Zimbabwe Investment Environment: Post Election Environment

1. Winning strategies for the brave…
2013
A pessimist sees the difficulty in every
opportunity; an optimist sees the
opportunity in every difficulty
Winning strategies for the brave…
2013
A pessimist sees the difficulty in every
opportunity; an optimist sees the
opportunity in every difficulty

2. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
2
EXECUTIVE SUMMARY
The focus of this report is to articulate our views on the macro-economic landscape
for the Zimbabwean economy in 2014 and as well in the last half of the year 2013,
with significant attention accorded to the stock market. Five years on in a dollarized
environment, the economy has maintained in its growth tracks, despite abating
macroeconomic fundamentals continuing to take hold in the first half of the year,
due in part to political uncertainty and funding challenges. The economic trajectory
has been revised downwards to expand by 3.4%, from initial target of 5%, after
recording 4.4% growth in 2012. Meanwhile, inflation is expected to remain stable,
recently revised from the original budget projection of 4.5% to 3%; the lowest in
the region.
While the basic understanding of a positive relationship exists empirically in most
developed economies in the context of the stock market and economic growth, the
Zimbabwean economy was not spared from the same notion. The local bourse
exhibited a bullish streak in the first half of the year due to sustained movement in
heavily capitalised counters. Overall, the main industrial index gained an impressive
38.6% at 211.19 points albeit the market turned over ~$222.6, down 13% versus
the same period last year. Meanwhile, the resources index picked up 12.5% at
73.29 points. As a result market capitalization for the period breached the $5bn
point mark at $5.4bn reflective of improved market sentiment in H1 of 2013.
Major concern has been an essential side-way movement of major indices in the
post elections era. Post election trading saw the mainstream Industrial index
coming off a significant 18% from 232.87 points end-July 31 to 191.11 points as at
14 August 2013 amid political uncertainty in the wake of mixed reactions from
varying political fronts and other external bodies. Quite clearly, the stock market
losses in the post elections are perception driven despite immaterial changes in the
core macroeconomic fundamentals, a scenario that supports our hypothesis. We
are optimistic about the stock market while the current discounting of major
indices brought in an opportunity for higher return profile in the investment field.
With a stable government in place, sustained economic development is a distinct
possibility. We are forecasting a target market capitalisation of $6.2bn for 2014,
implying an upside potential of 27% on current levels, largely inbuilt in the clarity
and consistency in policy formulation and implementation with one government,
greater fiscal prudence to maintain fiscal stability and sustainable government
deficit while the government remains committed to reducing the national debt
overhang and achieve external sustainability through the Zimbabwe Accelerated
Arrears Clearance, Debt and Development Strategy ZAADDS, policy announced in
2012. However, the downside risk to our view remains largely beholden to the
empowerment and indigenisation thrust.

3. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
3
ZIMBABWE – MACRO-ECONOMIC OVERVIEW
Economy grew on average 6.68% in the past
five years aback improved global demand
and accommodating macroeconomic
policies....
Economy has maintained in its growth tracks albeit at a decreasing rate.....
Having experienced a persistent negative growth over the past decade of
economic crisis, the Zimbabwean economy has rebounded significantly. Early
signs of strong economic fundamentals that somewhat transformed the country
into one of the leading economic powers of the African continent emerged in
2009. The introduction of US dollar in April 2009 as national currency has in
actuality brought an immediate end to the country’s economic chaos - ushering in
a clear cut-end to the period of ruinous hyperinflation and exchanged rate risk.
Meanwhile, the conditions of doing business are better than the neighbouring
countries albeit the tragedy of the commons in the inclusive government.
Despite reflective of a negative growth of (-5%) on a compound annual basis for a
longer period, between 2009 and 2012, the Zimbabwean economy’s growth
averaged 6.68% over the past four years, aback the improved global demand and
accommodating macroeconomic policies.
Real GDP Growth, however, started to decelerate in 2012 to a level of 4.4%,
indicative of a 6.2% and 5% drop against 10.6% achieved in 2011 and, the initial
target for the year respectively. This reflects a slowdown in economic activity, in
part due to inherent political and economic uncertainties around the economy’s
political standoff.
Indicative of the underperformance of key economic sectors namely, agriculture
(due to a poor rainy season) and the mining sector, compounded by obsolete
equipment, debt overhang and as well the liquidity challenges, has been a recent
downward revision of 2013 economic growth rate to levels of 3.4% from initial 5%
target for the year. However, in our view, with a stable government in place,
sustained economic development is a distinct possibility. We anticipate a period of
stable governance and strong growth in Zimbabwe, following the elimination of
political quagmires within the inclusive government, through elections.
Fig1: Real GDP Growth Trends
Source: IMF, Zimtreasury.
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
-20.0%
-15.0%
-10.0%
-5.0%
0.0%
5.0%
10.0%
15.0%
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
Zim/AfricaGDP%
Southern
africa
GDP%
Zim Real GDP % Africa Real GDP %
Southern Africa Real GDP %

4. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
4
.....Inflation has been maintained below
5% and the lowest in the region.....
Mining Sector growth has been revised downwards to expand by 5.3% while the
agriculture sector was revised to a growth of 5.4% from the initial targets of 17.1%
and 6.4% respectively. The downward trend in the mining sector is underpinned by
the falling of international prices against an increasing production cost bill while the
persisted challenges related to lack of long-term financing have had a profound
effect on gold and the diamond houses. Meanwhile, the agriculture sector’s
underperformance is imbedded in the erratic 2012/2013 rainy season.
Inflation expected to remain stable
In the context of the general price levels; In 2009, inflation dropped significantly (-
7.7%) from the record levels achieved in 2008. Since 2010, annual inflation levels
averaged about 3.5%, which falls far below regional averages. With continued use
of a stable US dollar in the economy, inflation levels are expected remain
containable; maintaining within the manageable levels in the ensuing years at ~3%.
Fig1 below depict the inflation developments in the economy and also shows how
the transition to the US dollar as legal tender brought in a quick end to
hyperinflation.
Fig2: Annual Inflation for Zimbabwe
Year Percentage
2000 55.2
2001 112.1
2002 198.9
2003 598
2004 132.7
2005 585.8
2006 1,281.50
2007 66,212.30
2008 231,000,000.00
2009 -7.7
2010 2.9
2011 4.9
2012 2.91
2013E 3.9
Source: ZIMSTAT, Monetary Policy Statements issued in terms of RBZ

5. ZIMBABWE: POST ELECTION SYNOPSIS
5
The country’s trade deficit has remained
relatively high due to disproportionately
large amount of imports
.....Banking sector deposits increasing at a
decreasing rate.....
: POST ELECTION SYNOPSIS August 2013
The country still has immense trade deficit
The Zimbabwean economic set up is in such a way that,
depends largely on the export performance of the
system doesn’t allow the country to stimulate the
such as interest rates or exchange rates. As a result, the country’s aggregate
exports have maintained an increasing trend since 2009, reflecting a CAGR of 34%
through 2012. However, despite these developments, the country’s trade deficit
has remained relatively high due to disproportionately large amount of imports.
Figure 3 below, describes the developments of the country’s trade deficit subject
to the movements of total exports and as well the total imports. Total imports
since the inception of multicurrency have increased by 112
billion end-December 2012. The trade deficit is likely to narrow over the next 3
years as the export base increases particularly in the mining and agriculture sector;
while greater fiscal prudence is expected to maintain fiscal stability
government deficit.
Exports, Imports and Trade Deficit
Source: Ministry of Finance, RBZ
Financial Services sector developments
Stagnating growth in the deposit base against a more than proportionate
increase in funding requirements continues to
adequately matching the economy’s funding needs. Total deposits increased
by 5.3% from $4.2 billion in January 2013 to $4.4 billion while total banking
sector loans and advances increased by 5.56% from US$3.4 billion to
US$3.59 billion. To date, total deposits are estimated to have dropped
approximately by $800m attributed to the uncertainties around the
dispensation. Revenues in the sector were confronted by the MoU
agreement established earlier on in the year which overall affec
performance of non funded income. Capitalisation was a major highlight
over the period in the sector with 12 institutions having been reported to
have fully complied as at 31 March 2013 .
-4000
-2000
0
2000
4000
6000
8000
2009 2010 2011
Exports
August 2013
The Zimbabwean economic set up is in such a way that, the growth of the economy
rmance of the country, since the multicurrency
he economy through instruments
exchange rates. As a result, the country’s aggregate
exports have maintained an increasing trend since 2009, reflecting a CAGR of 34%
through 2012. However, despite these developments, the country’s trade deficit
portionately large amount of imports.
the developments of the country’s trade deficit subject
to the movements of total exports and as well the total imports. Total imports
since the inception of multicurrency have increased by 112% to levels of ~$5.2
rade deficit is likely to narrow over the next 3
years as the export base increases particularly in the mining and agriculture sector;
expected to maintain fiscal stability and sustainable
Stagnating growth in the deposit base against a more than proportionate
increase in funding requirements continues to incapacitate the sector from
adequately matching the economy’s funding needs. Total deposits increased
by 5.3% from $4.2 billion in January 2013 to $4.4 billion while total banking
sector loans and advances increased by 5.56% from US$3.4 billion to
9 billion. To date, total deposits are estimated to have dropped
approximately by $800m attributed to the uncertainties around the political
. Revenues in the sector were confronted by the MoU
agreement established earlier on in the year which overall affected the
performance of non funded income. Capitalisation was a major highlight
over the period in the sector with 12 institutions having been reported to
2012 2013
Imports

6. ZIMBABWE: POST ELECTION SYNOPSIS
6
The local bourse turned over $265.2m in
the H1 of the year on foreign support
while the market was capitalised at
~$5.4bn.
Fig 3
: POST ELECTION SYNOPSIS August 2013
Fig 3: Financial Sector total deposit and total loans
Source: RBZ, Ministry of Finance
The Zimbabwe Stock Market Overview H1 2013
Sustained foreign portfolio demand on heavyweight caps shouldered the main
industrial index to a 39% growth at 211.19 points end
counters put up a moderate performance at 73.29points up 12.5% on a year to date
basis. However, the post election trading saw the mainstream Industrial index
coming off a significant 18% from 232.87 points end
14 August 2013 amid political uncertainty in the wake of mixed reactions from
varying political fronts and other external bodies despite
core macroeconomic fundamentals. The response by capital markets to political
events is neither unexpected nor is it unique to Zimbabwe alone, ac
and the globe at large capital markets have always played barometer to their
surrounding environment, chiefly the political environment. Fig 4 explain
foreigners have contributed to the local bourse.
Fig 4- Turnover and the Foreign Participation
Source: ZSE/ FBC Securities
0
500
1000
1500
2000
2500
3000
3500
4000
4500
Jan-09 Jan-10 Jan
Total Deposits US$m
$-
$100.00
$200.00
$300.00
$400.00
$500.00
$600.00
FY 2009 FY 2010 FY 2011 Fy 2012
Turnover US$ mil Foreign Purchases US$ mil
Foreign Sales US$ mil Foreign Portfolios % contribution
August 2013
Sustained foreign portfolio demand on heavyweight caps shouldered the main
industrial index to a 39% growth at 211.19 points end-June 2013 as the resource
ormance at 73.29points up 12.5% on a year to date
basis. However, the post election trading saw the mainstream Industrial index
coming off a significant 18% from 232.87 points end-July 31 to 191.11 points as at
the wake of mixed reactions from
ther external bodies despite insignificant changes in the
core macroeconomic fundamentals. The response by capital markets to political
events is neither unexpected nor is it unique to Zimbabwe alone, across the region
and the globe at large capital markets have always played barometer to their
surrounding environment, chiefly the political environment. Fig 4 explains how
Jan-11 Jan-12
Total Deposits US$m
0%
10%
20%
30%
40%
50%
60%
70%
Fy 2012 H1 2013 H2 2013
Foreign Purchases US$ mil
Foreign Portfolios % contribution

7. ZIMBABWE: POST ELECTION SYNOPSIS
7
“heavy weight blue chip counters dragged
the market down having suffered huge
casualties following the political
dispensation...................
The industr
: POST ELECTION SYNOPSIS August 2013
The industrial and the mining index took a knock on political uncertainty
Despite a better first half, in the post election era,
dragged the market down having suffered huge casualties following the political
dispensation; this was despite operating under the same fundamentals with nothing
much on the economic front having changed (market base, capital investment,
growth projections, and competitive environment). Fig 5 below shows our bullish
sentiments on the stock market with the industrial index poised to close at 165
points while the mining index is set to close at 55 points end
Fig 5- Industrial and mining Index trends
Source: ZSE,FBC Securities
In the region, Zimbabwe was ranked second to Ghana by measure of Return for H1
2013 with 38.6% return for the period; with relatively low PE ratio and PEG Ratios,
Zimbabwe is still a good haven for investment with potential to achieve above
average regional return achievement.
African Markets H1 2013 Performance
Source: Investing in Africa
152 151 146
152
186
200
101
65
0
50
100
150
200
250
FY 2009 FY 2010 FY 2011 Fy 2012
Industrial Index Mining Index
0
5
10
15
20
25
Nigeria
JSE
Ghana
Mauritius
Zimbabwe
Kenya
Zambia
Botswana
IvoryCoast
Nambia
PEG/PERatios
PEG Ratio P/E Ratio
August 2013
a knock on political uncertainty
, heavy weight blue chip counters
suffered huge casualties following the political
; this was despite operating under the same fundamentals with nothing
much on the economic front having changed (market base, capital investment,
growth projections, and competitive environment). Fig 5 below shows our bullish
with the industrial index poised to close at 165
points while the mining index is set to close at 55 points end-Dec 2013.
In the region, Zimbabwe was ranked second to Ghana by measure of Return for H1
2013 with 38.6% return for the period; with relatively low PE ratio and PEG Ratios,
Zimbabwe is still a good haven for investment with potential to achieve above
152
211
165
174
73
55
68
H1 2013 H2 2013
est
H1 2014
est
Mining Index
-30%
-20%
-10%
0%
10%
20%
30%
40%
50%
Nambia
Uganda
Tanzania
Malawi
S&P500
H12013
%
Return
P/E Ratio

8. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
8
Stock market poised for the next level of
growth.....
Equities Market Outlook
Despite the cynical but pragmatic stance adopted by many industry players with
regards the political landscape, the cloud of uncertainty is starting to clear off as
Industry captains start engaging political leaders seeking clarity on key economic
policies and the way forward.
It is evident that business leaders are eager to put politics in the past and get back
to business as usual; this sentiment is shared among many other participants in
both local and international political and economic fronts, consequently we see the
political events paving way for economic efforts in the near future. Positive
Earnings surprises in many blue chip counters in the second half are expected to
lead recovery efforts on the Zimbabwe Stock Exchange, giving argument for stock
picking at a time when the counters have been discounted following the recent
political events.
Operational developments on the Stock Exchange expected to increase
efficiency and attract more foreign participation.
In efforts to improve operational efficiency on the ZSE and encourage alignment to
other global capital markets, essential changes have been made to the operational
landscape at ZSE in the first half; chief among them was the development of a
comprehensive Website with crucial investor guide information, the acquisition of
CSD (Central Statistical Database) system which has given momentum to
automation efforts currently underway at the local bourse and a change of
management in efforts to align the work force to the dynamic vision of the
Exchange. The above mentioned developments will go a long way towards
encouraging efficiency, transparency and regional and international integration and
alignment of the Exchange with other Capital markets in addition to opening it up to
the reach of other foreign Investors.
Key Investment power points for the ZSE remain:
The end of the GNU (Government of National Unity) has brought an end to policy
inconsistencies and contradictions, tension and discord within the Government
bringing a systematic, consistent and defined way of policy formulation and
implementation that eliminates divisions with regards key Economic policy
implementation. Investment thrives on certainty and consistency of gazetted policy
to assess the Risk and Return profiles on investments; with long term policy clearly
defined and understood, Investors with enough Risk appetite can make calculated
Investment decisions basing on the policy at play in the Zimbabwean market, a
phenomenon that the market has been waiting for since the inception of the GNU.
Growing interest in Africa from the emerging and developed countries is expected
to continue driving growth across the region as resource hungry emerging and
developed countries scramble to consolidate their positions in resource rich Africa
leading to increased economic and financial activity in African markets. Zimbabwe
has immense Investment absorption capacity in key sectors among them, Mining,
Agriculture, Manufacturing and Energy. With Investment friendly infrastructure and
policy frameworks, Foreign Investment in both Direct and Portfolio form is expected
to grow thereby fueling activity on the ZSE.

9. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
9
We envision 3 possibilities, the spectrum
of which stretches from a Best Case,
Probable Case to a Worst Case scenario.
Stability in global macroeconomic environment combined with increased liquidity
evidenced by stabilizing Euro Zone and sustainable growth in emerging and
developed markets is set to have spill-over effects into Africa particularly the Sub-
Saharan Region, Zimbabwe stands to gain from this growth in the global economy
with increased financial economic and technical support and engagement from the
international community which will have spill-over effects into capital markets.
Scenario Analysis for the ZSE H2 2013 run
We envision 3 possibilities, the spectrum of which stretches from a Best Case,
Probable Case to a Worst Case scenario.
The Best case scenario would be facilitated by a quick transition from politics to
economics accompanied by Economic stimulus policies which will aid in increasing
national output and attracting Investments along with technical and financial
support: this will see the ZSE recovering from post election loses to close the year at
198.77 Points to anchor at a FY 2013 return of 30%
The most probably case given our assessment of unfolding political and economic
events is a result of a slow shift from Politics to Economics, which would see a
gradual but slow attraction of foreign participation in the Economy and the financial
markets, economic performance will be largely as predicted in the first half as no
fundamental changes would have taken effect, in which case the mainstream
Industrial Index would close at 165.00 points to close 2013 at FY return of 8%.
Worst Case scenario would be product of unrelenting political apprehension and
uncertainty coupled with disentanglement from the International Investment
community, slow economic reform and resource mobilization, Fiscal revenue
underperformance and slow key sector reforms, stifled technical and financial
support from regional peers: this would see the ZSE reverse entirely all the gains of
H1 to close the year in the Red at 145.50 points, a FY 2013 loss of 5%.
Fig 6 -ZSE H2 and FY% Return Scenario
Source: FBC Securities
-11%
-5.9%
-21.9% -31.1%
23% 30%
8%
-5%
-40%
-30%
-20%
-10%
0%
10%
20%
30%
40%
Current Best case H2 close Probable Case H2
Close
Worst case H2 Close
ZSE H2 & FY % Return Scenarios
H2 2013 % change FY 2013 % change

10. ZIMBABWE: POST ELECTION SYNOPSIS
10
Sector
Beverages
Agro
Property
: POST ELECTION SYNOPSIS August 2013
Market Cap FY 2013 US $bn: Scenario Analysis
Source: FBC Securities
Equities Strategy
Accordingly we have developed a list of stocks to keep an eye on in
premised on the fundamentals of their business models which in our view appear
sustainable into the future. Justification of selected list is based on our belief that
the stocks are trading at either significant discounts to the value we envisage in
them in the future or the potential returns that could accrue from these stocks in
the ensuing period subject to their strategic business mandates.
Sector Outlook and Our Stock Picks
Sector Sector Analysis
Beverages While Per Capita consumption still trails the
regional averages, promises for improving
disposable incomes, position the sector for
better performance.
Agro- Processing There is still excess capacity within the
sector with Zimbabwe having been an agro
based economy, efforts to revive the sector
to improve production and efficiency
present positive growth opportunities for
players in the sector.
Property Infrastructure development gap creates
room for investment in the sector and
sustainable demand.
$-
$1.00
$2.00
$3.00
$4.00
$5.00
$6.00
FY 2012 Current Best case FY 2013
August 2013
Market Cap FY 2013 US $bn: Scenario Analysis
Accordingly we have developed a list of stocks to keep an eye on in H2 and 2014
on the fundamentals of their business models which in our view appear
sustainable into the future. Justification of selected list is based on our belief that
rading at either significant discounts to the value we envisage in
them in the future or the potential returns that could accrue from these stocks in
the ensuing period subject to their strategic business mandates.
Stock Picks
Stock Picks
While Per Capita consumption still trails the
regional averages, promises for improving
disposable incomes, position the sector for
Delta
Afdis
There is still excess capacity within the
sector with Zimbabwe having been an agro-
based economy, efforts to revive the sector
to improve production and efficiency
present positive growth opportunities for
Hippo
Seed-Co
BAT
Natfoods
Dairibord
Infrastructure development gap creates
room for investment in the sector and
ZPI
Pearl
Masimba
Best case FY 2013 Probable Case FY
2013
Worst case FY
2013

11. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
11
Cont’.............
Sector Sector Analysis Stock Picks
Conglomerate
Rebounding economic fundamentals
across key sectors present future
economic benefits for diversified
business portfolios as most key sectors
operate below full capacity.
TSL
Innscor
Meikles
ICT Improved infrastructure development
and investment to support a transition
from voice to data which has become
pivotal in consonant with technological
advancement. Econet has enough
capital to respond to market dynamics
and competition.
Econet
Mining Stabilisation of global commodity prices
aback cementing demand from
emerging economies opens
opportunities for the sector.
Encouraging resource management
policies coupled with capital investment
in the sector will play catalyst to
capacity utilisation recovery efforts .
Hwange
Rio Zim
Falgold
Manufacturing Manufacturing sector is poised for
growth citing adequate supply side
support from the agriculture and other
sectors, and sustainable demand from
local, regional and international
markets. The sector has good
infrastructure and with the necessary
capital support will achieve production
efficiencies and competitiveness while
excess capacity to absorb expansion
efforts exist.
Turnall
Zimplow
Retail Notwithstanding the firm possibility of
increased disposable incomes, the
current consumer base provides
sustainable demand. Adequate
capitalisation and resource mobilisation
will see players benefiting from
increasing local and regional demand.
Ok-Zim
Edgars
Tourism Stability in the macro-economic and
political landscape will see revenues in
the sector improving.
AfricanSun
Financial Services Sector vulnerabilities, recapitalisation
concerns and the effects of MoU remain
forces to reckon with.
FBC
CBZ

12. ZIMBABWE: POST ELECTION SYNOPSIS August 2013
12