Real Estate Investor Magazine South Africa October 2013 | Page 57

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pace. Since then, daily losses have f luctuated
between 0.4% and 2.5%. From 30 July 2013, the
day before the elections, to 26 August 2013, the
Industrial Index has fallen 21% and the Mining
Index has fallen 28% and in the process investors
have seen their aggregate wealth decline from
US$ 6.6 billion to US$ 5.2 billion, a loss of 21.2%
or US$1.4 billion. The composition of the cabinet
to be nominated by the President in the next few
days will be dissected upwards and sideways by
investors to see if it portends the emergence of an
investor-friendly environment. Appointment of
moderate ministers to the portfolios of Finance
and Indigenisation would go a long way towards
calming the unsettled and nervy markets. It may
yet prove to be a forlorn hope.
Two key issues will have a huge inf luence
in defining the investment environment in
Zimbabwe over the next five years. The first
one is indigenisation and empowerment where
the current policy stance is that foreigners
can only own up to 49% of resource-based
companies and local Zimbabweans should
own a minimum of 51%. As with most
policies, the devil is in the detail. In practical
terms, this means that foreign investors will
have to be content supplying 100% of capital
requirements, absorbing 100% of losses and
enjoying 49% of profits of such entities. It is
difficult to see foreign mining firms falling over
each other trying to enter the mining sector in
Zimbabwe given such a prospect. Exploration
for minerals is likely to be subdued in the five
years and most of it will be undertaken by
local small-scale miners and Chinese mining
companies. It is conceivable that mining
companies could still do business in Zimbabwe
under these conditions but the major concern
is the selective application of the law and
erosion of property rights. Indications so far
are that the government will be more flexible
in approaching the indigenisation of businesses
that rely on intellectual property and specialist
skills such as banks but it is not clear what this
f lexibility will entail on the ground. As an
overall comment, it should be borne in mind
that the full value of assets can only be realised
in an environment where property rights are
enshrined in the laws of the country.
The second issue relates to the re-introduction
of the Zimbabwe dollar at some point in
future. No date has been given for the possible
re-introduction of the local currency apart
from some stated benchmarks that will need
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to be achieved before such a development.
One such benchmark is a recovery in the
manufacturing sector and achievement of
high capacity utilisation ratios. Another is
the stabilisation of the mining sector and
increased beneficiation and export of minerals.
Given where manufacturing is with an average
capacity utilisation of below 50%, this would
suggest that the local currency is unlikely to be
re-introduced for at least a couple of years. In
any event, the Governor of the Reserve Bank of

“US $700 million may have
been withdrawn from the
local banking sector”
Zimbabwe has stated that in the event that the
local currency is reintroduced, it would circulate
alongside other currencies such as the US
dollar, pound and rand. Therefore, the timing
of the re-introduction of the local currency
remains uncertain but investors and the local
population are hoping that lessons from the
hyperinflation experienced from 2004 to 2009
will have been learnt and will be avoided in
future. The argument that the country needs
its own currency for purposes of managing the
economy is partially true. However, there is a
strong suspicion that the reason why politicians
are keen on re-introducing the local currency
is because it can be used an effective tool for
eliciting loyalty through political patronage.
The damage which such an approach inflicted
on asset values and on pensioners from
2004 to 2009 would lead to the spread and

entrenchment of poverty across the population
in Zimbabwe.
At the end of it all, the question has to be
asked: “What does Zimbabwe need most,
indigenisation and a local currency or increased
investment and creation of jobs?” Those
who clamor for the former would argue that
their policies would also create for the latter.
Skeptics would argue that pursuing a policy
of indigenisation and re-emergence of a local
currency with i