political Agreement (GPA), involving the three main political parties in Zimbabwe had an initial two-year tenure and therefore expires in February 2011. As such, this has sparked speculation that the inclusive government will be dissolved.
However, from events on the ground, our view is the talk of 2011 elections is a bit premature. Elections would naturally result in the dissolution of the inclusive government (GPA).
On that note, we reiterate that to date; certain milestones provided for in the GPA have not yet been attained. In addition, there is need to allow for the completion of constitutional revision before elections can be held. Furthermore, specific conditions necessary for the holding of a free and fair vote in Zimbabwe have not been agreed on. On that basis, elections could be deferred.
Our view is that there will be increased political bickering in the next months, given heightened political gatherings and electioneering. In our opinion, most of the statements from these gatherings are unlikely to be investor-friendly. While we are not advocating that investors disregard all the statements, we urge investors to take most of the statements with caution, given the discrepancies of reality on the ground and newspaper headlines.
For example, while the Indigenisation and Economic Empowerment Act was signed, we continue to witness a number of deals with foreign firms in various sectors of the economy. Of interest would be the acquisition of Zisco Steel by Essar Group of India and the investment in Premier Banking Corporation by Ecobank a Pan African entity.
We remain long term bulls on the Zimbabwean economy and are strongly convinced that long-term investors should seek exposure as a recovery play, with significant upside off a very low base.
According to the Ministry of Finance, growth rates of 8.1% and 9.3% are expected in 2010 and 2011, respectively. Most companies are valued at well below asset replacement value, and have considerable headroom for volume growth. Furthermore, the Zimbabwe Stock Exchange (ZSE) is the only sub-Saharan market with no foreign exchange risk.