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Interview: Dzika Danha, Analyst, Renaissance Capital, Harare
Moneyweb
July 09, 2007

http://www.moneyweb.co.za/mw/view/mw/en/page55?oid=145561&sn=Detail

Moneyweb: Off to Harare now, where we link up with Dzika Danha, an analyst at Renaissance Capital in Harare. Good to be with us this evening, Dzika. Let's maybe start off with the controversial laws that have been introduced by President Robert Mugabe, trying to force retailers to halve their prices. I guess the impact of that has been retailers aren't going to be putting too much up for sale?

Dzika Danha: Yes, precisely. The immediate impact is there's been a reduction of goods on the shelves. I think we will really feel it in a big way in probably a couple of weeks, because the government is very heavy-handed about trying to enforce it. So I think guys are just going to try and get rid of their stock while they can, but the problem is down the line - manufacturers are already sort of slowing down production.

Moneyweb: I guess it's no surprise there, because who would like to produce something when you're guaranteed that you are being forced to sell it at a loss?

Dzika Danha: Ja, that's the problem and the replacement cost of this stock - that's we're going to miss our stock cycle, and there will be widespread shortages probably in a couple of weeks. The black market is already showing signs of leaning to a lot of these commodities.

Moneyweb: Dzika, where to from here? When there isn't food in the shops, I guess one would say simplistically that there are going to be riots in the streets.

Dzika Danha: That would be the obvious logical step, but I'm not so sure. I don't know how long they are going to enforce this, once they realise how serious their actions are. But you're right, social tensions will escalate if there really is no food on the shelves. But I mean, the main product is this, it's going to see inflation spike like we've never seen before.

Moneyweb: Dzika, what about what's happening at the fuel pumps? The Financial Times of London or FT.com was reporting today that police have instructed filling stations to cut their prices by two-thirds, and then gone on to tell bus owners they must cut their fares by 80%. Are people complying?

Dzika Danha: From what I see, the few, I mean people who stop selling fuel - and consequently the black market price has spiked beyond even the actual power market rates value of that fuel. So it's a case of guys are just holding it now, they are not selling it. And there is no fuel readily available. As for the bus drivers - look, if they were to comply, they would be out of business fairly quickly.

Moneyweb: There were reports today that the financial director of Edgars has been arrested.

Dzika Danha: Yes, we had the front pages of the The Herald, the daily here, 32 directors were arrested for flouncing these price control regulations. So yes, it's getting quite ugly on that side.

Moneyweb: Now you work with a multi-national, Renaissance Capital. What kind of reports are you sending back to people in other parts of the world?

Dzika Danha: Well, I'm [indistinct - poor line] valuation perspective, and trying to buy when the market is cheap. So far the Zim stock exchange has done actually quite well in hoding value, but with [indistinct] and we are probably going to see some sort of dollarisation or indexation. So I think the demand for currency is going to go through the roof, which might make assets cheaper again.

Moneyweb: We have, however, seen the Zimbabwe Stock Exchange plunging last week. It's gone up expedentially so far this year, but it took an awful hammering last week with these new laws.

Dzika Danha: Ja, it's down 26% from Thursday last week to yesterday. So it has taken a pounding and, look, these companies are under serious [indistinct] and our margins are being eroded completely. They will be making some losses fairly soon.

Moneyweb: But certainly from that perspective, Dzika, if you are being forced by government to sell at below cost price or face being grabbed, I suppose, in the same way as some of the farms were grabbed by the president and his cronies, then the companies that are listed on the stock market can't be worth a whole lot?

Dzika Danha: No, you're right, from a customer perspective, no. But in terms of value perspective, ja, it's still the cheapest market in the world. But yes, this raises a bit of issues and there's going to be a lot of selectivity in stock-picking going forward. It's just [indistinct] blue chips and dual-listed stocks.

Moneyweb: Earlier this year there was quite a lot of hope that this was the beginning of the end. It certainly seems to have got a lot worse since then.

Dzika Danha: Yep, it has, predictably. And it's going to get a lot worse a lot quicker now. I think in two weeks' time or in a month's time, inflation will ratchet up even more, and I don't know how the end is going to look like. But we're closer than we've ever been, really.

Moneyweb: And what are you doing with your family? Are you keeping them indoors or are you quite happy for your kids to walk to school and your wife to perhaps shop if there is a place to shop?

Dzika Danha: I'm not married, unfortunately. But look, physically it's safe. There's nothing really wrong. I mean, that's a gross misconception that people have about Zimbabwe. It's actually a very safe place, even now. It's just an economic thing which is the real story here - it's the ordinary person trying to struggle to make a living. In terms of safety, crime-wise, it's a lot safer than, let's say, Jo'burg.

Moneyweb: But at some point in time that has to change, surely?

Dzika Danha: You'd have said so, but it hasn't happened so far, I think, given the nature of the people here. But if they carry along in this vein here, it might well change.

Moneyweb: How do you see all of this panning out, or how do you see it all developing from here?

Dzika Danha: I'm not prepared to give a view sort of six months, but a couple of months down the line, I think inflation is going to peak in the next six months. We are going to reach that vortex of hyper-inflation when things just don't function, and from them on that might be some sort of tipping point for a change.

Moneyweb: Dzika Danha, talking to us from Harare. He is with Renaissance Capital.

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