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Vultures circle but regime's death throes are prolonged
Dianna Games, Business Day
August 24, 2007

http://allafrica.com/stories/200708240492.html

ZIMBABWE may not look like much of an investment prospect right now, with its economy in a tailspin and the prospect of a rigged election looming on the horizon. But the deeper the country sinks into the quagmire, the more potential investors are seen sniffing about - in hopes of a fire sale, no doubt. An adage of investing is that you should try to buy at the lowest point.

One Zimbabwean commentator wryly observes: "The vultures are circling." The question of whether the country's fast-deteriorating assets really represent a long-term investment has been around for a while. Bolstering the view that there is a viable future for the Zimbabwean private sector is the fact that, despite sustained assault by government policies for nearly a decade, it has remained resilient and creative.

Everyone is looking for signs of an "endgame" for the shambolic political regime of Robert Mugabe, and the investment community is no different. Perceptions of investment viability are premised on the belief that political change, and with it economic recovery, are just around the corner.

This waiting game is full of uncertainties. The longer the political and economic crisis goes on, the more local assets become devalued, say some observers. Others argue that the business assets are merely becoming undervalued, and therefore growing in investment potential.

With Zimbabwean companies reeling from the latest government battering - the lunatic price-fixing edict - talk of the endgame has come to the fore once again.

Companies are under greater pressure than ever. There was not much fat left in the system when the government decided three months ago to undermine margins in an attempt to reduce inflation.

The consumer population briefly hailed lower prices. But it learned the hard way that there was little to celebrate, as the economy started grinding to a halt. As Mugabe was cheered to the rafters by his peers at a presidential gathering in Lusaka recently, a boy was killed back home in a stampede for sugar.

In just a few months, the business climate inside Zimbabwe has changed from one of weary resignation to one of fear and desperation. "There was little enough trust between the government and business before, but now there is none. Everyone expects the worst," a businessman says.

More than 7000 people, including business people, traders, taxi drivers and a range of other commercial operators, have been arrested and "tried" in a specially convened court for allegedly violating the government's order to cut prices. The government constantly urges consumers to spy on businesses to ensure the success of the half-price sale.

Companies that have raw materials to hand are being forced to produce goods by members of the security forces installed in factories. Warehouses are raided to check for hoarding. Spies watch shoppers in supermarket parking lots to ensure they do not leave with more goods than decreed by government order. The government has now made such spying on the population legal with new legislation.

A social accord once signed by the government, business and labour is sometimes mentioned as being the best mechanism for all parties to solve the economic problems in the country. The Association of SADC Chambers of Commerce and Industry said recently that new negotiations under the provisions of the accord were what was needed. In reality, this social accord has been moribund for a long time. Critics say the government's unrealistic economic projections, as well as a lack of trust between the parties, render it dead in the water.

This week's big climbdown by the government on price-fixing may have resulted in part from concerns raised by the private sector, but is more likely to be about the government trying to salvage its ill-considered pre-election image.

But even as pricing starts to normalise, the Zimbabwean business community faces yet another government-inspired threat - the Indigenisation and Economic Empowerment Bill, which is before parliament.

Although there has been significant "indigenisation" of Zimbabwean business over the past decade, the new legislation opens up a new avenue for the government to wield a big stick over the private sector.

The concerns in Zimbabwe seem to be less about the principle of the law itself than about how it is likely to be applied selectively - for party personnel advantage - and vindictively against regime critics by Mugabe's officials.

Unsurprisingly, business confidence is at an all-time low. A survey released by the Confederation of Zimbabwe Industries in May, just before the current crisis, showed pessimists had grown from 54% of respondents in a similar survey in 2005 to 77% last year. Nearly 70% of respondents said they did not anticipate an economic recovery in the foreseeable future, compared with 48% in 2005.

Companies are increasingly conducting their affairs in a low-key manner and massaging their results to ensure they keep beneath the government's radar. Doing well in a crumbling economy makes a company a government target.

According to an economic report by a leading banking group, more than 40% has been shaved off the value of the Zimbabwe Stock Exchange in the three months the price blitz has endured.

The Reserve Bank, in response to queries by banks, this week disclosed that inflation had hit 7251% in June - almost double the last official figure,
3700% in April.

Ironically, when the retreat from price-fixing is completed, the inflationary effect is likely to have been compounded by the price cuts, not eased by them - due to extensive restocking and other factors.

As one economist says: "When will the government accept that its printing presses are driving inflation, not the private sector?" Money supply growth reached a massive 4211% in April.

It is against this rather bleak backdrop that demand for investment in Zimbabwe is still outpacing supply.

If events of the past few months have affected sentiment in any way, they have merely moved a few potential buyers from the "buy" to the "wait and see" camp. The general election next year is seen as a major signpost to investment decision-making. The poll process and its outcome could provide a clearer time frame for economic recovery.

Although the price blitz knocked share values in the short term, the Zimbabwe Stock Exchange reports that there is still much international interest in investing in Zimbabwean companies. Officials say local companies and larger shareholders show a distinct reluctance to offload significant stakes - which has resulted in sluggish trade and low liquidity. "No one wants to sell volumes at this stage. The economy has taken a beating and confidence is low," a Zimbabwean economist says.

However, companies might be forced to sell if an economic upturn does not come soon. Many are already battling cash-flow problems and may not be able to ride out a long wait without new capital flows.

Right now, there is little to buy. "Everyone is setting up African investment funds, some of which are targeting Zimbabwe. But demand far outstrips supply and this is not likely change anytime soon," says a Harare stockbroker.

Another broker confirms that interest in investing in Zimbabwe has not declined. "Assets are very cheap compared to the rest of the world - and getting cheaper. Obviously they will be revalued when the economy improves," he says.

Although risk in Zimbabwe is high, so is the potential value of investments in a reformed Zimbabwe. Companies are resilient, diversified and able to withstand shocks; they have established export markets, good assets and strong management. The country generally has a strong underlying industrial base and a wealth of mineral assets.

The sticking point, as always, is the time frame for political and economic change. The "vultures" may need to be very patient.

Games is director of Africa @ Work, an African consulting company.

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