The hype for post-election Zimbabwe and its investment prospects is quickly dissipating with time and criticism from the West.
Since the conclusion of a peaceful election on Jul. 30, violence is once again consuming the post-election discussion with several people killed in the capital, Harare.
Stories of activists and leaders for the opposition party MDC Alliance fleeing the country, including that of Zimbabwe’s former finance minister Tendai Biti fleeing to Zambia (he failed in his asylum request), and stories of activists being dragged into the street and beaten will further undercut the post-election excitement and potentially discourage investor capital.
Assuming the violence stops (as many locals are confused as to why and how it is happening), Zimbabwe is a huge investment opportunity.
Zimbabwe officials are largely excited by the news coming out of Kenya and Tanzania. Kenya recently completed the syndication of a $750 million loan in June with the Trade & Development Bank (TDB), a pan-African finance institution that provides development capital and services for members of the Common Market for Eastern and Southern Africa (COMESA).
Tanzania raised $500 million in 2017. Some skeptics will question if Tanzania could achieve a similar result now in 2018, with some investors souring on Tanzanian President John Magufuli.
Those loans indicate a theoretical pathway to new debt for Zimbabwe, having done away with 40 years of rule under Robert Mugabe.
The market will nevertheless require more from Zimbabwe before bringing it back into the international fold. The deputy governor of the Reserve Bank of Zimbabwe, Dr Kupukile Mlambo, promised back in March that the country expected to pay all its debt arrears to the major international lenders. This assertion was likely an overreach statement.
The country paid off 15 years’ worth of arrears to the International Monetary Fund (IMF) in 2016. Despite that, they remain years behind on payments to other international lenders, in particular the African Development Bank and the World Bank.
Foreign arrears reportedly are around $1.75 billion. Officials will first need to find an agreement on these debt arrears with international lenders before going back to the market for new capital.
Officials must also choose the right projects to promote to lenders, compared to what will attract private sector investment.
Uganda officials, who are also considering a sovereign debt raise in 2018, are selling the new capital raise by emphasizing their plan to redo the Ugandan road network, including 600km of new roads to link the oilfields to the rest of the country.
In similar fashion, Zimbabwean officials will want to upgrade roads, power, and other aspects of the country’s infrastructure. A Zimbabwean road network overhaul would require nearly $6 billion.
Public and private markets may not be ready to provide that level of capital to one country in today’s market, especially Zimbabwe.
Infrastructure will surely be the first point of discussion for any private investor looking at Zimbabwe.
Earlier this year, the Zimbabwe International Trade Fair (ZITF) company board chairperson Ruth Ncube emphasized the growing capital required in the infrastructure space at the Urban Infrastructure Investment Summit held in Bulawayo back in April.
Ncube claimed Zimbabwe required $14.2 billion at 2009 prices, including $4.6 billion of private investment to overhaul Zimbabwean infrastructure.
Power alone requires more than $2.5 billion to address Zimbabwe’s well-documented electricity problem. An estimated $500 million is required to upgrade the telecommunications network in Zimbabwe and spur growth in the information and communications technology (ICT) sector.
Could Africa’s biggest infrastructure and telecom investors be interested?
Retail is also a big investment opportunity for Zimbabwe. Some analysts imagine a middle income Zimbabwe in the near term. Zimbabwe can be middle-income state in a decade, according to the World Bank’s vice president for Africa Hafez Ghanem. Such optimism underscores investor interest in retail.
A cash shortage and currency struggle in recent years has not exactly short-circuited Zimbabwean spending, serving as another sign of resiliency for the retail space. Today Zimbabweans largely utilize mobile payments, estimated at nearly 65 percent of all retail payments compared to roughly 20 percent in 2016.
Econet is already making an aggressive push into this space. The ubiquitous and vulnerable nature of this mobile money is best captured by the two-day network crash for EcoCash, which has more than eight million registered users in Zimbabwe.
The country was paralyzed with locals unable to buy groceries or basic products as cash rapidly fell out of use for many consumers. Econet is pouring more cash into this space to fix the quirks and grow the mobile payment consumer base, with partnerships with local retailers being considered.
Investors will also look to mining for big returns. The country remains home to large mineral reserves. Rules and regulations will need to be clarified for investors looking at the country. The tax regime going forward will likely undergo some changes, especially for the mining sector.
The international community will surely look to Zimbabwean President Emmerson Mnangagwa to lay a comprehensible framework for investors looking at this space.
Another interesting sector is social infrastructure, including hospitals and schools. Most data suggests that the Zimbabwean government will not be able to cover the cost of these type of investments.
The potential for economic change in Zimbabwe is conspicuously vast. To cover the large landscape of opportunity, some initial things will have to happen.
Country officials will have to choose a currency regime to guide business as well as implement fiscal reforms to back the growth of the economy.
A clear tax regime going forward will also be at the forefront of investor minds. Investors will likely also be highly skeptical and watching to see if officials pave a way to a new Zimbabwe or simply track the path of former President Mugabe. Following a South African path may also worry some investors.
Capital flows to Zimbabwe are already at a risky juncture in the current state of the country. The reality is that some current decisions could alter the trajectory of the country and either further open or quickly close the door on future capital into the country.
Kurt Davis Jr. is an investment banker with private equity experience focused on Africa and the Middle East. He earned an MBA in finance, entrepreneurship and operations from the University of Chicago and J.D. in tax and commercial law at the University of Virginia’s School of Law. He can be reached at kurt.davis.jr@gmail.com.
