Global economic slowdown: Opportunities for Zim

On the flip side, it will be remembered as the day the Greeks abandoned the civilization which they are popularly known for as protests erupted across the country, with several buildings being burnt down as the masses showed their disapproval of the politicians’ decision.

The debt woes which started off in Greece and have spread to other nations are threatening the continued existence of the Euro. Effects of the debt web entangling Eurozone member nations, banks and the US economy are being felt in the broader global village. Growth in the world’s second largest economy, China, slowed down to 9,1% in the fourth quarter from 9,5% recorded in the three months to September 30 2011.

The wider Asian economy also recorded a sharp decline in exports, attributing the drop to subdued demand from the Eurozone. China has again slowed down its imports owing to reduced activity in the manufacturing industries and this has hurt prices of industrial commodities significantly.

The trio of nickel, platinum and copper all recorded losses of 26,8%, 23,05% and 27,8% respectively, in 2011. Fears are high that the world will slide back into recession.

Overall global growth in 2011 slowed down to 3,8% from 5,2% recorded in 2010, with advanced economies expanding by 1,6%, half of the 3,2% registered in 2010. Emerging and developing economies, amongst them Brazil, Russia, India and China commonly known as the Bric’s, registered growth of 6,20%, whilst a growth rate of 4,9% was registered in Sub Saharan Africa. The soft trend is expected to continue in 2012, with global growth anticipated to slow down further to 3,3%. Likewise, advanced economies are expected to expand by 1,2%, whilst growth rates of 5,4% and 5,5% are projected for the Brics and sub-Sahara Africa.

In a bid to stimulate growth and avoid another recession, advanced economies are currently implementing measures such as low interest rate regimes to stimulate growth in their economies.

Those economies in debt distress are adopting austerity measures to reduce their budget deficits. Some methods adopted include reducing government expenditure and increasing the retirement age of pensioners. All this has resulted in investment returns in the developed economies falling. 

The US Federal Reserve has vowed to maintain interest rates at levels close to zero till 2014. At the same time the outlook for equities is not promising due to the fragile business outlook.

The low investment returns have forced fund managers in developed economies to scout for better returns in emerging and frontier markets. Emerging markets are nations with social or business activity in the process of rapid growth and industrialization.

Frontier markets are regarded as a subset of emerging markets and it is in this category that African countries showing growth potential are found. Justifiably, emerging markets have been posting strong returns, growing by 11,36% in January 2012. Emerging markets in Asia put on 10,65%. A growth of 12,63% was recorded in Latin America while markets in Eastern Europe and Africa expanded by 12,07%.

According to the Economist Intelligence Unit (EIU) survey, Africa: Institutional Investor Intentions to 2016, global institutional investors intend to increase their exposure in African markets over the next five years. The participants in the survey also disclosed that they were changing their strategies to long term from more speculative, short-term bets. Nigeria and Kenya top the list of the preferred destinations while Zimbabwe is in third place. Other investment homes mentioned in the survey include Egypt, Ghana and Libya.

The main reason highlighted for selecting Nigeria, Kenya and Zimbabwe are agricultural resources, mineral resources and human capital which these three countries have.  The other conviction is that these countries will offer the best investment returns over the next decade.

Yes, Zimbabwe! Mentioning Zimbabwe might come as a surprise owing to the high country risk that is always attached to the country.

The high risk, which is a function of the unending fighting on the political front, always overshadows the huge potential the country has. However, we believe that the country deserves to be on the list. Zimbabwe has extensive mineral resources, with  platinum, for instance, being second only to South Africa the world over. Gold production, which is on a recovery path, stands to benefit from the firm prices on the global front. Recent discovery of diamonds is another plus for the country.  

Furthermore, adoption of multiple currencies has seen the economy registering an average growth rate of 7,7% between 2009 and 2011 at a time advanced economies have been shrinking. Return on money market investments locally are averaging 15% per annum, a level far higher than in most advanced economies.

It is, however, worth noting that investments will not automatically flow to Zimbabwe. We first need to get our act together, starting with resolving issues outstanding on the political front.

A country cannot remain in an election mode for more than three years as this pushes away foreign money. Investors remain concerned that each time elections are held in Zimbabwe violence erupts. Government should also bring about clarity on the way indigenization laws are going to be implemented in the country. A way that promotes continued growth and continuity should be adopted. 

Related to this, government should guarantee that property rights will continue to be respected in the country.

It is beyond doubt that the country is hungry for foreign capital to use within companies for capital expenditure and working capital. It is up to the government to make sure the environment is conducive to investment so as to make the country attractive to foreigners.

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