As a specialist frontier market asset management company, Insparo is used to being the only portfolio investor in the queue to board the plane. We headed from Johannnesburg to Harare recently with a particular goal of assessing the political backdrop and the sustainability of the rapid growth that has followed on from the dollarization of the economy in February 2009. Our fellow passengers included a few hardy sport fishermen heading for the Zambezi, but also large numbers of expat Zimbabweans with similar objectives to ours. Qualified and mobile Zimbabwean professionals, driven abroad over the last decade by the turmoil and hardships of hyper-inflation an other symptoms of economic mismanagement, seem to be concluding, like us, that the opportunities in their homeland finally outweigh the risks again.

Economic data in Zimbabwe leaves much to be desired, but the available indicators point to strong growh this year. Deposits in banks have risen from just $20 mn in February 2009 to around $ 2 bn now. The tobacco crop climbed from 50 million kilos in 2009 to 120 million this year. The maize crop rose from 400,000 tons last year to 1.3 million in 2010, which represents close to self-sufficiency. These are impressive gains, but still leave plenty of head-room for further growth. Zimbabwe’s economy was twice as big as its northern neighbour Zambia’s in 2000, yet is now only around a third of the size, according to the latest data from the African Development Bank. In addition, the recent stabilization and recovery now appear to be sparking much-needed inflows of foreign direct investment too for the capital-starved economy, notably into the key mining and agriculture sectors.

The collapse in economic activity through 2008 was triggered by terrible policy choices. The political outlook is therefore a key consideration for potential investors. Implementation of the Global Political Agreement for power-sharing between Robert Mugabe’s ZANU-PF and the opposition MDC has been patchy at best. MDC control of the official budget is welcome, and dollarization has limited the room for error at the Reserve Bank, but Prime Minister Morgan Tsvangirai is understandably frustrated by President Mugabe’s refusal to cooperate in the appointment of provincial governors and overseas ambassadors. It is possible that elections will be held in 2011, but it would be optimistic to hope that they will be free and fair, even though donors and neighbouring countries will push for transparency. We are nevertheless reassured by the calm maturity of the opposition MDC, who can reasonably expect to assume full power eventually despite President Mugabe’s obstructionism in the meantime.

Our fund is multi-strategy, but the government’s poor credit worthiness, hyperinflation and subsequent dollarization have combined to frustrate the development of a local credit market, so we need to take exposure through equities. We therefore need to identify companies that are well-positioned to benefit from further progress on the road to normality. In particular, we like equity stakes in companies that have a dominant market position in sectors where dollarization, recovering confidence and rising FDI underpin growth prospects. As a result, our current holdings include the brewer Delta which is enjoying 40 per cent sales growth, and Econet Wireless, the telecommunications provider whose recently reported revenues have grown 80 per cent. We expect our Zimbabwe exposure to make a healthy contribution to our 2011 performance - but we will be back on the plane soon to make sure.

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Graham Stock, is the chief strategist at Insparo Asset Management in London. He can be reached at g.stock@insparo-am.com

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