Saturday, 25 June 2011

investing in Zimbabwe

Over the last decade or the lost decade investments or investing in Zimbabwe generally became a less erudite and wise decision because as historical records during the period will show investors lost dearly, some had to lose everything they had worked for over decades. The volatile Zimdollar and the heinous inflation worked toward decimating entire savings and investments and only the erudite were able to actually profit in that environment. However since the adoption of the US$ as the base currency the investment environment changed markedly because inflation the previous nemesis to the investing public has since 2009 averaged levels normally seen in developed economies; that is between 3 and 5%. So the currency risk or the risk of the local dollar depreciating and causing loss in value of various investments was almost eliminated by the adoption of the greenback as the base currency. This is one major game changing move that ultimately calls for a revision of the country’s risk profile or at least the investor’s perception of risk associated with investing here.  Zimbabweans working abroad as well as those residing in Zimbabwe will all have to retire at some point hence investing now is not exactly option but a necessary decision that has to be made now and fully grasping the investment climate will help them in identifying the best investment option. Normally Zimbabweans associate investments with things like the unit trusts, the stock market yet it actually encompasses things like mining, farming and in this article we will discuss all with greater emphases on the latter. During the preceding decade the Zimbabwe stock exchange was often touted as the best performing market on the continent because nearly stocks or shares increased in value during that period albeit rising at rates just above the rate of inflation. So with the exception of the more erudite or sometimes corrupt investors most investors could not realise a capital gain in real terms or in other words only a few investors would realise a profit after discounting the rate of inflation and the devalued dollar. In the run up to dollarization of the economy most stocks clearly lagged behind inflation with the resulting losses for particularly for investors who had converted their hard earned foreign currency into the now defunct Zimdollar who then could not revert to the initially converted amount. Such losses drove away not only foreign investors but local investors as well so as result the stock has become illiquid or inefficient according the efficient market hypothesis(EMH) a situation that is also compounded by the liquidity crunch currently gripping the economy. In other words very few investors participate or trade on the Zimbabwe stock exchange and this has resulted in a number of stocks being severely undervalued a situation that continues to this day. Now for potential investors looking to invest in stocks this could potentially be the time to invest by acquiring these undervalued shares whose value will certainly rise once the liquidity problems the economy is facing cease. This is actually supported by the fact that most companies particularly those listed on the stock exchange have since returned to profitability and future prospects appear good in this dollarized economy. Of course investing on individual shares of various companies on the stock market is risky business, unit trusts are one way which an investor as far afield as the United States for instance could actually exploit the current conditions with minimal risk because the job of identifying the best shares to buy will be left to the asset managers who are obviously more knowledgeable. Already some portfolios being managed these asset managers have already grown in value at rates well above inflation. However some investors have grown wary of investing in these financial assets especially as we are just emerging from a world recession caused by the failure of financial institutions offering similar products. So for these investors investing in something tangible is more worthwhile and certainly in this respect again such opportunities exist. Mining is one area where opportunities are bound especially now when there such huge demand for some minerals we are endowed with. For instance chrome, platinum, coal and steel are some of the resources currently fetching record prices on the world market as huge construction and production in the emerging economies drives the world economy. This is where investors who are less risk averse could potentially realise handsome returns as some of these minerals remain largely unexploited due to a host of reasons. For instance a few years ago there was a mad rush to register mining claims particularly for chrome ore yet there has been no activity since because the potential miners lack the necessary finances to operate these mines due to chiefly finance problems. Most of the claim owners often try to lease their rights to potential suitors but with limited success. This whole scenario is quite disturbing as this commodity fetches highly in China for instance where you can get as much as $400 CIF tonne to most of its ports yet for most small scale miners the extraction costs are much lower than $50 per tonne and this where potential investors could come in bridge this gap and earn a healthy return. A few foreign investors have actually gone on to invest in chrome mining despite the threats and controversy surrounding the indigenisation program and they have reaped profits. Given an individual’s risk preferences mining and the stock market are certainly the way to go now for an individual wishing to invest in Zimbabwe. However getting the right information is key if one is to navigate and profit from this seemingly uncharted terrain

Monday, 13 June 2011


A great deal of focus on the country’s economic recovery and development seem to be centred on attracting foreign direct investment, securing lines of credit and funding as well as helping exporters and indeed this is worthy because these factors constitute a mix that assures of fast and sustained economic growth. However the talk on accelerated growth and development cannot be complete without mentioning things like research and development, democracy, strong legal systems etc. and the fact that these perhaps do not receive due attention could well explain the size of the economy we have. While these factors may not fall inside the realm of economics per se empirical evidence points to these as components of a mix that guarantees economic prosperity and the general improvement of living standards of citizens and as such a similar thrust or approach has to be assumed in dealing with these. Quite frankly a lot of people might find it hard to connect the research and development( hereafter referred to as R&D) and economic prosperity, in fact R&D is such a luxury that rarely will you see a local firm actually budgeting a significant portion of its resources towards this. At national level very insignificant resources or none at all is guided towards this and it’s only fair to say that most of the research and development actually going on here is actually donor funded accordingly amplifying the lack of appreciation of this function’s importance. However what may be interesting is the revealing statistics made available by organisations such as the UNESCO a United Nations agency that tells quite story around this R&D  topic. We are all aware that the United States is the world’s largest economy though not many people would be aware of the US’s R&D spending which is estimated to top $405billion in 2011 alone and that it constitutes about 2.7% of its GDP. These figures are quite staggering but also help people to understand how that country values R&D which inevitably gives it the edge in global trade and that is why sometimes naively so we expect the US to produce the latest technologies, the latest computer software, or even movies. Japan another innovative trading nation is expected to top $144 billion and that roughly equals about 3.3% of its GDP and until recently Japan was the second largest economy in the world. In fact the top 10 list almost resembles the list of the world’s top 10 economies and thus clearly showing that R&D is essential in ensuring growth and sustaining it. One emerging economy that has really embraced R&D and whose results now prove this is China. China according to the same list now out ranks Japan with its spending expected to top $153 billion about 1.4% of its GDP while China recently overtook Japan as the world’s second largest economy and again this simply highlights the co relationship between R&D spending and economic growth. Now it is the story of China’s growth that should help to realign the thinking and comprehension of R&D as the foundation of economic growth by people in the developing economies. Though China is still categorised as a developing economy in some spheres because the fruits of growth have not filtered down to everyone it’s only a matter of time before that happens and certainly by spending more on R&D and prioritising the middle class, China is already setting the tone towards realigning its economy from being an export driven one to a more consumer driven one. In Africa where most developing economies including ours are found R&D has not received its due attention because R&D spending often falls short of the UNDP’s minimum threshold of at least 1%of a country’s GDP. According to the UNESCO R&D list South Africa ranks first on the continent with its spending estimated to reach $3.7 billion which translates to about 0.7% of its GDP on the other hand Egypt ranks second with its spending topping $910 million that’s about 0.23% of GDP and finally Morocco in third with its spending at $760 million which about 0.6% of its GDP. However none of these rank in the world’s top 30 with SA ranking 31st, Egypt a distant 45th and Morocco 47th and there was no other African country on the list perhaps suggesting that there is little or next nothing being earmarked for R&D on the entire continent. Evidently these figures make a strong case for increased funding for research and development not only by state funded or owned enterprises but the private sector as well because it is exactly this sort of expenditure that ensures that our exports compete very well on the global market and help in import substitution efforts. Competitive exports and reduced dependence on imports helps to improve the balance of trade in our favour and in the long term help to reduce the balance of payments deficit something very much akin to African and developing economies. For a lot of African economies the task is quite daunting though not impossible and this because the literacy rates are very low, the educational and skills training facilities are woefully inadequate or underfunded while higher learning institutions like universities and technical colleges are very few. All this coupled with a culture of not willing to learn makes prioritising R&D spending an impossibility hence our poor showing on the above mentioned list. Zimbabwe however may have a head start already because the country ranks highly on the literacy rates and the country has for years spent disproportionately larger amounts on educational facilities than most African countries and of course this cultured need to excel in school that is often instilled at a tender age in most children by their educated parents. What is probably lacking is the funding and the culture of research and developing hence the need to now shift effort towards this. We export mainly primary products perhaps because we do not have the expertise to turn these into finished products thus by having more resources dedicated towards improving or innovation we may be able to reverse this trend and start exporting finished products something that adds value.

Terence Zimwara feedback 0733406743 or

research and development

research and development

Monday, 6 June 2011

Dollarisation: The worker's perspective

Prior to the establishment of the coalition government and the dollarization of the economy, the economic situation was very dire; the whole system was literally not functioning so it was a relief when the political agreement was consummated. One of the immediate task of the new dispensation was to institute a series of acts and legislation that formally recognised dollarization as the short term panacea to the economic malaise and the eventual setting of the US$ as the country’s base currency. Indeed there was an almost immediate impact because the business environment now allowed even the closed companies to reopen or to improve operations and in some cases companies started to relook at some long term expansion projects that had been shelved over the last decade. For workers dollarization in particular brought home a welcome relief, the food shortages, currency shortages that had become a part of life in the years preceding the new government were gone and most basic goods and services became widely available once more. Inflation which had been labelled the country’s worst enemy was out of sight as it now averaged just fewer than 5%a far cry from the 200 million per cent it was when the economic recession was at its climax and this perhaps was and is the most significant thing to have happened since the coalition government. Economic growth which is indicative of the improving production and productivity has been positive since and this year it is estimated at 9%nearly twice the regional average. However the initial cheers associated with the coalition seem to have given way to complains and protests against among other things the apparently stagnant wages which have remained well below the estimated poverty threshold of about $500 per month. Unions have repeatedly demanded the improvement of working conditions particularly wages charging that workers are again being left behind because a number of companies have since returned to profitability and senior managers are more comfortable yet there has been little or no movement of the salaries and wages of the rank and file. Employers offer a number of reasons for failing to pay sustainable wages and the whole situation threatens to spiral out of control because many workers’ unions have issued notices of strike if their demands are not met. However in this article I seek to underline the importance of well paid workers in the economy particular ours which is emerging from nearly 10 years of economic decline. During this decline the economy lost one fundamental group, a group which in normal circumstances drives the economic growth of a country, the middle class. A middle class is essentially a group workers earning an income which is at least above the poverty threshold hence in our case anything above $500 per month and this group may also include small businesspersons and traders. Middle income earners help to drive the economy forward because of their propensity to spend not only on basics but semi-luxury items as well and this helps to ensure economic stability during times of international recession. In fact the world’s major economies nations are known to be spurred largely by internal demand, effective demand which is only achievable when the middle class earns highly. For instance the United States, the world’s largest economy is known to be driven largely by consumers- some estimates conclude that nearly two-thirds of that economy is driven by consumer demand hence the association of that economy with theory of consumerism. Now this is quite possible if nearly 50%of the entire population there believes they are in the middle income class and that is why the government there has placed a lot of emphasise on helping this class ride out of financial ruin brought by the world recession. Japan the near perfect economy actually surpasses even the US because 90%of the population in Japan believe they are in the middle class and this may partly explain why such a tiny island nation grew economically to become the second richest economy in the world despite it not having a lot natural resources. In fact this is principally the same situation for the rest of the world’s dominant economies and really points to this as the best way of achieving the ambitious goal of a $50 billion economy that officials having touting recently.  Granted we already have an educated, skilled and literate labour the majority of which are in the civil service and of course the private sector and authorities are quite aware of this hence in our case paying a sustainable a wage could not only pre empt industrial action but could also set the ball rolling in efforts towards resuscitating the middle class. However the government has said it cannot meet the wage demands of its employees because it is not collecting enough revenues and apparently its present wage bill is about 70% of its collections and certainly this is not sustainable. The government has not received direct aid, loans or funding and it has had to rely on its collections- a cash budget and now since we use the foreign currencies, the one option though an inflationary one which most governments use in these circumstances the printing of money is not possible. So really it is a dilemma because you have an underpaid labourer demanding legimately so for an improvement in earnings from current levels to levels that at least pulls him outside the poverty bracket. On the other hand you have an essentially crippled government at least according to publicly revealed revenue collection figures, a government that cannot afford to pay its own workers. The private sector employers also cite liquidity problems for their failure to pay adequately though sometimes employers claim to be hamstrung by these problems yet go on to award themselves very generous packages and this fuels the mistrust and animosity as we see it. While aid and loans from multilateral lenders can only flow into the economy once certain standards of governance and other issues have been met it is imperative that all stakeholders understand the bigger picture here, rebuilding the middle class to achieve long term stability. One way to do this would be to enter into an agreement, a social contract of some sorts. For instance employers may have to make the sacrifice by giving in to labour’s demands now and in return labour will have accept that it will not ask for further increases during an agreed period and this has to be a binding on everyone. However this can only happen in an environment where there is communication and mutual trust perhaps that should be the starting point.

    Terence Zimwara

The Zimdollar

The past few weeks has seen the reigniting of the debate on the Zimdollar’s return euphemistically referred to as the gold backed dollar, a practice that has since been abolished where the amount of money and currency in circulation is commensurate with the value of gold held in stock by the state. Many including the central bank chief have called for this gold backed dollar arguing that this makes perfect sense in light of the improving production level of not only this commodity but other precious commodities and some economists support this. On the hand the finance ministry contends that it is not possible and now would be wrong timing because the general economy has not really recovered that much to warrant such a change. Now before taking any decision one has to understand the circumstances that prompted dollarization of the economy in first place despite the earlier resistances by authorities to allow this. Dollarization or multiple currency system as it is commonly known essentially means a country will abandon its own currency in favour of a more stable one from another country and as history will show countries are forced dollarized when their own currencies become worthless due hyperinflation. It does not necessarily follow that when an economy dollarizes it has to be the US$ that is chosen to act as the base currency although in most cases it is the greenback that is chosen because of its widespread acceptance and the US’s status as the world’s major trading nation. Now the story of dollarization did not exactly start with the coalition government but it started as far back 2005 though by then it was not pervasive and was quite subtle. Back then dollarization was less overt  because the regulations and laws enacted then criminalised trading in foreign currency without  licence suffice to say only a few individuals or companies had such licences. The practice then was to indeed to trade in Zimdollar however the price would then be heavily inflated to compensate for the expected depreciation of the Zimdollar therefore prices would be in local currency yet these prices consistently tracked an equivalent price in foreign currency. A very good example was the price of fuel which during period changed quite rapidly as traders sought to keep pace with the rate of depreciation of the local unit consequently while the price did not change in US$ terms it did significantly in Zimdollar terms and this reflected the rate of inflation and depreciation. This practice grew quite rapidly in latter stages of that hyper-inflation period up until the coming to be of the coalition government which ultimately formalised dollarization by setting the greenback as the country’s base currency. At that point the country’s currency was virtually worthless because no one accepted it as a trusted medium of exchange one fundamental attribute of currency or money hence resulting in its eventual disappearance. Clearly as we can see here dollarization occurred spontaneously, businesses and citizens suddenly refused to trade in the Zimdollar despite the risk of arrest in some cases. Therefore we can conclude from this that dollarization took place informally meaning at least not officially and this occurred a few years before the birth of the coalition government. We also have to put into perspective the central bank actions during same period and how this may have contributed to the total erosion in confidence with the local currency. The central argued at the time that since the government could not access loans from the multilateral lending institutions it had no option to but print money to keep the economy afloat however the intended outcome of printing would be offset immediately by the resultant massive rise in inflation. In addition to exacerbating the inflation situation, printing of money fuelled the waning confidence in the local currency to a point where ordinary people had to demand foreign currency as means of paying. For instance in the high density suburbs landlords reportedly demanded foreign currency or even foodstuffs as payment for rentals while rural folk were also reported to have resorted to barter trading. These two examples simply underline just how severe the non –acceptance of the Zimdollar had reached and it is so hard to understand how the same folk that rejected the Zimdollar 5 years ago would readily accept it now. It does not matter that we refer to it as the gold backed Zimdollar because as long as the system that caused its demise in the first instance remains then there is little chance of it succeeding now because for instance already there is anxiety about what would result with many predicting a gloomy aftermath of its return. In other words it means there is very little confidence in it and quite rightly the timing is really bad because national production has not really peaked and there is no real transparency where remittances of minerals revenue is concerned . Another reason which perhaps could be the most significant one working against the return of the local currency is the loss of entire life savings, pensions and fixed deposits investments suffered by most people during this period. This admittedly was a very traumatising experience for many but especially for our senior citizens in particular who had to suffer losses of entire savings and there has not been any kind of compensation for the vanished savings. How do you then encourage such a person to believe in the financial system again, to accept the Zimdollar or whatever you call it? It’s a hard sell. Authorities need to study and research on how other countries that dollarized in the past managed to eventually re introduce their own currencies. However what they are certain to discover is that most of these countries did so only after having given the economy enough time recuperate using the stable currency. Also whilst the local currency was reintroduced, foreign currency was allowed to remain legal tender for some time to give the sceptical population enough time reacquaint themselves with the new currency and this helps because it does not disturb the economy. While indeed the local currency has to return at some point to allow the country to run its own monetary policy, this only has to happen after the economy has fully recovered and when enough reforms have taken place at the central bank to the satisfaction of the population then people may entertain this topic

Terence Zimwara feedback 0733406743 or  or

The Zimdollar