The Sad Reality

The sad reality on the Zimbabwe Stock market today is that more than 80% of listed counters are undervalued and yet investors continue to sell out of positions they have long held. For some, these positions have been held from as far back as 1997 when the currency began to weaken and for many during the heydays of hyperinflation in 2007/8, when it was fashionable to be holding real assets. I looked at the Price/earnings ratios of all listed companies today and found many to be trading below the market average of 12x. Some solid counters are trading below 5x most around 7x. A number, such as Old Mutual are trading on a dividend yield of almost 2% and BAT has a dividend yield of 7%.

Our Stock market is being held hostage by a number of things we never imagined could stall progress since dollarization. I met with some guys who were promoting their company the other day and the minute a colleague of mine said, “Until the referendum and elections are out of the way there will be very little investment or activity in .....” My colleague was cut off mid-sentence. “The problem is that we keep saying this and use it as an excuse not to make business decisions and its getting us nowhere as businesses” the business promoter cut in abruptly.

He went on to explain that this is why the economy is not growing and why deals are not happening that can create jobs and grow the country’s GDP. I found this quite amusing not because it wasn’t true, but because here is someone who wanted investors to come into his project, with no money of his own, asking someone else to put our money in his! We are all in the same boat and want desperately to see the situation changing for the better.

Whats more the results that are being released covering the first six months of the year are coming in mixed. Companies involved in the real sector of our economy are now posting lower earnings and are failing to increase their sales.

How many people have money and are taking their chances or making a call to invest in Zimbabwe today? Very few, most of us are in the situation that most businesses are in. There is no cash to spare and we are knee deep in debt! The figures that have been pushed around on FDI are improving on year on year basis but nowhere near what they were when the country was at its peak.

The environment is very much better than the 80s or 90s when inflation was rising and businesses were trading in a weakening currency. You can barely say the same of liquidity conditions today. “ A US dollar is a US dollar”! But the dollars are becoming scarce. This is a mere reflection of how difficult things for most people. If things were easy, no-one would really worry about someone from Japan, India or Europe coming in to setup a business that they own 100%. This doesn’t make it right for us to stop investors from coming into our economy and setting up by setting onerous legislation. It doesn’t solve the problem that the country is facing. We need money to flow in, we need jobs, we need to export, we need technology transfer, we need new markets. The list goes on and on.

Every now and then when I get a chance I watch Bloomberg and CNBC and a story or two catch my attention. A story about the tax regime in the States caught my attention this week. A US company executive was speaking on why American companies that are creating jobs outside America should be punished by higher corporate taxes than local American companies. It is like saying run your business in the US when your biggest market is Africa. The guy did well as he mentioned that for his business markets where outside America and that is why it made sense for his company to setup a business in that market. What he did mention was that it was also cheaper to produce there etc. Should companies be penalised for doing what makes perfect economic sense?

It just got me thinking about our own situation as a country where we are not seeing any response from Tax authorities that encourages companies to invest locally even under the stricter company ownership laws. Imagine if there was a law that incentivised 51% locally owned companies to be formed via a lower tax rates or other fiscal benefits. We should be putting in place laws that encourage our businesses local or foreign to employ more, invest more etc. I rest my case.