African Thoughts: February 04, 2012

Last week we spent a few days travelling around Harare. For some on the trip it was their first time to Zimbabwe so it’s always interesting how one has preconceived ideas about what a place should look like, good or bad. Please see below some of our thoughts, apologies for the rambling nature but it is written by a trader!

First and last impressions are always important. And this means that any trip starts and ends with the airport. The airport was clean, air-conditioned and functioning. The trip began on the front foot….

Conversations about Zimbabwe are always punctuated with thoughts about the political situation. We discussed political thoughts in almost every meeting we had. In general, the local population are positive about the current situation, the upcoming elections and the future. Initially, elections were expected to take place by the end of June, although it seems more likely to happen by September. A big risk around any election in Africa is (a) if they will be free and fair and (b) the violence surrounding the elections. Most parties were fairly confident on both of these.

Constitution - The major political parties to the inclusive government finally agreed on all outstanding issues in the draft constitution 2 weekends ago which was revealed through a joint conference. Subsequent to this announcement, the draft constitution was adopted by the Constitution parliamentary select committee last week and now awaits approval by the parliament. It is expected to sail through the parliament smoothly with the referendum expected in March. The accepted draft however contains a lot of compromises from all parties as the implementation of most contentious issues were deferred for 10 years.
Between now and the holding of the referendum, voter education and review of electoral laws will be concurrently running. Given the that the main political are already campaigning for a “yes” vote in the referendum no further challenges to the constitution-making process are envisaged. Elections are therefore expected either July or after August under a new constitution though challenges still exist in terms of funding of the elections.

Power – always a concern in Zimbabwe as it does hamper progress. This seemed better than previous trips with only 1 outage which was at 9pm at night.

Internet – internet speed and reliability were much better than expected.

Roads – the stories of potholes etc are well known, but in general the roads seemed better than expected.

High finance costs – after the decade of hyperinflation (which was also a topic that came up in almost all meetings) we see many companies have fallen behind in terms of refurbishing, IT infrastructure, etc. Financing is thus key to getting back on track. A big inhibiting factor is the high costs of financing (in usd’s the financing charges vary widely but in general we were being told that financing rates were in the upper teens…). Hopefully this comes down as it is a big constraint on growth = companies need to recapitalize in order to achieve their potential.

As a summary, the trip was thoroughly enjoyable, all of us were more enthused about the country and its potential than we were before the trip.

Below are some trading stats for the market in January: