Zimbabwe - on the verge of change?
The economic situation in Zimbabwe is desperate. Fiscal, monetary and economic mismanagement has driven Zimbabwe Inc to its knees. Its people are starving and its companies fighting for survival, while the connected elite grow rich from the numerous opportunities for arbitragecreated for them by, amongst other things, various attempts at price-fixing bya government fast running out of economic options and capitalstock to deplete.
Theabovementioned is importantin order to understand our position that change, just about any change, is the best possible outcome for the country.Short of a civil war I suspect that the worst case scenario formost investors would be a quiet continuation of the status quo.Zimbabwe needs a change of leadership, a temporary funding of its budget deficit, and a reversal of all ridiculousbusiness-killing rules, regulations, price controls and exchangerate distortions that have driven the economy to the brink.
As far as investments go, Zimbabwe is widely touted as a recovery play - the recovery which is expected once economic normality returns to the country. It is thus not surprising that Zimbabwe-exposure stocks havestarted rallying in the last two days as the opposition partystarted claiming a landslide victory-investors are clearly optimistic that achange of government might, just might beon the cards.
In terms of our investments, the biggestpotential (opportunity) loss for our funds is ourlow exposure to the country.Our funds donot own stocks on the ZSE - we looked into the possibility, but a lack of liquidity and exorbitant transaction costs have kept us away.Our Zimbabwe exposure is limited to stocks listed in London and Sydney, but it constitutes less than 3% of our funds.
Should the status quo remain, we will wait patiently for change, building our exposure to the country as opportunities arise. Should there be a change of government, whether electoral or negotiated, we would expect a substantial rally in assets related to Zimbabwe - a rally that will probably over-anticipate the speed at which an economic rebuild can follow political change.
So instead of hopping onto the bandwagon, we are quite satisfied to sit back for the moment, wait for change, and miss the first wild scramble that will inevitably follow positive political change. The country has been starved of investment (internal and external) for the last eight years.The economy will take time and capital to rebuild. We would welcome the opportunity to invest in a new Zimbabwe post-Mugabe. We will do so methodically, following our usual systematic analytical approach, searching for good companies, withgood management and prospects, at a good price.There will be great opportunities for investment gains, and we will be there.
