Fundamentals over sentiments, tale of the Zimbabwean economic story

by | May 3, 2021 | Business, Local News | 0 comments

Nevanji Munyaradzi Chiondegwa

Aporva Kala, an author and philosopher stated that “Your perception may not be my reality.” This statement reads so true about Zimbabwe especially after the New Dispensation.

For a foreigner seeking to visit Zimbabwe, listening to opposition political activists of funny hues, one would think they will not be able to leave Robert Gabriel Mugabe International Airport alive.

The impression they get is that they may definitely not be able to fuel their cars or find a decent bed without bedbugs.
They get a picture of a starving nation, in darkness, with everyone walking in zombie fashion.
The story that has been told about Zimbabwe speaks of a nation in crisis, on a course to implosion, with runaway inflation, an unstable currency, empty shelves and virtually no business to speak of. In other words, a nation in a crisis.

But hold on, that is their perception and one they sell to their funders and for obvious reasons. The truth of the situation is however so far removed from this bleak outlook that they try and sell to the world.
In its April edition of Corospondent, South African based Coronation Fund Managers Limited titled, “Investment Analysis Zimbabwe and the investment case for Zimplats”, tears into this view of Zimbabwe and paints a totally different picture.

The story by investment analyst Floris Steenkamp shocked such media naysayers as NewsHawks, an online publication usually given to bashing Zimbabwe. Newshawks even stated that the story would have sounded like propaganda but on the contrary, it was a rare positive. Quick takeaways from the article are that:
– Business confidence in Zimbabwe is at its highest level in years
– Improving currency stability is at the heart of this nascent recovery
– The challenge is to alter perception anchored in a very bleak recent history
Zimbabwe Platinum Mining Company (Zimplats) is a world-class miner with considerable upside.

Coronation Fund Managers are a reputable South African Asset Management Company with more than R578 billion of assets under their management.

In the conversations Floris and team had with businesses in Zimbabwe over a couple of months showed them the difference between perception and reality. They met very upbeat business people even as some have not spoken to investors for over two years. They were shocked at the confidence displayed, the highest in years.

The introduction of Foreign Currency Auction System by the Reserve Bank of Zimbabwe, coupled with the prevailing transparency, saw the biggest improvement in currency stability being noted. The difficult decision taken to allow the devaluing of the Zimbabwean Dollar to a level that more closely reflected the economic fundamentals of supply and demand dynamics led to stabilisation between parallel and official rates.
The narrowing of the gap between the two rates led to a dthe decline in parallel rate transactions.

“Our recent meeting with Zimbabwe’s Minister of Finance, Professor Mthuli Ncube highlighted that the country has become much more investor-friendly It was also clear that the positive developments we are seeing today are a result of a plan that was started three years ago.
Zimbabwe is on track to run a current account surplus for the third year in a row and they have started to repay small amounts to international lenders – the first step in restoring Zimbabwe’s ability to access international funding,” said Coronation in a statement.

That the positive developments coincide with the beginning of the New Dispensation is no accident. Zimbabwean President Emerson Dambudzo Mnangagwa declared Zimbabwe open for business.
His biggest foreign policy has been engagement and re-engagement. The country has been eager to renew friendly ties, re-establish broken ones and the focus being to leverage on its natural resources to rebuild its economy.

The discipline in the financial sector brought about by Prof. Ncube and supported by President Mnangagwa has seen the government showing a lot of discipline in resisting the temptation to print large amounts of money and in addressing the fuel and maize subsidies. The benefit of removing the fuel subsidy was not just the saving on each litre of fuel consumed, but also a large reduction in the total fuel consumed as market-related prices stopped cross-border smuggling, where people bought fuel cheaply in Zimbabwe and sold it at higher prices in neighbouring countries.
“The drought has ended and Zimbabwe will produce enough maize to meet the country’s demand this year – a spectacular turnaround from the past decade where production only met about half of the demand. What is particularly positive is that agricultural output is not only improving as a result of better rainfall, but also because of better planning. Similarly, the increase in precious metal exports is not just because of higher prices, but is also due to policy changes that encourage investments in the mining sector,” said Professor Ncube.

Coronation Fund Managers Limited are not talking from an outsider’s perspective. They are active participants in the Zimbabwean economy.
They are heavily invested in Zimplats as shareholders, whose share value has increased three-fold in the past two years.
“We are really excited about the investment opportunities that arise when share prices reflect overly pessimistic perceptions.
Zimplats, which is currently the largest holding in our Africa Frontiers strategy, is a case in point.”
“In our view, the main reason why Zimplats trades on much lower multiples compared to its peers is the fact that this is a Zimbabwean business. We think there is a general lack of understanding on how much property rights have improved over the past few years. In 2018, the government started to address indigenisation laws, but the 51 per cent local ownership requirement remained in place for platinum and diamond companies. In late 2020, this requirement for platinum and diamonds was also removed…” said Coronation Fund Managers in a statement.

Indeed fundamentals and reality always prevail over sentiments, and reading that story on Zimbabwe by stewards of investor funds such as Coronation Fund Managers whose duty is to grow client value since they make theirs from that says a lot about Zimbabwe and the changes it has undergone.