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Birds Without Wings

UNCERTAINTY makes for a very unwelcome guest. No doubt Zimbabwe has been the news item of the week all around the world.

 

Despite the many debates on the possibilities, the end game is anyone’s guess.

Resolutions are being passed, threats being thrown about.

The few British companies still operating in this country are facing tremendous pressure to pull out completely. Anglo–American Corporation, Barclays Bank and BAT are examples most commonly cited.

With all this going on, many would prefer to tread on the side of caution when it comes to their investments. Most investors are not likely to take significant positions until prospects for the future become clearer. That is, of course, if you believe that most people are risk averse.

This week, the Zimbabwe dollar continued to slide.

Pressure on the South African rand has also been attributed to the events occurring (or not occurring) in Zimbabwe. And the region as a whole is a little unsettled. Again, uncertainty is not just a bad guest but also makes many investors a tad jittery.

With this bleak picture painted, it would seem baffling to see anyone actually increasing their investment in Zimbabwe.

However, London-based investment company, LonZim, looks set to defy logic as it were. This company’s sole purpose is to invest in strategic long-term opportunities with Zimbabwe or projects which are sensitive to the economic turnaround of the Zimbabwean economy. Already the company has a position in telecommunications company Celsys Ltd, Paynet and Millpal Chemicals.

The Lonrho-affiliated company has just announced an investment in Fly540, a low cost carrier set to be based in Harare. Owing to the sensitivity of the passenger airline business to economic cycles, this investment is in tandem with the company’s objectives. A booming Zimbabwe can only be good for the greater region.

No frills, low-cost airlines are well established in the developed world with Africa lagging behind.

Such carriers typically remove most of the services associated with traditional airlines such as onboard meals.

By cutting these out, it would imply lower costs for the passengers. Elsewhere this strategy has been successful particularly with short haul flights.

As a result, and especially so in Africa, previous non-flyers would end up looking at this development as more and more of an alternative to road travel. This in itself creates a new market.

Strong growth in the African aviation industry could see the company realising benefits over and above those from the anticipated economic turnaround.

While already operating one in Mozambique, it would not be surprising to see another investment in the hotel industry from LonZim within Zimbabwe. The making of yet another conglomerate is possible.

While this looks like a very risky strategy amidst all the uncertainty, this is in no way anything new. Economic turnarounds normally present opportunities for the shrewd, risk-loving investor. Russian businessman and Chelsea FC owner Roman Abramovich comes to mind. Coincidentally, he was also rumoured to have interests in Zimbabwe’s energy and banking sectors.

The logic is simple. Depressed economies can sometimes offer cheap assets owing to the risk of further deterioration.

It is also a good time because sellers would be more inclined sell at a discount while others just decide to jump ship. The hope here is to cash in on the potential upside should things normalise.

The British are not the only ones publicly declaring an interest in Zimbabwe. Harare is set to get its first intra city highway linking Enterprise and Airport roads as a result of potential investments from Eastern Europe, probably having learnt from their own experiences.

These look like exciting developments with high potential for everyone concerned. So why then aren’t others following suit… well at least with the same gusto?

The major challenge is of course the issue of timing. “Long term” can be a very convenient description for an investment. It’s one thing to predict that a stock is going to rise in value and yet another to know when.

Timing is everything. It’s perhaps of no use to wait for a long time before realising any real return on investment. Sustaining losses cannot be done forever and investors will soon start asking for returns.

Uncertainty makes this all the more difficult. The pending legislation on company ownership is yet to be implemented fully and whether it will actually go ahead is another issue. Investors and the market in general, require a relatively clearer picture and then the rest will follow.

Should the turnaround take a lot longer than the anticipated timeframe a number of these projects might not take off. Birds without wings as it were and LonZim could easily end up LonZam.

By Tich Pai 

For any comments and suggestions please contact atthemarket@tetrad.co.zw.

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