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The Zimbabwe investment opportunity

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Objective Capital's Africa Resources Investment Congress 2011 …

Objective Capital's Africa Resources Investment Congress 2011
Ironmongers' Hall, City of London
14-15 June 2011
Day 2: Focus on Zimbabwe
Speaker: Ritesh Anand, Invictus asset management

Published in: Business, Economy & Finance

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  • 1. AFRICA RESOURCESINVESTMENT CONGRESS The Zimbabwe investment opportunity Ritesh Anand –Invictus Asset ManagementIRONMONGERS’ HALL, CITY OF LONDON ● TUESDAY-WEDNESDAY, 14-15 JUN 2011www.ObjectiveCapitalConferences.com 1
  • 2. Investment Landscape in Zimbabwe “A Fund Managers Perspective” 25 March 2011 Ritesh Anand
  • 3. OVERVIEWStrong The Lost A NewFundamentals Decade Beginning• Highly educated and • GDP fell from $9.5bn • Formation of skilled population in 1997 to $3.5bn in Government of• Good Basic 2008. National Unity in Feb Infrastructure • Hyper-inflation - 2009.• Diversified economy peaked at over 500bn • Dollarisation percent • 2009: First Real GDP• Strong macro economic • Political chaos and growth since 1997 fundamentals economic • Underleveraged (due mismangement to the effects of hyper- inflation) 3
  • 4. STRONG FUNDAMENTALS Zimbabwe: Historical and Forecast Nominal GDP 10.0Broadly diversified 9.0economy 8.02009: Real GDP 7.0growth for the first 6.0time in over 10 years 5.0 4.0Good infrastructure 3.0Highly educated 2.0population – amongstthe highest literacy 1.0 GDP forecast to double within a decade to >$9bnrates in Africa* 0 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 7% GDP growth 10% GDP growth 15% GDP growth 4
  • 5. THE LOST DECADE Zimbabwe YoY GDP growth 1996 to 2008 15% Significant fall in 10% GDP from US$9.5bn 5% The Lost Decade to $3.5bn in 2008 0% -5% -10% Hyper Inflation -15% – over 500bn% -20% 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Zimbabwe vs. Zambia GDP 1995-2009E Political Chaos 16 14 12 10 8 Land acquisition 6 program 4 2 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Zambia ZimbabweZimbabwe’s GDP was historically 2x that of Zambia. This relationship reversed in 2002and today Zambia’s GDP is approximately 3x that of Zimbabwe Source: IMF 5
  • 6. A NEW BEGINNING2008 2009 2010 2011Risks 6
  • 7. PROGRESS MADE SINCE 2009Bank deposits Government revenues 20x 7.3xBeverage consumption Mobile subscribers 2.7x 3.3x 7
  • 8. MACRO ECONOMIC INDICATORS KEY DATA AND FORECASTSReal economy 2008 2009 2010E 2011E 2012ENominal GDP $bn 4.96 5.62 6.72 8.08 9.32Real GDP Growth YoY, % -14.8 5.6 8.1 9.3 9.5GDP per capita $ 423 479 573 689 794External sectorTrade balance % of GDP -19.6 -28.8 -15.2 -14.7 -12.9Current account balance % of GDP -15.7 -16.5 -15.5 -10.6 -9.6Fiscal sectorGovernment revenue % of GDP 3.3 22 32.1 33.4 33.5Government expenditure % of GDP 6.4 25 29 31 32.1Government balance % of GDP -3.1 -2.8 -3.1 -2.4 -1.4Government gross debt % of GDP 108 110 95 83 76Monetary policyInflation %YoY, YE n/a -7.7 3.5 5.4 6.1 8
  • 9. GDP GROWTH GDP Growth by Sector 2008 – 2011E Contribution to GDP, 2010 9
  • 10. CAPACITY UTILISATION IN MANUFACTURING SECTOR Significant improvement in capacity utilisation since 2008... 10
  • 11. BANKING SECTOR 11
  • 12. ZIMBABWE INVESTMENT FLOWS Investment flows still low due to political and regulatory uncertainty 12
  • 13. THE INVESTMENT CASE FOR ZIMBABWE
  • 14. ZIMBABWE’S INVESTMENT CASE IS UNDERPINNED BY AN IRREVERSIBLEPROCESS OF POLITICAL REFORM AND MATURITY … 14
  • 15. …. AND AN UNDERLYING POTENTIALLY DIVERSE ECONOMIC VALUE WITH ASTRONG HUMAN CAPITAL BASE… 15
  • 16. ….MAKING THE COUNTRY, A FRONTIER MARKET FOR SIGNIFICANT VALUEUPLIFT ESPECIALLY FOR “FIRST-MOVER INVESTORS” 16
  • 17. ZIMBABWE IS WELL ENDOWED WITH RESOURCES Over 40 different minerals have been extracted to date with the country boasting significant quantities of key resources including: • The second largest platinum reserves in the world • Kimberlite diamonds in southern Zimbabwe and alluvial gems in the east believed to be among the largest find in recent times • Sizeable gold deposits scattered around the country, with a total of ~13Mt of estimated resources • ~502 million tonnes of recoverable coal reserves, and 500 million cubic metres of coal-bed methane suitable for electricity generation At its best, mining has been a strong contributor to the Zimbabwean economy • Contributed ~7% to Zimbabwe’s GDP in 1986 • Directly employed up to 60,000 people with numerous others in support industries • Accounted for over 50% of Zimbabwe’s foreign currency earnings 17
  • 18. ZIMBABWE STOCK EXCHANGEThe ZSE is a relatively well established, tradable,well regulated exchange by regional standards ZSE Market Cap U$ Billion Market Cap $4.41bln USD (June 2011) Average Daily $2.8mln (5 months of 2011) Trade Settlement Settlement risk exists because of the Risk use of physical scrip and the lack of a meaningful guarantee fund. The leading custodians, Stanbic, however, is internationally reputable. Top Ten Companies by Market Cap ( Aug 10) Exploration Despite a perceived lack of Risk ownership rights within Zimbabwe this has primarily been limited to farmland, and mineral rights to a lesser degree. Indigenization legislation will eventually be mitigated through a compromise agreement. 18
  • 19. ZIMBABWE STOCK EXCHANGE (ZSE)SSA 2009 data Turnover Market cap GDP Market cap Turnover % Country ($mn) ($mn) ($bn) to GDP of market Botswana-DCI 4,278 11 40% n/a Kenya 477 10,503 30 35% 5% Malawi 20 1,477 5 30% 1% Mauritius 347 5,028 9 55% 7% Namibia 940 9 10% n/a Nigeria 4,091 32,739 165 20% 12% SA 331,289 799,065 277 288% 41% Tanzania 37 3,830 22 17% 1% Uganda 9 3,751 15 24% 0% Zambia 44 5,273 14 38% 1% Zimbabwe* 571 4,186 3.556 118% 14%Zimbabwe: 3rd Largest Market in SSA by market volumes in 2009 19
  • 20. KEY CONCERNS  Political Uncertainty  Early elections – without a clear roadmap for elections  External Debt  Wage Pressures  Supply side constraints – mainly power  Insufficient foreign investment  Concerns around Indigenisation  Skills drain 20
  • 21. CONCLUSION Zimbabwe is gradually recovering from more than a decade of economic decline GDP growth driven by strong recovery in the mining and agricultural sectors Strong Macro economic fundamentals although external debt remains a concern Undervalued assets due to lack of liquidity Zimbabwe is well endowed with natural resources Highly educated and skilled population Good basic infrastructure Lack of foreign investment continues to hamper growth Zimbabwe is on the cusp of a strong and sustained recovery underpinned by mining and agriculture. 21
  • 22. BACKGROUND TO INVICTUS INVESTMENTMANAGEMENTInvictus Investment Management Group (IIMG) was establishedin 2010 by Ritesh Anand, with a goal of building a world class,enduring investment advisory and management business focussedon sub-Saharan Africa. Invictus Capital will initially focuscorporate advisory and capital raising in Zimbabwe, primarily inthe mining sector. Invictus Investments will focus on both listedand unlisted investment opportunities in Zimbabwe. Ritesh Anandhas over 12 years international investment experience including 7years at the world’s leading medical research endowment, theWellcome Trust. Invictus Investments’ investment philosophy is tocreate long-term value through rigorous analysis and thorough duediligence. Our investment process will incorporate riskmanagement into every investment decision, using both qualitativeand quantitative approaches. IIM has a successful track record ofinvesting in Zimbabwe and has built a strong team of investmentpartners who will be based on the ground in Zimbabwe. 22
  • 23. THANK YOU 23