The Zimbabwe economy has seen rough days. Hyperinflation decimated the economy, particularly between 2005 to 2008. At its peak, the Zimbabwean Central Bank issued currency with expiration dates of six months, effectively longer than the actual life of the currency. During this time, the American dollar replaced the Zimbabwean dollar as the country’s main currency, a status most investors expect Zimbabwe to hold for the next few years.
The economic story should put investors off, but the history of the country is not necessarily its future. GDP contracted by more than 38 percent between 2000 and 2008, and culminated with the post-election violence of 2008. Since then, the country has shown strong GDP growth with predicted 2013 figures ranging from 5 to 9 percent
Here are my recommendations (in no particular order of importance, or of potential internal rate of return (IRR)) for investors looking to play a role in the growing change on the ground:
Manufacturing and Industrials
The introduction of the dollar to the Zimbabwean economy also introduced higher margins to the products manufactured in the country. An assortment of local Zimbabwean companies have plans to expand manufacturing internally and externally depending on sector. “Making a product in South Africa and then exporting it back to Zimbabwe makes little sense for me”, says one FMCG manufacturer, but other competitors producing abroad have higher potential. High margins confuses this discussion but over time the development of local manufacturing offers the best potential as transportation and labor costs grow in South Africa.
Zimbabwe also offers one of Africa’s most literate and educated populace. This has created an outflow of Zimbabweans to neighbouring countries, including South Africa and Mozambique, to a level considered a potential brain drain in the typical emerging economy. But Zimbabwe is not typical. The quality of management in the country has not lost a step because school and on-job training of locals is something to be replicated in other African countries.
Africa’s growing middle class wants better goods and services. The Zimbabwean healthcare sectors presents investors an opportunity to improve both offerings. An influx of illegally imported drugs into the country, along with outdated technology and infrastructure, have not satisfied locals. The Ministry of Health currently does not have personnel stationed at ports of entry to stop illegal imports, but have stated aspirations to change this. But security will not fix the sector.
Illegal drugs can be bad and put you at risk, warns local medical worker Tabari George, thus locals prefer products from reputable companies. Those venturing into the sector will still have to raise significant capital for the infrastructure, but the opportunity to satisfy a starving Zimbabwean market and the demand of neighboring countries, including Botswana offers great promise, says Mr Goerge. But it also requires local and regional knowledge that only combination of local and international partnerships can provide.
Medical facilities require both infrastructure and operational upgrades. Zimbabwean incomes have grown, specifically with the economy functioning in dollars, say Mr. George, but the services available have not changed. As yours truly visited a few facilities, the typical story line of an emerging economy surfaced. Facilities required the installation of elevators and boilers, the acquisition of vehicles and radios, and the purchase of new hospital equipment. Training programs and realignment of services with available talent could also go a long way.
Zimbabwe has the second largest reserves in the world of platinum and equivalently large diamond reserves. Gold and coal prospects are nothing to ignore. The capital requirements are too big for some investors while the typical politics of extractive industries confound other investors. The reality of the on-ground situation is less tricky than international news sources paint it. But capitalizing on such opportunities still requires a short stop in Harare and understanding the politics. For those investors fearful of entering the extractive processes, there is value-add potential in downstream manufacturing, for example, with jewelry.
Investors may continue to avoid the farming sector until the dust settles on the direction of land tenure laws in Zimbabwe. But agro-processing is surely not the sector to avoid. Local packaging and branding of agriculture products have great potential where import prices can be high.
Sourcing from small-scale farmers eliminates land tenure concerns but poses the potential challenge of inconsistency in quality supply. Few local companies have managed to source a mix of majority local agricultural product and source the remaining externally if needed without a drop in quality. This can be improved.
Still, the potential of farming in Zimbabwe must be addressed. The sector requires reinstallation and upgrade of irrigation systems, greater availability of inputs, and training. Downstream buyers from small-scale farmers will find anxious partners in aid donors and the farmers. Sharing costs and knowledge could further raise prospects for the agriculture sector. But that requires dropping the politics and ego of buyers, farmers and donors, says one investment executive focusing on the SADC region, which is “easier said than done.”
Despite all the critics, Zimbabwe is still making progress as a result of a dedicated and hard-working populace that believes in the country. Avoid the politics and talk business and you will see its potential.