Investors should not ignore Zimbabwe’s economic potential following the announcement of the $30 million facility agreement between the IDC and the Agricultural Bank of Zimbabwe, according to the founding partner of SA-based Musa Capital, Antoine Johnson.
Along with Zimbabwe’s Neverseez Capital, Musa Capital was a co-adviser for the deal, as well as the lead arranger.
The transaction was the first of its kind since the signing of the Bilateral Investment Promotion and Protection Act between SA and Zimbabwe in 2010.
AgriBank intended to use the six-year term facility from the IDC to on-lend to its blue-chip and medium-sized clients, some of which were listed on the Zimbabwean Stock Exchange – with a focus on increasing their production capacity.
“The deal has a couple of different influences,” Johnson said. “Firstly, it’s an endorsement – albeit a cautious one – of the recognition of some of the efforts both government and the commercial sector of Zimbabwe have made over the past 24 months or so. “So, at the macro-level, I see the deal as a signalling device,” he added.
At the micro-level, he noted that the AgriBank played an important role in the economy, particularly in funding the agricultural sector. “It also plays a role in the development of SMMEs (small, medium and micro enterprises) as well as light manufacturing and light mining.”
Johnson says the entire banking sector in Zimbabwe has experienced a liquidity crisis because of hyperinflation that occurred around 2008. The Central Statistical Office wasn’t able to determine the inflation number at first, but after July 2008, announced an annual inflation rate of 231 million%. By November 2008, some estimates placed inflation at something like 650 trillion% with Zimbabwean currency denominations being as large as 100 trillion Zimbabwean dollar bank notes. This is now a thing of the past as Zimbabwe’s annual inflation slowed to 3% in February from 3.3% in January.
According to Johnson, the IDC/AgriBank loan deal must be seen as a win-win situation for both SA and its neighbour. “The deal has been structured to ensure that a large portion of the funding will be used by Zimbabwean companies to purchase South African goods and services. “This is an important aspect as the IDC has a lot of issues at home and people will ask how the loan to Zimbabwe will help SA.” Johnson hoped that the existence of the Bilateral Investment Promotion and Protection Act would lead to a realisation that there was a law in place that provided security of tenure to South African investors.
Turning to the various sectors in the Zimbabwean economy, he said that mining had first place on the list. “The country probably has 90% of all its resources still in the ground. There are diamonds, but less controversially there is platinum gold and coal. In fact, the most profitable platinum mine in the world is in Zimbabwe.”
Agriculture was another important sector as the country had a long history of providing food in the region and could do so again. “The tobacco industry has already started to recover.”
There were also “huge” opportunities in the financial services space, Johnson said. “As a result of hyperinflation, consumers have had to survive without liquidity – you couldn’t get a home loan in Zimbabwe in the last decade, so people with houses are unleveraged and have a 100% equity position in their homes.
“If only a 20% loan to value was given, you’d be unlocking a lot of capital.”
Johnson added that the Zimbabwean telecoms sector had shown phenomenal growth. “In fact, in the past 24 months, it has grown three times, mainly because of dollarisation and some limited liquidity.” Dollarisation is when the inhabitants of a country use foreign currency in parallel to or instead of their domestic currency.
He forecast that internet penetration would skyrocket in the country because of its high literacy rate. “Zimbabwe has some of the best human capital on the continent.”
Johnson confirmed that Musa Captal was looking at private equity investments in Zimbabwe, particularly in the mining sector. Asked about the Zimbabwean government’s policy of so-called indigenisation, whereby the government intended to nationalise more than half its mining resources sector by setting up a sovereign wealth fund that would own 51% of all mining companies, Johnson said he was more concerned about stability.
“If there is clarity and stability, I think as a financial services firm we know how to structure a win-win deal for all parties in that capital comes in and gets the return it’s looking for and local entrepreneurs gain the opportunity to benefit.
“If the government of national unity that exists now continues to deliver positive results and if dollarisation continues then indigenisation becomes a restructuring question.”
Musa Capital has been operating in Africa since 1994 and Johnson said its first investment had been in real estate in Zimbabwe.
Turning to the present $30 million deal, he paid tribute to the parties involved. “A deal of this nature can be difficult to transact, but we had the help of local advisers and I’d like to acknowledge their assistance.”
He added that it was also helpful in that the government was a shareholder of AgriBank. “The government’s commitment to this agreement was part of the reason that the deal was done and despite political differences in government, all players seem to be on board when it comes to improving Zimbabwe’s economic climate.”
Johnson quipped: “Zimbabwe on a bad day is better than the rest of Africa on a good day!”