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Zim legislative regime highly uncertain

RITESH Anand is a global fund manager with more than 12 years experience in investment. After working for Wellcome Trust in the UK, arguably the second largest medical research endowment in the world, Anand this year formed Invisticus Investment Management, a company with business interests in Africa. Senior Business Reporter Bernard Mpofu this week spoke to Anand on his business interests in Zimbabwe. Below are  excerpts from the interview.

Mpofu: Why did you decide to come back to Zimbabwe?
Anand: I decided to leave Wellcome and return home to Zimbabwe to focus on investment opportunities that encourage foreign direct investment through the global network I developed. 
Mpofu: What opportunities do you see in Zimbabwe?
Anand: There are tremendous opportunities in three key areas — mining, tourism and agriculture.
Mpofu: Why these three?
Anand: Zimbabwe has tremendous natural resources with over 40 minerals. Mining is also a sector that has had little investment in the last decade. There has been little exploration. When you look at the world today, the world is running short of commodities. Demand from emerging markets like India and China continues to drive demand for natural resources. I think China itself accounts for about 50% of incremental growth in demand for many of the minerals. Africa has the largest untapped resources and that is why mining and Zimbabwe is well-placed for growing demand for key minerals like gold, chrome, coal and platinum.
Mpofu: And tourism?
Anand: There has been little investment in the sector. I think some capital has to be injected into existing hotels to make them world class because tourists who visit our attractions should be given a world class service.
Mpofu: Agriculture and ownership of land continues to be an emotive issue 10 years after the land reform exercise. Are investors ready to invest in this sector and why?
Anand: The world is in short of food. Food security is an issue. Africa has about 22% of the world’s arable land, but it has certainly not produced yields anywhere near that of Latin America and the United States yet it has tremendous fertile land. I think there are opportunities because food security is a global issue. In Zimbabwe we have a lot of small scale farmers. It’s exactly the same thing as mining where that isn’t really effective.
Mpofu: So would you consider investing in commercial farming?
Anand: I don’t know what the right model is. All I’m really saying is that the world needs food so Zimbabwe has to find a way of capitalising on that growing demand especially from the Middle East. The Middle East as you know is a desert and you have seen a lot of inward investment in Mozambique specifically from the Middle East with a view of securing for the next two or three decades. A lot of my themes are multi-decade.
Mpofu: Why are investors reluctant to invest in small-tier stocks on the ZSE?
Anand: Warren Buffet has a great quote — “don’t invest in bad business because they are cheap.” You must invest in business that has quality management and a dominant market share. When you look at the 70 listed companies on the ZSE, I would say 15-20 of these are investible. The rest are actually US$1 million market cap companies. I don’t want to quote specific companies but really those companies should be private companies. Those companies either need to recapitalise or modernise and attract investment and be prepared to dilute (ownership) or they go private. The reality is that we are now living in a global village and I can invest in Zambia or Nigeria. Banks in Nigeria are trading at six times price per earning and growing at 20% with 140 million where inflation is low, currency is stable and growth is between 4 and 8%, there is no reason to invest in Zimbabwe. So people need to realise that investors have choices. Zimbabwe is however attractive in the sense that it is sort of a value opportunity. Businesses are pretty distressed so you can buy companies at a very low valuation but I think companies sometimes are a bit unrealistic about their value.
Mpofu: Is there capital on the local market to
undertake those proposals that you have alluded
Anand: I think the flip side to this is that Zimbabwe needs to change its image — foreign perception is still negative. Unless and until that perception changes it’s quite difficult for companies to attract capital. If you look at the manufacturing sector in Zimbabwe, that sector has been decimated by hyperinflation. They are using equipment that is 50 years old at best. They haven’t really invested in those companies, so where is the value? Local companies haven’t been quick to respond to dollarisation and that is my biggest criticism. Companies have to re-calibrate. Zimbabwe is operating at around 30% capacity but companies still have 100% of their labour. They have to downsize labour force to reflect where demand and supply stands. As demand increases and the economy recovers, they you employ more.
Mpofu: What is your take on indigenisation regulations currently in place?
Anand: I think the principle of empowerment is broadly acceptable. I think the issue of Zimbabwe is the law as it stands today. What people fail to realise is that if you sell say 51% Stanbic Bank or Barclays, it’s no longer Barclays because you have effectively given up control. So have regulations scared away investors? Yes! The market lost US$1 billion and you can attribute a significant portion of that to indigenisation regulations and if you speak to stockbrokers they will tell you that many foreign investors that were investing on the market prior to the regulations were announced disappeared. The issue I have with the policy is that it is ambiguous and it lacks clarity and transparency.
Mpofu: Sectoral committees were set up after the initial controversial regulations were gazetted. Do  these committees address the concerns that you have raised?
Anand: The amendments are a step towards providing transparency but we are not yet there. Should we not have set up the sector committees to debate this before the regulations were announced in the first place. Investors dislike uncertainty, if they perceive that the law is subjective, arbitrary or uncertain, money will not come. The current legislative regime is highly uncertain.
Mpofu:  Is the 8,1% GDP growth projected by government achievable?
Anand: GDP numbers are slightly misleading in Zimbabwe. The reason I say this is that there is a very significant informal economy in Zimbabwe. So what we are measuring (in Zimbabwe) is just the formal economy and whether it would grow by 8%. I don’t know, it maybe true. The numbers I look for are mobile subscribers, beverage consumption and bank deposits. These areas have grown by two to three times. I think this economy will grow by more than 8,1%.

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