investing in Zimbabwe

INVESTING IN ZIMBABWE:

INFORMATION VITAL  

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