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SA companies look for economic payback in Zimbabwe

By Charles Rukuni in Johannesburg
Posted on Thursday, 20 May 2010 12:24

South African

companies want to play a key role in Zimbabwe’s economic recovery, ?but

uncertainty over political stability and new legislation is holding

them back

The brave new world for South African business in Zimbabwe has yet to dawn despite hopeful forecasts of an investment boom after the power-sharing government’s formation a year ago. This year could be decisive. If South Africa’s corporates do not rapidly expand their operations in Zimbabwe, most are likely to wait for the next round of national elections before making a decision.

For other countries – whether China and India or old established trading partners in the West – the attitude of South African investors is a litmus test of developments in Zimbabwe. It is a difficult test to read, given the complexities of South Africa’s relations with Zimbabwe. Although South Africa, first through former President Thabo Mbeki and now through Jacob Zuma, was the regional guarantor of Zimbabwe’s political transition and a campaigner for the ending of Western sanctions, Zimbabweans are still suspicious of South African motives.

Some believe that South Africa just wants a transition that will benefit it economically. The lengthy political and economic crisis meant that Zimbabwean companies ratcheted up huge debts with South African suppliers – and this has weakened their bargaining power.

South African companies are now well positioned to take advantage of changes in Zimbabwe’s economy and have drawn up investment plans worth hundreds of millions of dollars.

Little of the money has been spent due to continuing uncertainties over policy, such as foreign exchange reform and the passage of a new law calling for 51% of all companies in Zimbabwe to be locally owned within five years. Prime Minister Morgan Tsvangirai says the Indigenisation Act will not be implemented because it is unconstitutional.

Companies to watch

Old Mutual – Financial Services

Old Mutual is the biggest investor on the ZSE and has a stake in almost all listed companies. Its market value of $783.3m means it accounts for some 18% of the ZSE’s market capitalisation. Controversially, it also has a large stake in the state-controlled Zimbabwe Newspapers

PPC – Cement

It is the biggest cement company in Zimbabwe but faces growing competition from Lafarge and Sino-Zimbabwe Cement. Pretoria Portland is the second-largest company on the ZSE and had a market capitalisation of $137.1m in September 2009. It produces around half of its 760,000-tonne-per-year capacity and is due to invest R80m ($10.4m) this year

Implats – Mining

Zimplats, 86.9% owned by Implats, is one of the country’s top platinum producers. Milled production rose from 520tn in September 2008 to 869tn in September 2009 due to an expansion project on the Great Dyke. A second phase that was in the works has been put on hold, but Zimbabwe will still account for about 43% of Implats’s platinum reserves

Pick ‘n Pay – Retail

The king of South African retailers wants to expand in Zimbabwe. It holds a 25% stake in TM Supermarkets and has been talking to the Meikles group, which owns the other 75%, about increasing its stake. Pick ‘n Pay executives said they found the politicised dispute in 2009 over Meikles ownership and operations very discouraging

Some South African companies say that talk about a new wave of indigenisation is delaying plans until there is more clarity on the issue. According to Dianna Games, director of Africa @ Work, about 60% of the companies listed on the Zimbabwe Stock Exchange (ZSE) are South African. Mark Tunmer, the CEO of Imara Holdings, which has been promoting investment into Zimbabwe, said some local businesses felt they were being pressured to sell their concerns cheaply and were reluctant to cooperate with a new wave of investors searching for bargains. “They believe their businesses are worth much more than they are being offered. But foreign investors, on the other hand, feel that almost every business in Zimbabwe needs recapitalisation. So there is a stand-off between local and foreign investors,” he says.

Political risks

Opposition activist and academic Brian Raftopoulos says he is not convinced that purely political worries are holding back investors, given corporate interest in more unstable parts of the world. “I think that though investors are worried about the indigenisation law and the failure to implement the GPA [Global Political Agreement] in full, investors may not be coming to Zimbabwe because there are better business opportunities where they can get better returns,” he says.

After the signing of a bilateral investment protection act last November, South African companies should feel more confident about expanding in Zimbabwe, according to Roger Wakefield, a specialist in cross-border litigation for Lex-Africa: “Although it does not assist South Africans who have already lost investments in Zimbabwe, the Bilateral Investment Promotion and Protection Agreement does at least provide protection going forward.”?

Dominant forces

Already South African companies span Zimbabwe’s economy from agriculture and food processing to financial services, telecommunications and mining. Many of them are gearing up for growth in the hope of a strengthening recovery. Locally-owned cellphone company Econet is the third-largest quoted company on the ZSE and is mainly financed by Old Mutual and Standard Bank of South Africa. Its chairman, Strive Masiyiwa, is a highly-regarded entrepreneur who has crossed swords with the old ZANU-PF elite on several occasions. Econet is expanding sharply. It has more than double the number of subscribers than its two competitors combined – state-owned NetOne and Telecel, in which Egypt’s Orascom has a 60% stake. In late February, South Africa’s MTN launched a bid for NetOne.

Perhaps the most ambitious company is SABMiller, which has a 36.8% stake in Delta, Zimbabwe’s only beer brewer and the largest beverage maker. Delta was the fourth-largest company on the stock exchange, with a market capitalisation of $57.6m in March 2009. SABMiller, the fourth largest brewery in the world, invested $12m in a new bottling plant for Delta, opened last August.

It is in the mining sector that South African companies have the greatest advantage.Zimbabwe has the second-biggest platinum reserves after South Africa and large deposits of diamonds, coal and nickel. Beyond the impressive figures, problems persist. South Africa’s Metallon is Zimbabwe’s largest gold producer, accounting for more than half of output. It closed down its operations in 2008 and restarted production in 2009 with a $15m loan from the Africa Export-Import bank and a local bank.

Platinum is the highest-volume – and highest-risk – game in Zimbabwe. South Africa’s Anglo Platinum, the world’s largest platinum producer, is developing the Unki Mine in Shurugwi. It has invested about $400m and the project is due to start by the end of the year, producing 65,000oz per year.

Patrice Motsepe’s African Rainbow Minerals wants to team up with Brazil’s Vale to invest $300m in another platinum mine – but Motsepe is concerned about the implications of the latest laws. One of the most frustrated businessmen is Denis Worrall, a former South African ambassador to London, who has organised six conferences in London and Johannesburg over the past two years to attract investors. There is little to show for his efforts. “Zimbabwe has a lot of potential,” he says, “but most investors are not ready to put their money into the country because of the twists and turns in its economic policies.” ?

Investors agree that the politics is the key. If the power-sharing agreement can work this year, that could trigger a flood of investment. If the two parties move back towards confrontation and violence as they prepare for another round of elections, then the money will stay in those banks in Johannesburg – whatever the hopes of Zuma’s government for a new Zimbabwe.

This article was first published in The Africa Report April-May 2010 edition.

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