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Business in Zimbabwe is risky now - but long-term rewards will be worthwhile, analysts say
Associated Press
July 10, 2007

http://www.iht.com/articles/ap/2007/07/11/business/AF-FIN-Zimbabwe-Risky-Business.php

Doing business in economically unpredictable Zimbabwe may seem risky, but analysts already are looking ahead and predicting a windfall for entrepreneurs who have the patience to ride out the country's economic crisis.

The shelves are bare and fuel tanks empty after the government ordered shops to slash their prices in half in a bid to bring down Zimbabwe's sky-high inflation - a move that prompted a buying frenzy among impoverished Zimbabweans.

President Robert Mugabe's government also is threatening to take over businesses, as it did farms in the campaign that started Zimbabwe on the path toward the economic collapse, and some are warning that Zimbabwe will come to a standstill in days.

But companies such as Edgars, a leading South African clothing retailer, are sticking it out. And some analysts predict that those who can afford to wait - even if it takes years - will see good returns on investments.

"Zimbabwe's difficulties are a reality. But any rebound will benefit entrepreneurs," said Goolam Ballim, chief economist for the Standard Bank, one of South Africa's biggest banks with interests in Zimbabwe.

Zimbabwe, which gained independence from Britain in 1980, once had one of the most diversified economies in southern Africa, including record growth of 12 percent in 1980. It once was world's second largest tobacco exporter, accounting for 30 percent of world trade in tobacco.

However, the country now faces its worst economic crisis, with official inflation of 4,500 percent, the highest in the world, though real inflation on basic goods is estimated at closer to 9,000 percent.

Figures for foreign investment in Zimbabwe are not easily available and no one is suggesting it is high.

"The smaller economy is testimony to shrinking consumption and investment," Ballim said.

But he added that the capacity of the country rich in minerals and once a regional bread basket to generate wealth would improve.

"There are risks now, but the upside is the rewards if Zimbabwe becomes Africa's next Comeback Kid," he said.

Some believe that for entrepreneurs with deep pockets and strong nerves, this is the time to invest in Zimbabwe, with tobacco farms and mineral rights dirt cheap. They cite mineral- and oil-rich Congo and Angola, where the first hint of political stability saw investments reap massive returns.

"As prices fall, you are able to buy more assets with incredible potential," said Tony Twine, senior economist at the consulting firm Econometrix.

He believes speculation in Zimbabwe will only intensify, with people buying up assets.

"It is not as big as it could be," he said. "People are timing their entry for the day before Mugabe leaves."

For businesses that have spent years building their infrastructure, withdrawing is not an option.

So in the end, it is a waiting game, Twine said. And foreign-based companies like the international mining firm Anglo American that are less reliant on their investments in the country are most likely to hold out longest.

"It's the size of the war chest, perceptions of how close the country is to a turning point and how big the reward," he said.

One company biding its time is Edgars, which established an operation in Zimbabwe over half a century ago.

Edgars Zimbabwe is listed as an independent entity on Zimbabwe's Stock Exchange. The South African parent company, Edcon, owns a 40 percent share.

"But we don't receive any money because of the difficulties of getting money out of the country," said Mark Bower, Edcon chief executive for group services, adding in effect, that wrote off the Zimbabwe operation as a bad debt.

When Edgars failed to cut prices as the Zimbabwean government ordered June 26, director Adam Esat was arrested last weekend for "tardiness in changing prices."

He was released, but Bower said the company was "very concerned. It is a humanitarian issue."

Bower acknowledged that it has been "difficult" to keep the business running, and praised the Zimbabwe team for running an efficient operation.

"But now it is going to be impossible to run a business at such high inflation rates and having to halve prices. We won't have cash flow," he said.

Last year, the company held off paying shareholders dividends - a practice Bower said has become standard with many companies in a similar predicament. Still, he said the company has no plan to leave Zimbabwe.

"South African companies are still very much engaged. They are playing hold-up operations," said Brian Raftopolous, director of the Solidarity Peace Trust rights group. "They do realize the potential for future growth."

He mentioned insurance giant Old Mutual as one firm that "can afford to wait it out for Zimbabwe to recover."

However, Raftopolous warned that the economic collapse presents a threat to Zimbabwe's sovereignty - especially with the massive reconstruction plan that a post-Mugabe Zimbabwe would need.

"Mugabe has been shouting about the imperialist influence over Zimbabwe but he has run the economy down so badly that the country is so dependent on foreign aid," he said.

He also cautioned against letting Zimbabwe become a "bonanza" for foreign investors eager to take advantage of the desperate situation.

Raftopolous and others say any solution to Zimbabwe's economic problems must be accompanied by a political solution.

South African President Thabo Mbeki, appointed by the South African Development Community to mediate between Mugabe's ruling party and the opposition Movement for Democratic Change, is under pressure to produce results.

But "the biggest stumbling block to this is of course the Mugabe regime itself - its determination to make the mediation as difficult as possible," Raftopolous said.

Analysts also dismissed a reported proposal to peg the Zimbabwean dollar to the South African rand as part of a rescue plan.

"The region is looking at ways to help stabilize the Zimbabwean economy," Raftopolous said. "But I would think that SADC is looking for other less drastic measures to deal with the current situation," he said. - Sapa-AP

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