Analysis of Zimbabwean investment opportunities

In the 1980s, Zimbabwe could only be described as having a pandemic feeling of economic and political opportunity. The country, already known as the ‘breadbasket of Africa’, had just gained its independence and anticipated a future of political stability with ANC veteran and war hero, Robert Mugabe, at its helm. To an opportunist investor, Zimbabwe demonstrated huge potential. To many, Mr Mugabe’s liberation hero status justified the plethora of atrocities that spanned his dictatorship; however, to a foreign stakeholder it did not. In 1992, he drafted the Land Acquisition Act, allowing the government to confiscate (with appropriate compensation) privately-owned land. Fast forward to the year 2000, this policy was amended and expanded to allow the expropriation of white-owned land without compensation. This resulted in 804 farms being ‘acquired’ and 4,000 white farmers fleeing the country. Many of the farms were given to Mr Mugabe’s associates, who assumed that the land meant wealth with no apparent effort. What ensued was nationwide famine followed by hyperinflation, which at its peak doubled every 24 hours. In answer to Mr Mugabe’s disastrous economic policies, brutal treatment of opposition and widespread corruption, international powers placed sanctions on Zimbabwe; his response was to threaten to seize all western assets. By 2009, the Zimbabwean dollar had been disbanded and replaced by the US dollar and South African rand. Mr Mugabe’s political and economic policies had turned the ‘breadbasket’ rotten and with it, any investor confidence. Change in politics and policy In November 2017, Emmerson Mnangagwa became the new president of Zimbabwe, signalling an end to Mr Mugabe’s oppressive rule and the beginning of a new chapter. On taking office, Mr Mnangagwa announced after years of decline and stagnation that, Zimbabwe was “now open for business”, as he positively and actively began to attract foreign capital. Firstly, finance minister Patrick Chinamasa announced during his 2018 national Budget that the government planned to abandon a pillar of Mugabe’s internal policy by dropping its indigenisation portfolio. The policy had hampered Zimbabwe’s ability to attract foreign investment in major sectors – including mining – as it stated that operations had to be 51% owned by non-white nationals. Secondly, the Ministry of Mines informed investors that they could apply for special mining leases allowing any deal negotiated to be resolute for a period of 25 years. Given the country’s volatile history, this move should provide potential investors with the security that any project undertaken is not subject to political or economic change. Zimbabwe’s suddenly improved political, and subsequent economic, outlook has generated interest in a variety of different sectors. This report will analyse two very different industries: copper mining and renewable energy. Copper Investing in Zimbabwean copper is by no means a new idea; at the turn of the century three mines were operational: Mhangura, Sanyati and Lomagundi smelting and mining. However, by 2000 they had all closed as a result of falling copper prices and a lack of political certainty. Investing in Zimbabwean copper projects could now bring significant financial upsides for three reasons: The end of the indigenisation portfolio will allow foreign entities to take full ownership of their investments, instead of the previous 49% maximum. In addition, the special mining leases provide security for new projects for a period of 25 years, thereby providing a significant element of stability and certainty in what had previously been an unstable industry within a politically volatile country. Copper’s commodity price has climbed significantly: the year 2000 saw copper trading at a low of $0.67/lb, compared with highs of $3.26/lb in 2018. When the three Zimbabwean mines closed in 2000, one of the reasons cited was the low price of copper; that price has since increased by 386%. It is estimated that there are 30 known copper occurrences in Zimbabwe with no active copper mine. With the price increase, investment into this industry may become more financially viable. Copper is going to play an increasingly important role in technical modernisation. The Copper Alliance emphasises how integral it is to the electromobility boom, citing its importance for energy storage, charging infrastructure and the production of electrical vehicles (EV). Figure 1 highlights how the sales of EVs will rise exponentially; other sources suggest that 90% of new cars in the UK will be electric by the year 2050. Based on such factors, the need for copper from relatively untapped sources, such as Zimbabwe, will only increase as electrical technology evolves further. Energy Under Mr Mugabe, there was little or no investment in the energy industry – while this has hindered the country in the past, it now provides a unique opportunity for two reasons: Zimbabwe has a population of 16.2 million – of this, 67.5% of households depend on primitive means of fuel for cooking, such as wood (See Figure 2), with 5,300 intuitions such as schools having no electricity at all. Appropriate energy investments would not only receive international infrastructure development grants as it would reduce the need to import energy from neighbouring South Africa, but it would also have the potential to fill a huge gap in the market. President Mnangagwa’s new policies have made it clear that he intends to draw foreign investment into Zimbabwe and use its abundance of natural resources to kickstart the nation’s revival. For this to happen, investors will be looking for a stable and consistent energy supply. Without this, foreign investments (especially those attracted to the country’s mining potential) will not be able to mine or refine ore. While Zimbabwe boasts coal projects, the future for the country and for those investing in its energy potential, lies in its abundant renewable sector. The government has proposed a Green Energy Fund to support new investments, with the intention to cut 33% of carbon emissions by 2030. Within Zimbabwe, biogas can be derived from the sugarcane, wind can be generated above a height of 80m and the Zambezi River can be used to generate 18,600 Gwh of hydropower per annum. While all of these sectors have investment potential, solar will prove to be the most logical and financially beneficial answer to the country’s energy predicament. Not only do new laws such as the national renewable energy policy promote the use of solar power, but the country benefits from 300 days of sunshine a year. The country has a history of solar usage; between 1995 and 1998, the Global Environment Facility funded 10,000 x 45W solar systems to be built. The benefit of this is that many Zimbabweans have already been trained in the installation and maintenance of such systems. Such transferable skills are now available to any investor considering solar power generation to capitalise upon. Investment opportunity Simbarashe Mhuriro is an entrepreneur and founder of Oxygen Energy Private Limited, who believes that the combination of 300 days of sunlight, the government’s financial aid packages and the high market demand for energy, provides a unique business opportunity. The company markets itself as a “homegrown Zimbabwean energy company that will build a significant market share in its field”. What sets this company apart is that it plans to list Oxygen Energy Private Limited on the Zimbabwean Stock Exchange, as a means to finance its expansion plans. The risks It is important to note that while the political risk of this nation has declined significantly, it has by no means disappeared. In January 2017, Transparency International ranked Zimbabwe the 12th most corrupt nation in the world, and the 11th in Africa. In addition, many of the politicians who are promoting that the country is “now open for business” sat by Mr Mugabe’s side during two decades of tyrannical rule, Mr Mnangagwa being one of them. Finally, in July 2018 the country intends to hold free and fair elections for the first time since 1980. It could be in the best interests of any investor to wait until after that date or, if they are feeling optimistic, to capitalise on low prices while the country still resides in limbo. To conclude, Mr Mugabe’s inability to implement effective economic policy resulted in the collapse of what had once been a highly efficient and prosperous nation. However, with a new government come new policies and, therefore, new opportunities. Disbanding the indigenisation portfolio, granting special mining leases, the increase in the copper price and the rise of global copper demand, equate to a sound investment opportunity. Furthermore, to support this new economy, the energy industry needs revitalising, which when coupled with a huge market demand and unlimited solar potential, companies such as Oxygen Energy should be an interesting stock to keep track of. Contributed by George Darling

Analysis of Zimbabwean investment opportunities

Want to read this article?

Read Next

Action needed to bridge $800bn Asian climate finance gap

Munich Re reorganises P&C underwriting in Asia Pacific, Middle East & Africa

Climate change to cause ‘massive economic damage’

Somali piracy attacks resurge in 2024, warns IMB

EU and US co-lead effort to tackle critical raw material supply chain risk

Action needed to bridge $800bn Asian climate finance gap

Munich Re reorganises P&C underwriting in Asia Pacific, Middle East & Africa

Climate change to cause ‘massive economic damage’

Somali piracy attacks resurge in 2024, warns IMB

EU and US co-lead effort to tackle critical raw material supply chain risk

Want to read this article?

Read Next

Action needed to bridge $800bn Asian climate finance gap

Munich Re reorganises P&C underwriting in Asia Pacific, Middle East & Africa

Climate change to cause ‘massive economic damage’

Somali piracy attacks resurge in 2024, warns IMB

EU and US co-lead effort to tackle critical raw material supply chain risk

Related Articles