VZCZCXRO5668
RR RUEHBZ RUEHDU RUEHJO RUEHMR RUEHRN
DE RUEHSB #0361/01 1141258
ZNR UUUUU ZZH
R 231258Z APR 08
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 2819
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 1936
RUEHAR/AMEMBASSY ACCRA 1941
RUEHDS/AMEMBASSY ADDIS ABABA 2063
RUEHRL/AMEMBASSY BERLIN 0626
RUEHBY/AMEMBASSY CANBERRA 1340
RUEHDK/AMEMBASSY DAKAR 1697
RUEHKM/AMEMBASSY KAMPALA 2119
RUEHNR/AMEMBASSY NAIROBI 4550
RUEHGV/USMISSION GENEVA 1198
RUEAIIA/CIA WASHDC
RHEFDIA/DIA WASHDC
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK

UNCLAS SECTION 01 OF 03 HARARE 000361 
 
SIPDIS 
 
AF/S FOR S.HILL 
ADDIS ABABA FOR USAU 
ADDIS ABABA FOR ACSS 
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN 
TREASURY FOR J.RALYEA AND T.RAND 
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN 
COMMERCE FOR BECKY ERKUL 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958:  N/A 
TAGS: EINV ECON PGOV ASEC ZI
SUBJECT:  SPOTTING INVESTMENT OPPORTUNITIES IN ZIMBABWE'S RUINS 
 
 
-------- 
SUMMARY 
-------- 
 
¶1.  (U) In the midst of Zimbabwe's distressed economy, some 
investors see opportunity that the risk averse abandoned long ago. 
Banking on economic recovery and attracted to Zimbabwe's cheap price 
tags, investors are looking at sectors with international links or 
those that will benefit from an increase in consumer spending. 
Zimbabwe is also ripe for a massive sale of state-owned assets once 
the government--or government policy--changes.  Investors' bullish 
sentiment is based on an economic turnaround coming within three 
years or less, failing which many of the enterprises that investors 
are so hopeful about now probably will be out of business.  END 
SUMMARY. 
 
-------------------------------------------- 
Why Invest? The Pot of Gold at Rainbow's End 
-------------------------------------------- 
 
¶2.  (SBU) Embassy officers met key investors in the hospitality, 
financial services, and mining sectors, as well as asset managers 
and economists in Harare to determine who is investing in Zimbabwe 
now and why.  We learned that investors interested in profiting from 
Zimbabwe's potential are financing Zimbabwean companies through 
direct acquisition and equity purchases, hoping to position 
themselves to take advantage of an eventual economic recovery. 
Their interest, which suggests optimism about economic recovery that 
belies assessments about Zimbabwe's current economic predicament, 
will be crucial to jump starting recovery.  Respected economist John 
Robertson estimates the economy needs USD 3.5 billion to operate 
even at its current shrunken state, but there is only USD 98 million 
worth of local currency in the economy.  Foreign investment will 
help make up the difference, playing a significant role in 
Zimbabwe's economic recovery. 
 
¶3. (SBU) Investors are drawn to the market by Zimbabwe's undervalued 
assets, according to Tongai Muzenda, the CEO of Zim Alloys, a chrome 
mining company.  The Zimbabwe Stock Exchange (ZSE) is worth a third 
of what it was in 1997 at the Old Mutual implied rate of exchange (a 
proxy for the prevailing black market rate).  Prominent stock broker 
Murray Lynton-Edwards cited ZSE-listed Delta Corporation, Zimbabwe's 
beverages giant, whose market capitalization is USD 300 
million--less than half the value of its breweries, and Imara Asset 
Management's Managing Director Sean Gammon assessed Innscor, SeedCo 
and Dawn Properties as world class companies available at "Zimbabwe 
prices."  The Financial Mail, a South African weekly, also lists the 
hotel chain ZimSun, the Kingdom Meikles group and cell phone company 
Econet as good bets for investors on the ZSE.  Lynton-Edwards opined 
that international investors viewed Zimbabwe as a venue for the next 
Soviet-style sale of state assets, which could be bought cheaply and 
turned around. 
 
----------------------------------- 
A Risky, but Small Piece of the Pie 
----------------------------------- 
 
¶4.  (SBU) Zimbabwe is a risky place to invest, with abrupt shifts in 
policy from price controls to indigenization of assets that could 
destroy a company's value overnight.  Most investors looking at 
Zimbabwe, however, are large enough and brave enough to accept 
Zimbabwe's sovereign risk.  Imara Asset Managers was in London 
drumming up business for its Zimbabwe fund launched in February 2007 
when opposition leader Morgan Tsvangirai was arrested and beaten in 
March 2007, but investors' fervor for Zimbabwe did not cool.  The 
fund started with USD 5 million in February 2007 and now has USD 23 
million invested.  Gammon explained that for a hedge fund with USD 
600 million in total assets, a USD 5 million investment in the 
 
HARARE 00000361  002 OF 003 
 
 
Zimbabwe Stock Exchange is less than one percent of the total 
portfolio, so the risk is manageable. 
 
¶5.  (SBU) To hedge risk, many companies have couched their 
Zimbabwean assets as part of a pan-African strategy designed to 
capture Africa's positive growth trend.  ZimSun is rebranding itself 
as African Sun to reflect its impending investments throughout the 
continent.  The conglomerate Lonrho has five water bottling 
companies throughout the continent and is looking into purchasing a 
similar company in Zimbabwe, and has interests in the Kenyan-based 
airline, Fly 540, which it would like to bring into the Zimbabwe 
market.  Many of these companies are chasing the oil and gas 
revenues that are leading growth in places like Angola and Gabon. 
Zimbabwe has good gas reserves and is a mining powerhouse, much of 
which is underutilized in the current environment. 
 
------------------------------------------- 
Strategy #1: Capturing International Demand 
------------------------------------------- 
 
¶6.  (SBU) Investors noted that the international community would be 
part of any recovery in Zimbabwe, bringing a tide of money into the 
financial, tourism and telecoms sectors. When Zimbabwe reengages 
with the international community again, investing in businesses that 
foreign consultants, advisors and tourists will use, such as hotels 
and international telecommunications links, will be profitable, 
according to Geoff Goss, CEO of the conglomerate LonZim.    With 
this in mind, LonZim is spending USD 5 to USD 10 million to acquire 
companies and plans to spend another USD 5 to USD 10 million to 
develop them before selling them.  If the businesses can be sold 
five years into an economic recovery, LonZim foresees making 5 to 10 
times its initial investment. LonZim purchased two companies that 
would benefit from a recovery in financial services--Paynet, a 
payroll services provider and Celsys, a checkbook printer-- and has 
a payphone company that was very profitable until price controls 
reduced the price of a phone call to below the cost of the 
international tariff.  LonZim also recently purchased Rollex, a 
fresh produce supplier to South African Woolworths and to UK-based 
Marks and Spencer for USD 5 million. 
 
¶7.  (SBU) Tourism has been recovering for the past three years and 
will lead any upturn in the broader economy.  The manager of the 
Holiday Inn, a ZimSun property in Mutare, said that occupancy rates 
had risen for the past three years from 53 percent in 2006 to 61 
percent year to date.  Shingirai Munyeza, CEO of the ZimSun hotel 
chain and chairman of the Zimbabwe Tourism Authority predicted when 
the economy turns around there will be a shortage of hotel rooms, as 
happened in Nigeria and Angola when their economies took off with 
the oil price boom.  The Kingdom Meikles group is seeking to raise 
USD 300 million via an IPO of a company called Mentor plc on the 
London Stock Exchange and plans to spend USD 50 to USD 60 million 
refurbishing the five-star Meikles Hotel in Harare and investing in 
a safari lodge, according to Dave Mills, the director of retail at 
Kingdom Meikles.  The potential quick rebound in tourism has both 
Goss and Munyeza separately investing in the airline industry with 
the hope of making Zimbabwe a regional air hub to compete with 
Johannesburg's O.R. Tambo International Airport. 
 
----------------------------------------- 
Strategy #2: Capture Pent-Up Local Demand 
----------------------------------------- 
 
¶8.  (SBU) Gammon argues that depending on foreign money and exports 
during an economic rebound is not the best investment strategy 
because the value of exports will decline in local currency terms 
while costs rise as the currency is revalued.  Gammon is betting on 
another source of wealth: a consumer rebound.  When Zimbabwe's 
economy begins to recover, money will trickle down into the local 
 
HARARE 00000361  003 OF 003 
 
 
economy, boosting the market for consumer goods from food to 
clothing.  Imara's investments are diversified, but include 
companies such as British American Tobacco and Delta Corporation, 
which will benefit from the increase in local wages that will occur 
when the value of the Zimbabwe dollar is stabilized as part of an 
economic recovery plan.  Imara is buying listed assets based on a 
quick recovery scenario and assesses if Zimbabwe were to institute 
comprehensive economic reform, the economy could see USD 230 million 
of investment pour in within 3 months--before the sovereign risk 
premium falls. 
 
-------------------------------------------- 
Investors Banking on Recovery, But How Soon? 
-------------------------------------------- 
 
¶9.  (SBU) It goes without saying that investors are counting on 
economic recovery to realize their returns.  If Zimbabwe fails to 
stabilize its economy and begin to grow again, many of the companies 
that have benefited from investors' capital will fail.  Goss said if 
the economy's downward spiral continued for another three years, all 
the companies LonZim had invested in would be closed.  Gammon argued 
that Imara is so bullish on Zimbabwean recovery that no matter who 
won the 29 March harmonized elections, economic reform would have to 
happen, in large part because civil servants are so badly affected 
by hyperinflation. 
 
------- 
COMMENT 
------- 
 
¶10.  (SBU) It is undeniable that government policy, especially price 
controls and the fixed exchange rate, has been devastating to 
business.  However, investors can see the potential in a country 
that is still wealthier, with better infrastructure and skills, than 
many of its neighbors.  While the positive outlook on Zimbabwe's 
economy is heartening, timing is key--and uncertain.  With the 
harmonized elections passed and no result announced, the chance of 
economic reform in the short term seems remote, which may dash 
investors' hopes and make recovery even more difficult when things 
do come right.  END COMMENT. 
 
DHANANI