Imara Holdings CEO Blog

Cape Town proving ground for Imara's CSI breakthrough

noreply@blogger.com (Blog Administrator) — Mon, 06 Feb 2012 07:30:00 +0000

Cape Town and Khayelitsha have become the proving ground for a unique approach to corporate social responsibility that assists creative photo-entrepreneurs from disadvantaged communities.

The Imara Lightwarriors photographic bursary-cum-mentorship programme is championed by pan-African financial services group Imara in partnership with the Cape Town-based brand art specialists at Pitchblack.

First beneficiary is Teddy Sambu (22), a start-up photographer from Khayelitsha who began his own micro-business without formal training, little equipment and zero capital. He was selected by Pitchblack and Imara and has now enrolled at Cape Town School of Photography. Imara meets tuition fees and living expenses.

Business skills are also developed while Cape Town photographers Athol Moult and Damon Hyland provide hands-on mentorship.

Pitchblack creative director, artist and photographer, Athol Moult, who developed the Lightwarriors concept, applauded Imara for supporting entrepreneurship in a creative niche.

He added: “The Lightwarriors vision calls for an integrated package of assistance covering education, on-the-job training, small business development and photographic commissions to assist the bursar. We simultaneously foster an Africa-wide vision of creative excellence.”

The Lightwarriors programme includes an annual photo-safari into Africa, giving Teddy Sambu a chance to work with Athol Moult while photographing subjects for incorporation in the Imara art collection. Selected work will be submitted for inclusion in Imara’s annual report.

David Stone of Imara noted: “Lightwarriors is an optimal CSI platform for Imara. We contribute to capital market development across Africa, but the starting point for economic progress is the one-man business. The start-up township photographer showcases the commitment, self-belief and sweat-equity valued by Imara.

“We also looked for a vehicle that reflects our love of Africa. A photographic scholarship is ideal as it enables disadvantaged young people to capture and celebrate the changes taking place across our continent.”

ISSUED ON BEHALF OF:	IMARA
BY:	CLEAR DISTINCTION COMMUNICATIONS
CONSULTANCY CONTACT:	Carol Dundas Tel: 011 444-0650 Mobile: 083 447 6648 Email: carol@cleardistinction.co.za
IMARA CONTACT:	Dave Stone Tel: (011) 550 6102

Key date set in ground-breaking Farmers House merger - Imara

noreply@blogger.com (Blog Administrator) — Thu, 24 Nov 2011 14:28:00 +0000

Farmers House Plc, Zambia’s leading listed property company, has set the date for the next step in its plan to merge with Arcades Development Plc, thereby achieving strategic diversification of its property assets.

Several shareholder approvals are necessary to facilitate the transaction, and to that end an extraordinary general meeting (EGM) is to be convened in Lusaka on December 16.

Shareholders at the EGM will be asked to approve the merger with Arcades, the issue of new shares to enable a share swap and the go-ahead for Farmers House to buy back its own shares. In addition, shareholders will be asked to sanction a change of name of the Company to Real Estate Investments Zambia PLC (REIZ) and the election to the board of two new directors.

Following approval at the EGM it is planned to carry forward the merger by purchasing 50% of the shares in Arcades Development for cash, and the remaining shares to be swapped for new Farmers House shares at a rate of one Farmers House share for every 2.46991 Arcades shares held.

The merger mandate is held by Imara Botswana Limited, assisted in the mandate by its Zambian associates, Stockbrokers Zambia. Stockbrokers Zambia is also the sponsoring broker.

Arcades Development PLC owns the Arcades shopping centre, a landmark Lusaka retail development with a gross letting area of 18 382m². Three additional developments are currently under way – the Parkway property on Kafue Road, Lusaka, the multi-use Solwezi property and a four-star boutique hotel at the Arcades shopping centre.

Grant Molyneaux, corporate finance executive at Imara Botswana, said the transaction was designed to add shareholder value by enabling Farmers House to diversify its portfolio.

Mr Timothy Mushibwe, Chairman of Farmers House, said that Farmers House has traditionally concentrated on office and commercial property developments. “The merger with Arcades will bring the first high profile retail centre into the Farmers House mix, with potential expansion in this area under consideration.”

Robin Miller, Managing Director of Farmers House, said “The transaction will add value to shareholders and the Board feels the merger fulfils the strategic vision previously presented to Farmers House shareholders.

“The transaction already has the approval of Arcades shareholders and directors, with a combined 78.9% shareholding in Arcades, and we anticipate that our bid will be welcomed by the Arcades minorities. Various regulatory approvals are also required, but we are confident the process will be finalised early in the New Year when it is expected that the new Farmers House shares will be listed on the Lusaka Stock Exchange.”

Imara is an independent, Botswana-listed investment banking group that prides itself on objective decision making in the service of its clients. The company is mid-sized and has offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe. Imara has also partnered with Chapel Hill Denham in Nigeria, NIC Capital in Kenya, Namibia Equity Brokers and Mac Capital in Dubai.

The Group is an active participant in Africa's financial markets and maintains an extensive research coverage of regional equities. Funds under management exceed US$450m and assets under administration exceed US$1.77 billion.
Imara provides a range of specialised financial products and services that can be broadly categorised as:

Asset management (institutional and private client)
Corporate finance and advisory services
Securities
Trust and administration services

Imara Group subsidiaries are regulated by: NBFIRA in Botswana, the FSA (UK), the FSB, JSE, SAFEX (South Africa), SEC, ZSE and Reserve Bank of Zimbabwe, the FSC (Mauritius) and the Reserve Bank of Malawi.

Laying the Track

noreply@blogger.com (Blog Administrator) — Fri, 18 Nov 2011 07:48:00 +0000

Imara's head of asset management John Legat tells Africa FM why Zimbabwe is well and truly back on the map, and how his firm's Africa Series of funds is laying the groundwork in preparation for a new era in Africa investment

"While there is a lot of interest in Africa, getting investors to actually commit money is very hard at the moment, particularly in Europe and the US," says John Legat, head of asset management at Imara Asset Management, an Africa specialist whose investor base primarily comprises clients from these troubled geographies.

"Generally speaking volumes have come off around Africa which tells you that there is not a lot of selling going on but also not a lot of buying," he says, although Legat adds that sentiment towards Africa remains strong, in spite of the liquidity squeeze.

"There is a lot of interest in Africa, because we saw in the global financial crisis that the region doesn't have the global links that other emerging markets tend to have, and so the growth we're seeing in Africa is driven much more by domestic demand and government reform. There are several factors at play that are less influenced by what is going on in rest of the world."

The bulk of Imara's $390 AUM is European money, typically from the UK, Switzerland and Netherlands, with the US a growing market for the firm and South Africa a new but increasingly important component of its investor base. According to Legat, the majority of investors still want pan-African exposure at this stage, although Scandinavian investors are showing an intrerest in country-specific allocations - the start of what Legat believes will be a trend that plays into the hands of his firm's Africa fund offering.

lmara, which manages money out of South Africa, Kenya, Zimbabwe and the UK. is well positioned to capitalise on interest from first-time or more sophisticated Africa investors, having established a broad suite of both regional and niche Africa products since the launch of its asset management business in 2003.

The firm's flagship fund is the $120m Imara African Opportunities Fund, a pan-African equalities vehicle launched in 2005 that scooped the Africa Equity Fund of the Year Over $50m award at October's Africa Fund Manager Performance Awards after achieving an outstanding 12-month return of nearly 26% to 30 June. But for those investors keen to access a more focused slice of the Africa story, lmara has also developed a range of equity funds under its lmara Africa Series umbrella.

"When we launched the umbrella fund we took the view that this was going to be a five- to 10-year product," explains Legat. "In the institutional investor space you need to build up a three- to five-year track record. A pension fund in Europe is not going to invest in a fund with less than a three-year track record, so we decided to build up that record so that when institutional investors decide they want to add, for example, some more Nigeria to their portfolio, we have got the fund, the manager and the track record."

The series, which Legat says has so far proved popular primarily with funds of funds, comprises Nigeria, Zimbabwe and East Africa regional funds, as well as an African Resources fund, which won the Africa Equity Fund of the Year Under $50m prize at the same ceremony after racking up a 42% return in the judging period. "The best performing fund [in the series] was the resources fund, which doubled in value from its launch in December 2008 to the end of June," says Legat.

"We launched the African Resources Fund close to the bottom of the financial crisis when resource stocks got pummelled as we felt it was too much of an opportunity to miss. We seeded the fund with our own money because it was hard to market anything back then and it has turned out to be a very good performance," he explains.

IMARA AFRICAN OPPORTUNITIES FUND

Imara's Flagship African Oppotunities is focused largely on sub-Saharan Africa ex-South Africa, with Zimbabwe (21%) its largest geographical exposure at 30 September, followed by Nigerra (20%), Zambia(15%). Kenya (13%) and Botswana (8%): and Egypt accounting for just 3%. 'Most of our Investors
don't want South Africa. We also don't have much exposure to North Africa says head of asset management John Legat pointing to historical expensive valuations, ongoing political risk and the fact that many of the firm's Investors access this region through Mena Funds. The fund Invests primarily in consumer sectors, with beverages the largest sector allocation at 30 September (23%) and tobacco accounting for 5% of the fund. Banking was the second biggest sector exposure at 18%. "The focus in Nigeria is in domestic demand, and In Zimbabwe again breweries are the biggest focus. While the Nigerian banking sector has got through its problems and is looking very cheap, the central bank is keeping a very tight monetary policy at the moment and bank lending is only just beggining to pick up, and our overweight remains consumer stocks," says Legat who describes Zambia's economy as not on the radar but pumping, not just in mining but also agriculture", and Botswana as a "market for 2012."

PERFOMANCE AWARDS

African Equity Fund of the year over $50M
Imara African Opportunities Funds

1 year Return: 25.87%
1 year Standard deviator (SD): 12.69%

African Equity Fund of the year under $50M
Imara African Resources Fund

1 year Return: 41.94%
1 year SD: 20.28%

Angola's investment case gets big response - Imara

noreply@blogger.com (Blog Administrator) — Mon, 07 Nov 2011 09:40:00 +0000

Angola is fast emerging as the next big sub-Saharan opportunity, judging by the response to the oil-rich nation’s upcoming investment indaba in London.

The event on November 8 is believed to be the first forum to be convened in a major financial centre to foster closer contacts between the international institutional investment community and Angolan corporates and public bodies.

It has attracted a Who’s Who of attendees from the fund management and financial service sectors, says Anthony Lopes Pinto, head of Angolan operations at Imara, the pan-African financial services group.

Imara and London-based asset management Group Fleming Family & Partners are co-hosts of the event.

Two years ago, the long-time associates launched a similar London investment day to showcase opportunities in Zimbabwe. The initiative helped free up investment flows and contributed to an international reappraisal of Zimbabwe’s post-dollarisation prospects.

“Response to our Angola conference has been overwhelmingly positive,” says Lopes Pinto. “We therefore believe we are well placed to repeat the success of the watershed Zimbabwe event.

“Angola has one of the fastest growing economies in sub-Saharan Africa. Some northern hemisphere economies may be struggling to cope with the continuing international financial crisis, but Angola is back in the black, foreign currency reserves are at an all-time high and government efforts are gaining traction to diversify the economy and reduce Angola’s dependence on oil.”

Delegates are expected from North and South America, Europe and the UK. Representatives of financial service companies significantly outnumber those from the energy and resource sectors.

Senior Angolan officials will present a strategic overview of national prospects, with a focus on opportunities for public-private sector partnerships. In addition, speakers from major corporates currently active in the Angolan market will address the conference on operational conditions and progress toward a business-friendly policy environment.

The Angolan government has publicly stated that next year it will develop its capital markets in Luanda, deepening the financial sector and creating new sources of funding for Angolan enterprises.

“The diverse mix of attendees confirms that international investors have picked up official signals that opportunities are not restricted to the oil industry. With the recovery of the oil price, wide-ranging investment possibilities are fast emerging; which is why the response has been so positive from so many quarters.”

Imara has been represented in Luanda for more than two years by Imara Securities Angola SCVM Limitada, a joint-venture with an Angolan conglomerate.

The Angolan JV launched corporate finance activities at the beginning of the year. Two deals are currently in the pipeline, a property project and a financial services transaction.

Imara is an independent, Botswana-listed investment banking group that prides itself on objective decision making in the service of its clients. The company is mid-sized and has offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe. Imara has also partnered with Chapel Hill Denham in Nigeria, NIC Capital in Kenya, Namibia Equity Brokers and Mac Capital in Dubai.

The Group is an active participant in Africa's financial markets and maintains an extensive research coverage of regional equities. Funds under management exceed US$450m and assets under administration exceed US$1.77 billion. Imara provides a range of specialised financial products and services that can be broadly categorised as:

Asset management (institutional and private client)

Corporate finance and advisory services

Securities

Trust and administration services

Imara honoured at Africa Fund Manager Performance Awards

noreply@blogger.com (Blog Administrator) — Fri, 14 Oct 2011 12:34:00 +0000

Imara, the pan-Africa financial services group, has taken two of the top investment accolades in the first annual Africa Fund Manager Performance Awards.

Its Imara African Opportunities Fund won recognition as the year’s best Africa equity fund with a fund size of more than USD50 million while the Imara African Resources Fund claimed honours as the top Africa Equity Fund with a fund value of less than USD50 million. The Imara Zimbabwe Fund was also nominated for the same award.

The awards were presented at a gala dinner on October 11 in Cape Town.

Imara Group CEO Mark Tunmer commented: “It is an honour to feature so prominently in this inaugural awards programme for Africa fund managers.

“We’re delighted a well-established favourite like our African Opportunities Fund, with positions across numerous sub-Saharan jurisdictions, and a more focused specialist Resources Fund, a relative newcomer to our range, have done so well. We were also delighted that our popular Zimbabwe Fund made the short list for an award.

“Awards recognition has a wider significance for our continent and industry. By spotlighting superior investment returns out of Africa, awards such as this contribute to the global re-rating of sub-Saharan Africa as an investment destination.

“Strong performance by managers and markets will accelerate capital market development and help drive sustained progress by our continent.”

Harare-based John Legat, head of Imara’s asset management division, is manager of the Imara African Opportunities Fund while Bruce Williamson manages the Imara Africa Resources Fund.

John Legat noted: “We view awards recognition such as this as an endorsement of the Imara approach to equity investment in sub-Saharan markets. We have extensive on-the-ground representation across Africa and conduct in-depth research and face-to-face interviews to ensure portfolio construction is backed by thorough understanding of challenges and opportunities in all jurisdictions.”

Imara is an independent, Botswana-listed investment banking group that prides itself on objective decision making in the service of its clients. The company is mid-sized and has offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe. Imara has also partnered with Chapel Hill Denham in Nigeria, NIC Capital in Kenya, Namibia Equity Brokers and Mac Capital in Dubai. The Group is an active participant in Africa's financial markets and maintains an extensive research coverage of regional equities. Funds under management exceed US$450m and assets under administration exceed US$1.77 billion. Imara provides a range of specialised financial products and services that can be broadly categorised as:
Asset management (institutional and private client)

Corporate finance and advisory services

Securities

Trust and administration services

Imara Group subsidiaries are regulated by: NBFIRA in Botswana, the FSA (UK), the FSB, JSE, SAFEX (South Africa), SEC, ZSE and Reserve Bank of Zimbabwe, the FSC (Mauritius) and the Reserve Bank of Malawi.

ISSUED ON BEHALF OF:	IMARA
BY:	CLEAR DISTINCTION COMMUNICATIONS
CONSULTANCY CONTACT:	Carol Dundas Tel: 011 444-0650 Mobile: 083 447 6648 Email: carol@cleardistinction.co.za
IMARA CONTACT:	Mark Tunmer Tel: 083 788 9037

No rush to leap into Egyptian market after Arab Spring, says Imara

noreply@blogger.com (Blog Administrator) — Wed, 21 Sep 2011 13:44:00 +0000

Pan-African financial services group Imara has indicated to international investors there is no great need to leap into Egyptian equity markets following the ‘Arab Spring’.

Imara backs its range of Africa-focused investment products and in-depth investment research with on-the-ground investigation of key markets.

Its analysts have now returned from a study trip to Egypt and though they note substantial drops in share prices – hinting at value opportunities – they are happy to take their time before committing to this North African market.

In the past, Botswana-listed Imara had only limited exposure to Egyptian equities as it felt pre-revolution share prices failed to reflect the risks inherent in a market facing sizeable political, fiscal and social challenges.

John Legat commented: “These problems have bothered us for a good few years; hence our low exposure.

“The difference now is that most other investors are also aware of these issues. This gives us comfort as the Egyptian risk premium finally reflects the underlying problems.”

This year, many blue-chip counters on the Egyptian stock exchange halved in value while Imara analysts estimate that foreigners sold about US$6 billion in Egyptian treasury bills – believed to be more than half the foreign holding.

However, Imara says foreigners have largely held onto their Egyptian equities.

Imara notes that wages have gone up by about 30%, a boost for businesses geared toward consumer spending. . However, Egypt’s fiscal deficit may reach 10% of GDP this year.

Government is under pressure as 40% of its expenditure supports subsidies on key items like fuel. Any move to remove subsidies could provoke further unrest.

What’s more, the economy looks set to shrink by 3.5% in 2011.

Legat concludes: “We are evaluating the corporate fundamentals at the moment, but feel in no hurry to rush in.

“Zimbabwe, too, has its own political uncertainties, which, like Egypt, are well known. The difference is that dollarisation in Zimbabwe has removed the economic distortions and companies are in command of their own destiny.

“Good Zimbabwean companies are moving forward fast. That’s not yet the case yet in Egypt.”

Imara is an independent, Botswana-listed investment banking group that prides itself on objective decision making in the service of its clients. The company is mid-sized and has offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe. Imara has also partnered with Chapel Hill Denham in Nigeria, NIC Capital in Kenya, Namibia Equity Brokers and Mac Capital in Dubai.

The Group is an active participant in Africa's financial markets and maintains an extensive research coverage of regional equities. Funds under management exceed US$450m and assets under administration exceed US$1.77 billion.
Imara provides a range of specialised financial products and services that can be broadly categorised as:
- Asset management (institutional and private client)
- Corporate finance and advisory services
- Securities
- Trust and administration services
Imara Group subsidiaries are regulated by: NBFIRA in Botswana, the FSA (UK), the FSB, JSE, SAFEX (South Africa), SEC, ZSE and Reserve Bank of Zimbabwe, the FSC (Mauritius) and the Reserve Bank of Malawi.

ISSUED ON BEHALF OF:	IMARA
BY:	CLEAR DISTINCTION COMMUNICATIONS
IMARA CONTACT:	John Legat +263 4 729335/ 70000 +27 72 312 5194
CONSULTANCY CONTACT:	Carol Dundas Tel: +27 11 4440650 Mobile: +27 83 447 6648

Don't let your RAs disguise over-diversification (Imara)

noreply@blogger.com (Blog Administrator) — Tue, 02 Aug 2011 12:55:00 +0000

Dust off your retirement annuities (RAs), scrape away the wrapper and take a long look at the underlying investments. You may find yourself staring at costly over-diversification you could easily do without.

The consumer advice comes from Imara Asset Management, South Africa, a wealth company and advisory services provider that frequently 'unpacks' portfolios for clients hoping to achieve greater cost efficiency from investment and retirement products that have been accumulated over decades.

“Over-diversification can reduce returns while paying the higher costs of active management,” says Lara Warburton, managing director. “It's particularly important to scrutinise the investments driving the performance of preservation funds and RAs.

“A consumer might be paying for levels of equity diversification that are unnecessary from a risk management and portfolio balance perspective.

“This often happens with RAs as several might be acquired down the years while investors have only a vague idea about the funds they've bought into.”

To illustrate the challenge, Warburton pointed to a hypothetical case in which a client took out three RAs from different product providers, with the inflow into each RA spread across five funds or 15 unit trusts in all.

The 15 managers are paid for active management, with the danger that the shares sold one day by one manager will be bought the next by another manager at a different fund.

Transaction costs are picked up by the investor, whose net underlying position remains the same.

Furthermore, multiple fund managers trading across a limited marketplace will tend over time to deliver index-type returns rather than active management outperformance.

Active managers charge more for striving to beat rather than mirror the market. Passive, index-tracker products are cheaper.

“There are only about 180 actively traded stocks in South Africa,” says Warburton. “If you have hired 15 fund managers, they will almost certainly buy and sell across this 'universe'.

“Over-diversification like this creates the risk you will end up tracking the market for average returns that might have been delivered by more affordable passive investments. Paying for active management multiplied by 15 is hardly cost efficient.”

When costly over-diversification is uncovered, one solution is RA consolidation.

“In pre-retirement planning,” says Warburton, “we encourage our clients to demand hard-working investments without clutter and without undue costs.

“Diversification has a role across asset classes and across geographies, but over-diversification within a single asset class like domestic equities has to be questioned. Often, consolidation can improve cost efficiency without adverse effects.”

Regulatory changes mean punitive penalties no longer apply when an RA is transferred to another firm before retirement. However, surrender fees may accrue.

Warburton adds: “Paying for over-diversification is hardly prudent, but professional advice from an experienced financial planner is necessary to ensure the portfolio is positioned for best investment returns given the risk profile of the investor. Every case must be judged on its merits.”

Imara is an independent, Botswana-listed investment banking group that prides itself on objective decisionmaking in the service of its clients. The company is mid-sized and has offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe. Imara has also partnered with Chapel Hill Denham in Nigeria, NIC Capital in Kenya, Namibia Equity Brokers and Mac Capital in Dubai.

The Group is an active participant in Africa's financial markets and maintains an extensive research coverage of regional equities. Funds under management exceed US$450m and assets under administration exceed US$1.77 billion.

Imara provides a range of specialised financial products and services that can be broadly categorised as:
- Asset management (institutional and private client)
- Corporate finance and advisory services
- Securities
- Trust and administration services
Imara Group subsidiaries are regulated by: NBFIRA in Botswana, the FSA (UK), the FSB, JSE, SAFEX (South Africa), SEC, ZSE and Reserve Bank of Zimbabwe, the FSC (Mauritius) and the Reserve Bank of Malawi.

ISSUED ON BEHALF OF	:	IMARA
BY	:	CLEAR DISTINCTION COMMUNICATIONS
IMARA CONTACT	:	Lara Warburton Tel: (011) 550-6196
CONSULTANCY CONTACT	:	Carol Dundas Tel: (011) 444-0650 Mobile: 083 447 6648

Pension changes to protect savers could backfire (Imara)

noreply@blogger.com (Blog Administrator) — Tue, 24 May 2011 13:07:00 +0000

Recent changes to Pension Fund legislation intended to protect savers might have the opposite effect on workers in the under-30 age bracket.

This alert has been sounded by Imara Asset Management South Africa, an investment company that advises many salary-earners on financial planning and the need to augment company-driven retirement provision through personal saving instruments like retirement annuities (RAs).

Regulation 28 of the Act was amended in February, requiring adherence at individual member level rather than overall fund level. The regulation specifies maximum asset allocation limits for pension-funding investments.

One provision limits equity exposure to 75%, property exposure to 25% and foreign exposure to 25%. Previously, these restrictions were applied across a fund.

To give one example, this meant that people planning to retire overseas could hold 100% of their assets offshore as long as the total fund of all member assets met Regulation 28 requirements.

"The intention of the change appears to be to protect pension fund members by controlling exposure to perceived higher risk asset classes like equities and offshore assets," says Lara Warburton, managing director of Imara Asset Management SA.

"The authorities should be applauded for steps to protect fund members, but these measures could backfire in the case of young employees with perhaps 35 years to go before retirement."

Warburton acknowledges that share markets have become increasingly volatile, especially measured over short periods of time. However, in the long term equities have the best record of inflation-beating returns and a proven capacity to build personal wealth – so much so that some young clients saving for retirement are advised to make a 100% commitment to equities.

She explains: "Perhaps no significant under-performance will result from a 25% portfolio allocation into cash and bonds for fund members over 45. But why would a 28-year-old with a 35-year investment horizon want to make a big commitment into bonds – especially right now?

"A 75% equity ceiling makes little sense in a case like this. A larger equity commitment is often recommended as younger savers have enough time to recover from cyclical market corrections.

"The individual ceiling envisaged by Regulation 28 could put a brake on upside without significantly improving investor protection as time in the market over a 35-year period normally provides built-in protection."

Warburton suggests the authorities monitor the long-term impact of the regulatory change; specifically the effect on a savings product like RAs.

"The RA's attraction as a supplementary savings tool could be affected," says Warburton. "Young clients may decide that as RAs carry an equity limit they should examine other options, notwithstanding an RA's tax advantages.

"Many alternatives to the RA, like unit trusts, are easily accessible. The danger is that young people may 'raid' their supplementary saving plans to buy lifestyle assets rather than commit to long-term saving.

"The net effect would be diametrically opposed to the regulator's intentions. Only 6% of South Africans make sufficient provision to enable a reasonable retirement. It would be a tragedy in a low-savings economy like ours if regulatory change made it even harder to achieve this goal."

Imara is an independent, Botswana-listed investment banking group that prides itself on objective decision-making in the service of its clients. The company is mid-sized and has offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe. Imara has also partnered with Chapel Hill Denham in Nigeria, NIC Capital in Kenya, Namibia Equity Brokers and Mac Capital in Dubai.

Imara provides a range of specialised financial products and services that can be broadly categorised as:

Asset management (institutional and private client)
Corporate finance and advisory services
Securities
Trust and administration services

ISSUED ON BEHALF OF:	IMARA
BY:	CLEAR DISTINCTION COMMUNICATIONS
IMARA CONTACT:	Lara Warburton Tel: (011) 550-6196
CONSULTANCY CONTACT:	Carol Dundas Tel: (011) 444-0650 Mobile: 083 447 6648

Imara Investment Notes for April-May 2011: "A Return of Legality"

noreply@blogger.com (Blog Administrator) — Fri, 29 Apr 2011 07:30:00 +0000

Zimbabwe's "Government of National Unity" (GNU), created following extended negotiations between South Africa and the main political parties in early 2009, has made positive progress despite media attempts to suggest otherwise. As we have seen elsewhere around the World and in Africa, a GNU is by no means a perfect solution to a political crisis and will only really work successfully if all the members of the GNU have the same goal and speak with the same voice.

This is clearly not the case in Zimbabwe and as a result badly needed reforms take time to be enacted, whilst Ministers within the GNU often contradict each other thereby bringing about confusion both domestically and abroad. In Zimbabwe's case it is not helped by the obvious splits within Zanu-PF as various factions attempt to gain the upper hand in the succession battle of a leader who is 87 years old and clearly mortal. It is further argued that one of those factions would like to bring about the demise of the GNU so that early elections can be called and, one assumes, rigged to allow a Zanu win, and hence to allow that faction to gain the upper hand.

As we wrote in our last Investment Notes, we believe that an election in 2011 is highly unlikely as the MDC parties, supported by South Africa and SADC will not sanction an election that has not been held under a new constitution that has itself been approved in a referendum, and under new electoral laws with an updated voters' roll. This was recently confirmed by the SADC sub-committee that met in Zambia earlier this month. Indeed recent reports following party negotiations with the SADC facilitators now suggest that elections will not be held until the end of 2012.

Despite all of this, the GNU is the Government of the day and business has to proceed as best it can with decisions on policy made at Cabinet level. The early adoption of the multi-currency system and ultimately the US dollar was perhaps the single most crucial decision that was made (although the free market had already made that decision when it effectively dumped the hyper inflating Zimbabwe dollar in 2008). We wrote in our last Notes how successful that has been in terms of killing inflation on the one hand and boosting rapid economic growth on the other (9-10% growth rates). Whilst the US dollar has been a weak global currency to adopt (for now at least), this has not been a negative issue by any means. Indeed, since Zimbabwe's primary exports (platinum, gold, tobacco and cotton) are all priced in dollars, and its main imports (energy) are also priced in dollars, there has been no currency risk for investors/businesses in those crucial sectors of the economy. A weak dollar against the South African rand has also helped Zimbabwe exporters to compete and has encouraged local producers to buy raw materials from China and India in dollars rather than from an expensive South Africa in rand.

We also mentioned in our last Investment Notes that a "hybrid" debt reduction programme had been approved by Cabinet last December. This was vital in terms of putting Zimbabwe on the right path to negotiate debt relief with the creditor nations and in particular the IMF. This is a process and not an event but we hope it will lead to an IMF sponsored programme being adopted in some form or other. A return to legality will be one key pillar in this process both from an economic but also from a human rights perspective. The latter issue however will be for the time being a major political obstacle as existing, and in some cases draconian laws, are used by individual political parties to pursue their own agendas. It is an issue that can be conquered quickly though if the political will is in place.

Economic rights are more difficult and at the moment are further complicated by the uncertainty surrounding the Indigenisation regulations that are being used by a faction of ZANU as a key ingredient of their election campaign or perhaps for self enrichment. Indigenisation is seen as a simple extension to the controversial land reform process that began in 2000. It is the land issue that will be the hardest nut to crack in the necessary return to legality. In order for the agricultural side of the economy to flourish, the use of land as collateral for loans will be essential whether in the form of leasehold or freehold title but one that will stand up in a court of law.

Following a Constitutional Amendment with regard Agricultural land in 2005, all title to agricultural land fell to the State. Most title deeds at the Registrar of Deeds have therefore been altered to reflect the Amendment and are of doubtful value under current law. Whilst this state of affairs could of course change under a new constitution at a later date, the current constitution allows farmers to be compensated for any improvements made to the land such as dams, tobacco sheds, irrigation systems, greenhouses, barns, plantations, pastures, roads, etc but not for the land itself or for moveable objects such as tractors. From 2002, the Government of Zimbabwe made it clear that it was willing to pay such compensation and a number of farmers took advantage of that scheme at the time. Hyperinflation however effectively led to the suspension of the scheme as the farmers and Government could no longer agree on a valuation that was changing by the day.

Post dollarization however, the Minister of Finance reintroduced the scheme in his 2009 budget and allocated $4.4 million for the purposes of compensating farmers. By October 2010, over US$900,000 had been paid out by Government largely due to the slow take-up of the offer by the farmers themselves. Since there was a short-fall in the 2009 budget, an additional $2.25 million was allocated for 2011, and a proposed $5million for 2012 and $7 million for 2013.

In order to benefit from this compensation, a farmer must first write to the valuation section of the Ministry of Lands inviting a valuation of the property concerned. The Ministry requires a letter from the Ministry of Labour stating that all employees were properly compensated at the time of eviction which assumes of course the farmer has kept those records as proof. The farmer will also have to show that any bonds attached to the property have been cancelled. The Ministry of Lands then invites the farmer to compile a detailed and comprehensive schedule of improvements, without a valuation, on the farm at the date he vacated it. Supporting documentation such as photographs are helpful. The valuation experts at the Ministry then compile a valuation report based on this information which is then reviewed by the National Agricultural Land Compensation Committee who will make a final recommendation to the Ministry of Lands. The farmer or beneficiary is then invited to discuss the offer of compensation which he or she is free to accept or reject. If the offer is accepted, then the Chief Valuation Officer invites the parties to lodge the farm's Deed of Transfer with the Ministry. The offer clearly states that the valuation is for improvements only. The US dollar funds are then paid out by Government to the farmer.

This process has worked and as such further farmers have submitted their documents for consideration in order to benefit from the compensation scheme. The funds are paid by the Government of Zimbabwe and not by an outside Government or agency. It is in the National Budget. In order to control what could be a huge number of applications, priority is being given to those farmers still resident in Zimbabwe and especially to elderly farmers who need the funds to live out their remaining years. Since compensation is being paid on a willing basis from both parties, there is no reason why in the future, the British Government or other agencies might not step in to support future payments alongside the Government of Zimbabwe or the GNU. As we understand it the CFU has not publically endorsed this scheme but it is being positively reviewed by them. Their preferred option up to now has been to fight for compensation for not just the improvements, but also for the land and loss of earnings. We suspect this to be unreasonable under the circumstances and would unlikely be considered by the donor nations.

A return to legality is ultimately essential if Zimbabwe is to be accepted back into the World's financial community to be free to borrow from capital markets, banks and multi-lateral agencies. The land improvements compensation programme is just one element in this process that the Government of National Unity has endorsed. There are many other measures that can and need to be adopted. The new Commissions for Electoral Reforms, the Media and for Human Rights can further improve Zimbabwe's status. It has been heartening to see the Zimbabwe Stock Market rally this year making it one of the better performers in Africa to date, driven not just by foreign investors, but more recently by domestic institutions as well.

John Legat, Chief Executive Officer
Imara Asset Management, Zimbabwe

Africa's investment comeback to gather pace in 2011

noreply@blogger.com (Blog Administrator) — Mon, 17 Jan 2011 12:45:00 +0000

Africa's great comeback as an investment destination is already under way and is set to accelerate in the year ahead, says Pan-African financial services group Imara.

The company has broad sub-Saharan representation and is well placed to judge investor interest as its range of investment funds takes positions in numerous markets across the continent.

Alun Thomas, CEO of Botswana-based Imara Africa Securities, an Africa-wide share-trading service, says trading volumes at African stock exchanges and international buying enjoyed a significant uptick in the final quarter of 2010 – stirring memories of 2007 when international fund managers took growing positions in Africa's so-called Frontier Markets.

He notes: "In October and November 2010, Imara Africa Securities had its best trading months since 2008. We topped the volumes we achieved that year before the international financial crisis prompted offshore investors to retreat from Africa.

"Africa's investment resurgence has begun. We see this in many jurisdictions and numerous sectors."

Upbeat sentiment has been fuelled by speculation that 2011 inflows could be swelled by yield-hungry private equity funds.

Low correlation with developed markets (and one another) is another plus for Africa as many investors prefer to avoid contagion risk. Demand is also supported by credible research from Africa-based investment professionals with an eye for long-term value.

Thomas says within Africa (ex-South Africa), market valuations often understate the true potential of listed companies with dominant market positions. Investors also look to exploit strategic themes such as infrastructure development.

He adds: "Africa's resource wealth is helpful, but the continent's status as a significant investment destination is much more broadly based than that."

Among developments attracting investor interest are cement-manufacture in Nigeria, brewing and banking in Zambia, micro-lending in Botswana, Tanzania, Swaziland, Uganda, Namibia and Zambia and a resurgent agricultural sector in Zimbabwe and neighbouring states.

Says Alun Thomas: "The breadth of outside interest is hugely encouraging and supports the Imara view that the African comeback has reached a tipping point with more investor interest to follow."

Botswana-registered Imara has offices and partners in Blantyre, Dubai, Edinburgh, Gaborone, Harare, Johannesburg, Lagos, London, Luanda, Lusaka, Mauritius, Nairobi and Windhoek. Activities include asset management, financial planning, stockbroking and corporate advisory services.

Issued on behalf of	: Imara
by	: Clear Distinction Communications
Imara contact	: Alun Thomas Tel: +267 319-1768 alun.thomas@imara.co
Consultancy contact	: Carol Dundas Tel: +27 11 444 0650 Mobile: +27 11 83 447 6648 carol@cleardistinction.co.za

Imara launches info blitz to bring investors to Africa

noreply@blogger.com (Blog Administrator) — Mon, 06 Sep 2010 12:15:00 +0000

Imara, the Pan-African financial services group, is launching an information onslaught to pave the way for a new wave of international investment into Africa.

The latest salvo in the group's info barrage is an authoritative, up-to-the-minute report on the state of the sugar industry in South Africa and other jurisdictions in sub-Saharan Africa (SSA) - the first appraisal of its kind.

Imara's sugar industry and sugar company assessment follows its comprehensive overview investment prospects in Angola and a notional valuation of the planned Angolan stock market.

The Botswana-registered group began its data drive earlier this year with another first - a comprehensive report on the financial service sector in SSA, with information on listed banks from Egypt to South Africa. The book, 'Banking on the Final Frontier' proved a huge hit with investment analysts worldwide.

Imara Group CEO Mark Tunmer commented: "We've always been known for the quality of our research - a direct result of our strong on-the-ground presence across Africa. As part of our service to investors we circulate reports from Imara asset managers working on various Africa-focused equity funds.

"We decided to give more formal structure to this research effort by compiling authoritative reports on national markets and key sectors.

"The success of our banking book was an eye-opener. We decided to maintain momentum by creating a continuing stream of authoritative reports. We knew there was great international appetite for reliable, up-to-the-minute data on African countries. That appetite may be even stronger than we first thought."

Imara is committed to the facilitation of investment into Africa and in the last 15 months has twice brought international fund managers to Harare for on-the-spot assessments of Zimbabwean opportunities. It frequently collaborates with officials from various SSA countries to give in-depth briefings to investors in major centres such as London.

Tunmer adds: "We plan to publish an ongoing series of investment books and reports on a wide range of national markets, key sectors and listed companies.

"Once the base is established, we will look at six-monthly updates. We also plan to produce national editions of sectoral reports that will put the spotlight on a particular jurisdiction."

The next Imara report - on the SSA brewing industry and listed breweries - is nearing completion.

Imara has offices and partners in Blantyre, Dubai, Edinburgh, Gaborone, Harare, Johannesburg, Lagos, London, Lusaka, Mauritius, Nairobi and Windhoek. Activities include asset management, financial planning, stockbroking and corporate advisory services.

Issued on behalf of	: Imara
by	: Clear Distinction Communications
Imara contact	: Mark Tunmer Tel: +27 11 550-6100 Mobile: +27 83 788 9037 markt@imara.co.za
Consultancy contact	: Carol Dundas Tel: +27 11 444 0650 Mobile: +27 11 83 447 6648 carol@cleardistinction.co.za

Angola looks like Africa's next big investment destination

noreply@blogger.com (Blog Administrator) — Wed, 18 Aug 2010 23:28:00 +0000

Fund manager response to comprehensive data on the Angolan market indicates that the once-devastated nation could soon emerge as Africa's next big investment destination.

The assessment comes from Pan-African financial services group Imara following hugely positive response to the company's 'Angola Country Report', an in-depth appraisal of investment opportunities in the oil-rich nation.

The report is part of an on-going information campaign on sub-Saharan nations and sectors in support of Imara's longstanding effort to encourage international investment in Africa.

Angolan data was compiled by Anthony Lopes Pinto, head of Imara's Luanda operations, and analyst Estefania Jover. It contains a notional valuation of the planned Luanda Stock Exchange and gives macro-economic data, political assessments, an overview of Angola's diplomatic ties and an in-depth appraisal of the banking, brewing and telecommunications sectors.

The oil industry is not a point of focus as it is thought unlikely that Angolan oil industry enterprises will feature in the first wave of initial public offerings on any future stock exchange.

Imara group CEO Mark Tunmer noted: "Response to the report from institutions and asset managers has been overwhelmingly positive. "We were already bullish about prospects in Angola – which is why we were one of the first international financial services company to achieve a direct presence in Luanda.

"Since receiving feedback on the report from international investment professionals, we are even more upbeat. All indications are that Angola could quickly become the next big African investment destination."

Imara believes that within five years the planned Luanda Stock Exchange could become the third or fourth largest bourse on the continent, excluding South Africa.

Tunmer added: "The exchange could be open by the end of this year or early in 2011, with some of the Angolan banks in the forefront of the first wave of listings. We're not the only ones to be impressed by Angola's potential ... so are the asset managers who've been reading our report."

Zimbabwe's economy may be much bigger than thought

noreply@blogger.com (Blog Administrator) — Tue, 17 Aug 2010 13:44:00 +0000

Just how big is the Zimbabwe economy and how upbeat should one be about growth prospects?

The questions are taking on growing importance for investors who have already bought into the Zimbabwean market and those thinking about it.

The IMF and the mid-term review of Zimbabwe Finance Minister Tendai Biti incline to caution. Yet local companies are much more upbeat, according to an assessment from Imara Asset Management Zimbabwe, a subsidiary of the Pan-African Imara financial services group.

Imara has given a lead with investment facilitation into Zimbabwe and provides regular updates to international investors.

In his latest analysis, John Legat, Chief Executive of Imara Asset Management Zimbabwe, notes: "We find it hard to understand why both the IMF and government are being as cautious as they are... Their views give a rather sobering view of the economy rather than an upbeat and exciting outlook for a country barely in its second year of reform."

The IMF believes Zimbabwe has an economy worth just over US$5 billion, though it admits supporting data has "serious shortcomings".

Legat thinks the IMF arithmetic does not add up and uses the neighbouring Zambian economy – worth US$14 billion – as a yardstick. The countries have populations of a similar size, but until its 'lost decade' Zimbabwe's economy was about 50% bigger.

Zimbabwe's agriculture, tourism and manufacturing sectors gave it the edge over its copper-rich neighbour. By some measures, Zimbabwe still outdoes its neighbour.

Zambia's two major breweries sold US$230 million worth of beverages last year while sales at Zimbabwe's Delta brewery totaled $324 million.

In 2010 Zimbabwe's Econet mobile phone service expects sales of about US$500 million while Zambians are expected to spend about US$280 million with Zain, their major network provider.

Significant Zimbabwean spending power is also indicated by food purchases from the Innscor fast foods business, Colcom, National Foods and the Spar retail chain. Imara estimates sales here at over US$1.1 billion a year.

Legat adds: "According to the IMF and government, Zimbabwe's gross national product per capita is US$450, which compares with Zambia at US$1,200 per head. Spending patterns in both countries suggest the opposite!"

Zimbabwean exports also appear buoyant.

Government's mid-term review estimated the half-year value of platinum, ferrochrome and gold shipments at US$550 million, suggesting that full-year shipments would run to US$1.2 billion – though Legat expects the figure to be higher.

He believes agricultural exports could top US$1 billion.

He adds: "Excluding manufacturing and tourism, exports from agriculture and mining might top $2.3 billion or higher in 2010. That's a bigger number than the IMF forecast that includes manufacturing exports."

Zimbabwe's mid-term review indicated that half-yearly tax revenues were 12% above target, VAT receipts were 9% above budget and PAYE was 22% higher than projected. Corporation tax was 54% above target.

Yet the mid-term review reduced government's economic growth forecast from 7% to 5.4% while the IMF revised its down to 2.2%.

"We remain unconvinced." Says Legat, "and further don't believe the underlying number used for the economy – US$5 billion – is correct.

"In last year's December budget, the Government revised up the size of the economy from $3.5 billion to $5.1 billion ... We would not be surprised to see a similar re-rating in future."

Imara stands by its 2009 assessment that Zimbabwe's formal economy is worth $8 billion to $10 billion.

Says Legat: "That makes the current stock market capitalisation of $3.0 billion look very cheap... The Zim economy is pumping!"
billion – is correct.

"In last year's December budget, the Government revised up the size of the economy from $3.5 billion to $5.1 billion ... We would not be surprised to see a similar re-rating in future."

Imara stands by its 2009 assessment that Zimbabwe's formal economy is worth $8 billion to $10 billion.

Says Legat: "That makes the current stock market capitalisation of $3.0 billion look very cheap... The Zim economy is pumping!"

World Cup winners will hit savings goals

noreply@blogger.com (Blog Administrator) — Mon, 14 Jun 2010 10:18:00 +0000

Real winners over the World Cup period will continue to hit savings goals rather than splurge on unnecessary items and jeopardise two years of good defensive work.

The call to 'keep your eye on the savings ball' comes from Mark Cunningham, head of financial planning at Imara Asset Management,
South Africa.

He loves the World Cup buzz, but warns that losing discipline now might be unwise for families that have been under pressure from high levels of debt.

"Macro economic indicators look good," says Cunningham, "but many families are only now beginning to get on top of credit-card debt and other obligations.

"Now's not the time to score an own-goal by renewed recourse to credit –
even though some financial institutions are today happy to loosen the tight
controls they've applied for the last two years.

"We advise clients from middle income groups and those with relatively high net worth and know that many families have reviewed their lifestyles and started to save because of the dramatic wake-up call they received during the financial crisis. In World Cup year and every other year, we advise clients to keep their eyes on long-term goals."

To highlight the consequences of a little backsliding, Cunningham considered an item of discretionary spending related to the World Cup – a R10 000 plasma TV. He looked at the real cost and then examined a sensible savings-based alternative.

His calculations showed:
R10 000 spent on a plasma TV, paid off over 12 months at 17%, would add
R900 to a family's monthly outgoings. Total cost would be R10 790. If the TV was paid off over four years, the monthly instalment falls to R285, but the total cost rises to R13 657.

By comparison, R900 invested for 12 months, assuming 10% growth, would
grow to R11 300 at the end of the first year.

Left to grow, without adding any contributions, the investment would be worth R18 592 after five years, R30 590 after 10 years, and R82 809 after 20 years.

If R284 (the approximate monthly instalment over four years) was put away each month for 20 years, the future value would be R217 458 after 20 years, at 10% growth.

"The scoreboard's clear enough," says Cunningham. "Splurge and buy that
fancy TV over four years and you'll be nearly R14 000 out of pocket. Save the R900 each month for a year, and at the end of five years you will have
R19 000 to play with. Any football fan would applaud a great save like that!"

Indigenisation Regulations: A Smokescreen or a Reality?

noreply@blogger.com (Blog Administrator) — Fri, 19 Mar 2010 11:51:00 +0000

February proved to be a very disappointing month with the Zimbabwe Stock Exchange Industrials index falling by 10% wiping out the gains of 2010 to date. We have not experienced such a fall since the last days of hyperinflation in January 2009. The culprit was once again politics. Out of the blue, to the surprise of the Prime Minister and his team and to the entire business community, the “government” gazetted the regulations that accompany the Indigenisation and Empowerment Act that was passed by Parliament back in 2007. The Prime Minister immediately declared it null and void as it had not been agreed by the current Cabinet, the Council of Ministers or himself, but of course by then it was too late, it was law. This needless to say rattled any buyers of the stock market and encouraged profit taking. The law itself requires that all companies should be 51% owned by “indigenous” Zimbabweans, the definition being those that were disadvantaged prior to Independence in 1980. The regulations and the law are inconsistent in a number of areas, and non binding in others. Whilst the lawyers could have a field day in the courts, the real issue is that political hard liners can use the Act when it pleases them, and especially in the run up to an election, whenever that may be.

To introduce such regulations thirty years after Independence may seem odd to a foreign investor especially as during that time, the economy has largely become indigenized on its own accord. Listed companies are barely affected as their major shareholders are local pension funds and individuals. Further, to introduce such a law now, at a time when the country has held numerous investment conferences promoting the country to foreign investors, makes little sense.

One can only speculate as to the real reasons for the gazetting of the regulations. Back in December, the UK’s Daily Telegraph exposed Nestle Zimbabwe as a buyer of milk from the farm belonging to the First Family. The pressure was so intense that Nestle in Switzerland instructed their local subsidiary to stop the milk purchases. This was red rag to a bull and no doubt reminded the hard liners that they had an instrument that could be used against such action. Other non-listed foreign multinationals apart from Nestle include Unilever, P&G, Standard Chartered Bank and Stanbic Bank. But Nestle will be the one to watch. The others we suspect will either list themselves on the local stock exchange or make another plan that can be agreed with the Minister responsible for Indigenisation. That assumes of course, that the current regulations stand as they are. Current negotiations between the Prime Minister and other interested parties suggest that they may be watered down, or even used as a bargaining tool for the removal of travel bans on certain members of Government and the armed forces. Very recent discussions with a variety of management from different industries, suggest that the Indigenisation Regulations are already being redrafted so we look forward to early clarity in this regard. For sadly the immediate effect of the announcement has been to put multiple domestic and foreign investments on hold until the picture becomes clearer, ironically to the detriment of the indigenous Zimbabwean.

If it wasn’t Nestle that was at the heart of the matter, it could be a classic political diversionary tactic. For also to occur in February were the gazetting of the Chairpersons and Committees for the new Electoral, Human Rights and Media Commissions. This effectively creates a more level playing field for the main political parties in key areas and especially in the run up to any election. Needless to say, this news received little publicity locally or internationally, as “indigenization” became the buzz word around town. A further newsworthy item was the agreement between the UNDP and the Management of the Constitutional Reform process which effectively has set the terms of reference and provided the funds to draw up a new Constitution that will be the basis for elections in 2011 in all likelihood. Finally, and from an economic perspective, the IMF restored Zimbabwe’s voting rights, a symbolic but also significant development.

Also of interest in February was the State Visit to the UK by President Zuma which largely seemed to focus on his marital affairs, Zimbabwe and football. On Zimbabwe, Zuma made it clear that he felt that “sanctions” (travel bans) on certain members of the Government was likely to provoke those people to use sanctions as an excuse to stall the fulfillment of the Global Political Agreement. We agree and the fact that he said it in public is important. As the chief negotiator between Zanu and MDC he wants to see any excuses squashed. But it also allows him to negotiate between the US/EU and Zimbabwe. No agreement - sanctions remain, versus remove sanctions and you have an agreement. The same day the BBC reported that President Mugabe had said that he would rather negotiate with a Conservative government than a Labour one, again potentially opening up the possibility for negotiations. Zuma has since travelled to Zimbabwe to meet the key negotiators. Whilst details have yet to emerge, Zuma has stated that all outstanding issues should be completed by the end of this month based on his discussions with the key players. Another positive.

Meanwhile back at the coal face where we prefer to reside, we have had some good news coming out of the companies who are taking advantage of the new and improved economic environment. Impala Platinum in SA gave an upbeat presentation on Zimplats and their forthcoming capex plans. Zimplats will be key to Impala going forwards. Angloplats also announced that they would be pressing the button on their further expansion plans suggesting that both companies are satisfied with the soon to be announced Minerals and Mining Act. Also from SA Tongaat Hullet, the sugar group, spoke of their Zim operations which they are currently rejuvenating and working with government to assist indigenous out growers (this also counts as “points” toward the Indigenisation Act). Locally Delta is investing in another new bottling line, ramping up production and expanding margins. Their year end is March and our forecast for March 2011 based on volume and margin growth puts them on 5x, which could be conservative. Innscor also reported upbeat earnings and announced an interim dividend. They too have seen an excellent few months as consumer demand has increased. Truworths, the clothes retailer, reported an excellent set of figures that puts the company on 6x June 2010 earnings. All of these businesses are coming from a low base; only one year ago the formal sector was all but finished.

Agriculturally, the tobacco floors have opened early with good prices achieved so far. The crop is expected to nearly double this year as more commercial farmers return to utilize the lands. The seed maize crop is expected to triple. With rural farmers now being paid in US dollars for their cotton, maize and tobacco, we suspect that disposable incomes in these areas could be significant, especially as the cost of living is negligible relative to the cities where rents, transport and utilities eats away discretionary spending power.

We therefore urge investors to talk to company management and the farmers to find out what they are thinking and doing and to downplay the media and the politicians. This makes the market a great buying opportunity in our view and one of the more exciting in Africa, even if the ride can occasionally be a bumpy one.

Emerging US interest in African markets – Imara

noreply@blogger.com (Blog Administrator) — Thu, 10 Dec 2009 09:28:00 +0000

AFRICA may have been forgotten by international investors since the equity recovery began ... but not for long. Expect a big uptick in investor interest in the coming weeks, with especially strong interest in Zimbabwe and Nigeria.

That's the word from the Botswana-registered Imara financial services group after its annual 'show-and-tell' safari to America.

Imara manages a suite of African equity investment funds and maintains an extensive Africa-based equity research capability. Every year, the group takes a fourth-quarter roadshow to major international centres and recently returned from the trek to the USA, where Imara executives encountered positive interest among professional investors.

Imara group CEO Mark Tunmer noted: "On average, equity values have doubled in emerging markets – except for Africa – since markets began to revive in March. It's starting to look like full value has been achieved elsewhere, which may explain the response.

"US investors had very few questions about North Africa or South Africa. Their interest was on all the markets in between, with Zimbabwe and Nigeria coming in for closest scrutiny.

"African markets have not shared in the general upward trend seen in other emerging markets. Yet the news out of Africa is generally good. Corporate earnings are strong. Recessionary pressures have not had nearly the same impact as elsewhere. Yet equity values have remained low – suggesting decent value opportunities for international investors."

Imara presented its African investment data, interpretations and projections to audiences in New York, Boston, Providence (Rhode Island), Washington, Philadelphia and Chicago.

For the third year running, the team was invited to New York's Columbia University to address MBA students on African opportunities and challenges.

Tunmer added: "Zimbabwe is interesting to Americans because the economy was assumed to have been ruined beyond repair by the country's lost decade. Yet dollarisation and the first stirrings of reform immediately triggered a big upsurge in economic activity – indicating that huge potential can be unlocked, even by quite limited initiatives.

"In Nigeria, the focus is on banking. They have had their banking crisis, forced banks to write-off non-performing loans and insisted that all banks now adopt the same financial year. Banking sector values have been in freefall, but a bottom seems to have been reached.

"Simultaneously, oil prices are back up again, with positive spin-off for numerous sectors in Nigeria – yet equity prices have been slow to revive. Again, the value opportunity is substantial."

A reassuring factor is the source of emerging interest in the last emerging markets to revive. Those making inquiries tend to be strategic players rather than fund managers known for tactical forays.

"Representatives of university endowment funds and foundations tend to take a long view," said Tunmer, "and these were among the most interested in the African opportunity. This is very encouraging."

Dollarisation and the case for Unbundling

noreply@blogger.com (Blog Administrator) — Tue, 01 Dec 2009 15:51:00 +0000

The only positive aspect of hyperinflation (if that is possible) is that if you, as a corporate executive, made the wrong business decision, rising prices would soon conceal that error. In the era of dollarization, that ‘get out of jail’ card has disappeared. Indeed in many industries, competition is leading to deflation making the task of management that much tougher. Further, businesses that suffered from stock theft during hyperinflation could also hide the problem. Once again dollarisation exposes such inefficiencies quickly. That stated, doing business operationally has become considerably easier under dollarization than before as we are learning from management reports and contacts. That implies that good management will quickly spot any inefficiencies in their business models and take appropriate action.

Indeed there will be many business models in Zimbabwe today that simply do not work in the new dollarized and competitive environment, but which managed to get by in a less competitive and inflationary environment. Such companies could well be those whose models were built on import substitution products. Such businesses need to be closed or remodeled so that they have a comparative advantage in the new environment.

Looking at the listed companies in Zimbabwe, there are a number of companies that are in effect holding companies of various different operations. Often there may be little synergy or correlation between each business largely because the structure of the group was a product of history, driven by former mergers or driven by economic imperatives. In Zimbabwe exchange controls and a lack of foreign exchange were such imperatives. A recent example would be Delta which acquired a controlling stake in Ariston in order to access much needed foreign exchange for their beverage operations. Now that the country has dollarised, there is no longer any need for Delta to own such a business and hence Delta management have rightly chosen to sell the company and utilize the proceeds for capital investment in their core business.

We believe that there is huge scope amongst the listed companies to undertake such restructurings especially given the need for capital and skills. One such mechanism is to issue shares in a subsidiary of the listed vehicle to a technical partner that has the capital and the skills. PGI undertook such an operation a few years back when it sold 40% of Manica Board to Steinhoff. The PG Board correctly took the view that PG’s strengths were in merchandising and distribution rather than in manufacturing. Should capital be required in Manica going forwards, a rights issue can be held at that level, which may or may not be supported by PGI itself. A similar option remains for them in PG Glass where capital could be extracted for the core merchandising business by bringing in a technical partner.

Where there is little or no synergy between the subsidiaries of a company, it makes sense to “unbundle” them. This is a great method to adopt should the major shareholders wish to remain invested in both businesses, whilst allowing the management of the ‘parent’ company to focus on the core business of the group. It further allows the management of the ‘spun off’ division to act independently. One of the largest examples of an unbundling internationally was in March 2007 when the US cigarette maker and food group Altria, unbundled their food division, Kraft in which they held 89%. A year later, Altria then spun off Philip Morris International which held the group’s global cigarette operations outside of the US. The original shareholders of Altria then owned a listed share in Philip Morris International, a listed share in Kraft and the remaining assets of Altria (being US cigarette operations and a 30% stake in SAB Miller). This had the effect of increasing shareholder value as the value of the three separately listed companies became more valuable than the original combined one. Kraft is currently bidding for chocolate maker Cadbury in the UK, since they can now raise capital by issuing shares, something that was not possible as part of Altria.

In Zimbabwe there are many opportunities for Group companies to unbundle a division (or divisions) that has little synergy with the core business of the group. One such way would be to issue the shares in that division to the shareholders of the main group in the form of a dividend in specie. That division could then be separately listed on the Stock Exchange so that the original shareholders can then decide whether they wish to retain or dispose of the division. Again, Delta did as much in 1990s when it spun out Pelhams, OK and ZimSun. Further, the management of that newly independent division can then act independently with regards seeking a technical partner or indeed look to make further acquisitions, as Kraft are doing with Cadbury. Such a strategy more often than not increases overall shareholder value, and especially if it is done in a tax efficient manner. It also serves to further deepen the Stock Market by adding a new listed company, that itself encourages trading activity and new investors.

Most Zimbabwean companies today require capital, either for working capital purposes or for long term capital investment. It makes little sense to shareholders for their management to issue shares for short term working capital needs, and one would hope that the boards of directors of companies, who represent the shareholders, understand these issues. Rather try to borrow or issue commercial paper (if its cheaper) or even a convertible bond instrument.

For long term capital, capital is available in the form of equity for listed vehicles, from existing shareholders and from new shareholders assuming the project makes sense financially. In addition private equity is available at a divisional level, which may or may not be in the form of a strategic partner as discussed above, or from foreign private equity investors. Imara has access to the necessary capital if the investment makes sense. Capital can also of course be raised by selling businesses or divisions which no longer fit the group business model as Delta has done with Ariston.

There is no doubt that shareholders will need to accept dilution if their businesses are to grow significantly from current levels through capital expansion. Rather have a smaller share of a much bigger pie!

John Legat

Chief Excecutive, Imara Asset Management

The US dollar or the Rand?..... that is the Question

noreply@blogger.com (Blog Administrator) — Tue, 20 Oct 2009 11:17:00 +0000

The adoption of a multiple currency regime in Zimbabwe as a part of the STERP reform programme has been a resounding success. Not only has it resulted in stability in Zimbabwe’s monetary system but it has in effect also led to a substantial easing in exchange controls. Inflation is virtually zero and doing business has become significantly easier. Coupled with the removal of price controls, Zimbabweans are beginning to feel like ‘normal’ people again, able to do what they want and when they want. Welcome back to the real World! Six months down the line there has been a noticeable improvement in activity. The past two weeks alone has seen a build up in traffic on the roads as fuel importers struggle to meet new demand. Construction activity, or basic repairs and maintenance, is plain to see in both the major cities and towns. Brick production is being increased as cement demand rises. For those who go about their duties on a daily basis, the changes are far less apparent than they are for those who fly in and out every few weeks or months. Foreign investors, of whom we see at least two a week nowadays, are staggered to see and hear what is happening on the ground, so tainted are they by the international and local media obsession with politics. Some of us have chosen to ignore the newspapers and the local airwaves, preferring instead to use our eyes and ears to understand what is really happening on the ground!

Monetary stability, an end to inflation and a sharp recovery in economic activity, has lead to a substantial rise in real wages as compared with those of a year ago under hyperinflation. That in itself has resulted in a large increase in volume demand for a whole host of products and services both in the towns and cities as well as in the rural areas. Higher volumes are leading to greater capacity utilization in industry whose profitability is improving. For those businesses already in profit, corporation tax revenues rise for the Government. Added consumer demand boosts VAT receipts and rising wages lead to higher PAYE receipts. In short, Government revenues should be increasing by the month, numbers that we hope will be revealed during the Budget next month. Higher Government revenues imply that Government expenditure can also rise under the cash budgeting system. That in itself could lead to rising wages for civil servants and hence rising consumption. And so the virtuous circle continues.

We further hope that the Minster of Finance will announce in his Budget that Zimbabwe will adopt a low flat tax regime. He hinted as much in his speech to the Mining Indaba in September when he gave the example of Georgia who has implemented the same. A flat tax system not only simplifies the tax collection system and hence removes unnecessary wastage and cost to Government, but it also encourages greater economic activity. Individuals would earn more after tax and would spend more as a result. Business would need to meet that demand and invest more as the after tax return on investment would improve. Bigger business usually employs more and spends more. Foreign investors would also be attracted by a higher return on after tax earnings and indeed regional players may look to transfer profits into Zimbabwe, rather than transfer price out! Bottom line of a flat tax regime is that the resulting increased activity will result in a far greater uplift to Government revenues than would be lost in a reduction in the rate of taxation. That has been the effect in each country that has introduced such a tax system and Zimbabwe would be no different.

There has been much talk of which currency Zimbabwe should adopt in recent weeks. The “free” market would have appeared to have already made that decision; the US dollar. Almost all transactions, including Government parastatals and tax collections, are in US dollars. Prices in shops and restaurants are in US dollars, and so are wages. It seems to work well and so why change it? STERP referred to the South African Rand as being the reference currency, but that was written before the multiple currency regime settled down. Further the South African Rand is subject to SA Exchange Controls, and hence physical Rand cash is hard to come by. Furthermore, SADC has yet to agree to adopt the Rand or a timetable to do so. To join the Rand Bloc on a par with Swaziland or Namibia without the use of rand cash, would in our view be too early for this Inclusive Government. There would be little trust in the Monetary Authority sticking to what is effectively a currency board linking a new Zim Rand to the SA Rand. Rather stick to the US dollar at least until SADC is ready for monetary union.

The argument to maintain what has proved to work – the US dollar – is a simple one. Almost all Zimbabwe’s exports – gold, platinum, tobacco – are priced in US dollars. Key import costs for Zimbabwe are priced in dollars – oil, fuel and electricity. Doing business in ONE currency makes life very much easier and allows businesses to budget and plan ahead without having to worry about currency fluctuations.

The argument for the Rand is flimsy at best and usually emanates from the retail sector that imports in rand but is currently selling in a depreciating US dollar. That argument suggests that adopting the rand would remove inflation caused by a depreciating US dollar as is the case today. We have noted however that US dollar prices in supermarkets have barely risen suggesting that competition is proving a better cap on inflation – which implies a squeeze on margins of the retailers. Further, if the rand were to depreciate against the US dollar in 2010, the rand prices would necessarily rise as South Africa’s input costs rise. Our main exports are not in Rands and our main imports are not in Rands. Would employees want to be paid in Rands…or would they prefer dollars which they can freely spend anywhere in the World? Sorry, but our vote is that Zimbabwe should stick with what works and that is the US dollar. Asia is largely pegged to the US dollar and that has worked for them - it is and will continue to work for Zimbabwe too.

We look forward to November’s Budget in eager anticipation. We have spoken and written about flat taxes and coupled with that, we hope to see import tariffs slashed or removed in line with SADC protocol. Zimbabwe should be an attractive country to live, work and operate in. We also eagerly await the signing of the investment agreement between South Africa and Zimbabwe. Long awaited privatizations would not go a miss on our Xmas wish list and Parliament needs to pass those laws we wrote about last month. So once again, much rests on the Finance Minister’s shoulders. If he could satisfy this simple wish list, then ordinary Zimbabweans, individuals, civil servants and businesses would have much to look forward to, as we all got down to some REAL business, not just recovery. The hard part of his job would then be done; the foundation would be in place for the free market to succeed. It would then be over to the judiciary to ensure all stakeholders work within the law. The foreign investor would be delighted and of course they would then help us to finance so much of what we all need to make Zimbabwe prosperous again! Good luck Minister Biti!

John Legat

Chief Excecutive, Imara Asset Management

Zimbabwe’s pitch to UK investors good for all southern Africa – Imara

noreply@blogger.com (Blog Administrator) — Thu, 17 Sep 2009 07:56:00 +0000

Every country in southern Africa should wish Zimbabwe well with its latest pitch to international investors, according to Imara, the Pan-African financial services group that is organising the country’s latest investment indaba, this time in London.

Imara laid on the first international investment conference of Zimbabwe’s inclusive government era when it attracted 40 major investors and fund managers to Harare in June.

Now it has created an offshore get-together scheduled for September 24 in London, co hosted by Fleming Family & Partners. It is hoped that an audience of investment professionals, mainly from the UK, USA and Europe, will be addressed by Zimbabwe Minister of Finance Tendai Biti. Specific investment opportunities in various sectors will then be outlined by major Zimbabwe corporates.

“Primary focus will obviously be on Zimbabwe and the phenomenal levels of commercial activity we have witnessed since dollarisation of the Zimbabwe economy,” said Imara group CEO Mark Tunmer. “But the positive knock-on benefits for other countries in the region, including South Africa, Botswana, Zambia, and Namibia, are difficult to overstate.

“With Zimbabwe up and running, trade volumes will increase significantly. Zimbabwe was always the bread-basket of the region. Reform and renewal in the agricultural sector will restore food security and bolster exports of agricultural commodities. The industrial, tourism and resource sectors have the potential for similar take-off.

“Unlike 2010 and the FIFA World Cup in South Africa, the impacts extend way beyond a temporary feel-good effect. Significant strategic benefits could accrue – and the London conference following so hard on the heels of our Harare event could well prove to be a crucial catalyst.” Imara’s London conference will include a strategic overview of Zimbabwe’s investment potential by senior Imara executives from the group’s Harare based businesses.

After that, in-depth presentations will be given by top managers from five leading Zimbabwe companies – Innscor, African Sun, Seed Co, PG Industrial and African Consolidated Resources. Investor interest in the Zimbabwe investment case has intensified, even though the London event takes place only three months after the watershed in-country indaba that re-introduced Zimbabwe to major league investment fund managers.

“We knew we would be tapping pent-up interest because many fund managers were prevented by their fund protocols from attending an event on Zimbabwe soil. We couldn’t bring them to Zimbabwe; so we’re taking the conference to them.

“Even allowing for this underpin, we did not foresee response on this scale. This confirms that Zimbabwe has reached a tipping point. The Zimbabwe economy is not waiting on Zimbabwe politics. Since dollarisation, the economy’s racing ahead and many investors are eager to be involved.”

Sounds Good Sir, but Can We See It in Writing First Please!

noreply@blogger.com (Blog Administrator) — Mon, 07 Sep 2009 20:57:00 +0000

The economic turnaround that has taken place since the formation of the Inclusive Government in February is extraordinary. Recent corporate results highlight the sharp recovery that is taking place in almost all industries. Strong monthly volume growth, growing demand, rising capacity utilisation and a move into profitability have all been features of management presentations. True, Zimbabwe’s formal sector is coming from a very low base, but nevertheless momentum is gaining traction. The banking sector, which was all but insolvent in January being the last sector to dollarize, has recently reported strong profit growth for the first six months of 2009, far exceeding expectations. Deposits continue to expand rapidly, rising from virtually nothing in February to $500m in May and we estimate over $1 billion at the end of August. This is significant as the banks are finally beginning to lend at long last. The ‘local’ banks are reporting loan to deposit ratios approaching 50%. The result, given competition and continued monthly gains in deposits, are declining borrowing rates to corporates and a greater availability of capital for industry. Again we are coming from a low base where a few months ago, what credit could be accessed was at exorbitant levels. For the banks whose deposit rates are very low, the margins on loans remain high and hence the profitability. Loan to deposit ratios can rise but with no lender of last resort (ie the Central Bank), the banks themselves have to be cautious in their lending which is not a bad thing in this day and age, not just in Zim but globally too. It remains early days in Zimbabwe’s developing banking industry and money markets and the development of a commercial bond market will only help to put pressure on lending rates. Debit cards are now increasingly available, VISA is back and cheque books are back in use for small denomination payments. In short, holding large quantities of cash is less necessary than it was. Over time, hopefully not too long, we will begin to see the return of mortgages and credit cards. That in itself will result in another major boost to the domestic economy.

Long term capital and credit lines from offshore remain illusory. Despite the ‘talk’ of credit lines being extended to Zimbabwe, in practice those lines are hard to access if at all. There is good reason for this. Whilst the economy is now operating under multiple currencies (largely US dollars and rands), and in effect exchange controls have been eased, the laws have yet to be changed! We are all in effect breaking the law by using foreign exchange and not the now extinct Zimbabwe dollar. With the recent suggestion by the Governor of the Reserve Bank that the Zimbabwe dollar could be reintroduced at some point in the future, it is hardly surprising that foreign bankers and investors are very cautious about placing their money! At the moment, Zimbabwe is one of the few countries in the World where there is no currency risk should you be a US dollar investor. This is a huge advantage over other frontier economies where currency risk is to the fore. It is an advantage that Zimbabwe needs to capitalize on but to do so the law needs to be changed to solidify the multiple currency regime and the removal of exchange controls. Calming words from the Minister of Finance are simply not enough for foreign capital providers in the current global environment, whilst ‘personal suggestions’ from the Reserve Bank Governor are unhelpful to say the least. The economic authorities should be speaking with one voice.

Changing the laws to reflect reality in the monetary system, is just one area. Repealing laws in other areas is equally important. Over the past three months, Zimbabwe has hosted two mining indabas, in both London and Johannesburg. Shortly, there will be another mining conference but this time held here in Zimbabwe. The mining ‘laws’ are a great source of confusion for potential foreign investors. The Prime Minister said in London that the indigenization aspects of the mining laws would be reviewed. At the moment the suggestion is that a foreign investor should in effect provide 100% of the capital to develop a resource but give 51% away to indigenous partners. That is clearly unworkable and the Government knows it. Before any sensible foreign mining company will take advantage of developing Zimbabwe’s many resources, the definitive law needs to be put in place. That will make the forthcoming Harare Indaba particularly interesting as we doubt that the authorities will be speaking from the same hymn sheet, further adding to confusion amongst the foreign investment community! We hope we are proved wrong. The net result is that the only developments taking place in the mining industry today are being undertaken by existing companies that are already on the ground with a resource, but these developments are being held back by a lack of capital.

A further hindrance to development has been the Government’s reluctance to sign any investor protection agreements, the most significant being that with South Africa. Given Zimbabwe’s recent past and the fact that an Inclusive Government is not a long term solution to the country’s political landscape, foreign investors and in this case, South African investors, naturally need a Government to Government agreement that will help to protect any investment that they may make in the country. This might cover sectors such as telecoms, mining, banking, tourism and agriculture in addition to other sectors where strategic partners are required. This agreement has been on the
table since March and yet still the Zimbabwe Government remains reluctant to sign it. As the Minister of Finance has said on many occasions, Zimbabwe is ‘shooting itself in the foot’. We have no doubt that an agreement will be signed, but any delay simply delays Zimbabwe’s further recovery. Again the ‘right’ talk needs to be converted into legal documents.

Meanwhile local industry is being forced to adapt…or die. Dollarisation takes no prisoners. Pricing pressure on traded goods will not disappear so long as Chinese and South African competition is strong. Pricing pressure on non-traded goods, suchas air cuts as an example, can only be increased through local competition. So whilst we have seen prices of products in the shops fall sharply, the price of a ‘hair cut’ has gone up. As the money supply increases and wealth with it, non-traded goods prices will likely rise whilst tradable goods price will stay under pressure. For the manufacturing sector, the pressure on prices is relentless. Under sanctions in the 1970s, Zimbabwe’s manufacturing sector thrived as the country needed to manufacture its own products. The legacy of that is that arguably Zimbabwe manufacturers are producing too many product lines and hence economies of scale cannot be achieved. The Zimbabwe market on its own is tiny. Management should see the region as being the market and should focus production on those products where they have a comparative advantage in the region, especially north of the Limpopo. This may mean producing only one or two products but rather do that and well than not at all. Export those products to the region. Being a member of both Comesa and SADC puts Zimbabwean producers at an advantage, as does the fact that production costs are largely based in dollars as are their revenues. A fluctuating local currency - as Zimbabwe’s regional competition face - makes it hard for them to compete consistently.

Finally some numbers to put Zimbabwe today into perspective. In 1997, Zimbabwe’s GDP according to the IMF was just under US$9 billion. By comparison, Zambia’s economy was around US$3.5 billion, seven years after their economic reform started in 1990 when it had effectively become a basket case. Today, Zambia’s economy is US$13 billion but according to IMF estimates for Zimbabwe in February of this year, GNP was a mere $3.5 billion. That’s some turnaround! We recognize that these numbers are estimates and take account of the formal economy that by the end of 2008, barely existed. As the formal economy once again takes market share from the informal economy, we would expect Zimbabwe’s GNP number to rise rapidly. Indeed, looking at the micro level and hearing what companies are witnessing in terms of volume growth and capacity utilization, we would expect GNP to grow very rapidly indeed in 2009 and 2010 and far faster than current Government and IMF estimates of 6% or so. Indeed it should not take too much to see Zimbabwe’s GNP approaching Zambian levels again in the not too distant future.

At its peak, gold production was one million ounces per annum. At current gold prices, that represents about $1 billion or 30% of estimated GNP. Platinum though is a much larger resource for Zimbabwe. Who knows what diamonds could be or what we might get coal back to. The former British Ambassador suggested that humanitarian aid to Zimbabwe was currently running at about $700 million per annum. Government estimates that potential credit lines could total more than $1 billion. All of these are big numbers relative to $3 billion estimated GNP. Meanwhile the stock market, excluding dual listed counters (Old Mutual and PPC) is capitalized at $3.5 billion. As formal GNP grows rapidly, and given that Zimbabwe has a well diversified and active Stock Exchange a high Market Capitalisation to GNP ratio is well justified, implying the market cap today is way too low relative to the growth potential of the economy.

To date, the credit lines and investments promised by international financiers and businesses have yet to be forthcoming. This has surprised and worried the Inclusive Government. There is a simple reason for this delay though. Zimbabwe has yet to put its words into law, whilst investor protection agreements need to be in place. Until that happens, no funds will be forthcoming from those entities. Foreign investors need to know where the goal posts are before making major commitments and not just where the pitch is. That said, and as we write, the IMF are providing Zimbabwe with foreign exchange reserve support to the tune of $500 million. That is highly significant although at this stage we have yet to hear of any strings that might be attached to this support. For a $3 billion economy, that’s also a big number.

John Legat

Chief Excecutive, Imara Asset Management

The ‘New’ Zimbabwe: A Rapid Recovery from a Low Base

noreply@blogger.com (Blog Administrator) — Fri, 24 Jul 2009 08:54:00 +0000

Imara Zimbabwe hosted an international investor conference in Harare during June, the first of its kind since the new Unity Government was formed and certainly the first of that size for over ten years. Fourteen listed companies presented for forty five minutes each during the two day event whilst the key note speakers were Tendai Biti, the finance minister, and Prof Steve Hanke of the John Hopkins University, Washington DC. Even those living in Zimbabwe learned much and for a number of our international guests, it was a true eye-opener.

All the companies who presented were generally positive about the new Unity Government on the one hand and upbeat about the post-dollarisation future on the other. Not one CEO felt that the country could or would return to the bad old past. As a result, the strategy for all the companies is geared to ‘the New Zimbabwe’. Indeed, in many respects it reminded us of the pre-1994 ‘New South Africa’ where business actively engaged their new Government of National Unity (GNU) to support reform and alter strategy to a new paradigm. The same is clearly happening in Zimbabwe today.

Under dollarization, companies cannot grow earnings through price increases any longer, and so growth is very much a volume game. Costs have to be slashed to maintain efficiency but with hyperinflation now gone, management can now at least identify poor performing divisions and boost overall returns on capital. All companies had seen a dramatic increase in volume growth since the December/January lows with growth rates of 40% per month or more in many cases. There is a long way to go before capacity utilization levels require expansion, and so the gearing effect on profitability, we believe, will be massive once costs have been contained. It is hard to value the future revenue streams as each month is better than the last and each month exceeds management expectations. So return on capital is very high but so too is the cost of capital, or the discount rate. A blue chip borrower may be lucky to access capital at 18% in US dollars, and then only for a short period, but most businesses may have to pay 3% per month and again only for a short time. The latter may sound high but the gearing effect on volumes is such that even a high cost of capital can make sense if the amount borrowed for capex or working capital is small relative to the overall boost in volume going from a 15% capacity ultisation rate to 50% or even more. Companies that have a South African or multinational parent, have typically been able to access working capital in the form of fast moving consumer goods on favourable credit terms that can be sold within Zimbabwe for cash. This helps to kick start those industries.

The banking sector that was all but bust at the end of December is rebuilding fast. Deposits had grown rapidly to US$500m by the end of May but suspicion and lack of trust in the banking sector post hyperinflation and post the theft of forex by Government in 2008, is holding that growth back. Barclays Bank estimates that cash outside the banking system amounts to a further $500 million. (The IMF believes GDP was $3.5 billion in February. This tallies with World Bank data which shows an average broad money-to-GDP ratio of 27% for non-oil resource intensive countries in sub-Saharan Africa. The poorer the country, the higher this ratio tends to be as financial systems become cash-based. But, coming from rock-bottom where statistics were not being collected, the volume of deposits/cash in the system in Zimbabwe is probably the best way to estimate the size of the economy and its growth rate). The banks are now just starting to lend but with no lender of last resort they will maintain lower maximum (i.e. 50%) loan to deposit ratios. Nevertheless the multiplier effect is now kicking in as loans are starting to take place, albeit cautiously and slowly.

With no effective rule-of-law as yet - especially with regards to land i.e. a property register protected by the law-ofcontract and enforced by the courts - but with such high potential returns on capital, the private sector is seeking new ways to invest. The tobacco industry hopes to double production from a low base in 2009/2010 as tobacco buyers fund contract farmers to grow tobacco on land that both the ‘new’ owner and the ‘old’ owner have agreed to allow. The tobacco seed beds are currently in the ground. Tobacco was once Zimbabwe’s largest export.

In effect, a “shadow banking system” is evolving, bypassing the immediate problem of poor ownership rights. Wheat, maize and barley is also being grown on a contract basis between corporate users and farmers.

Now that the gold miners no longer have to hand over their gold to the Government but can now sell their gold to anyone (and are), the industry believes that Zimbabwe could return to production levels of 1m oz of gold (i.e. revenues of $1bn) per annum in the not too distant future. Furthermore, by developing existing underdeveloped mines, production could rise to 3m oz (i.e. equivalent to GDP). Coal projects are already being reassessed whilst platinum, Zimbabwe’s largest export revenue earner, is being ramped up as we write. Under dollarization, there is now no currency risk for investors into Zimbabwe, unlike for most of English-speaking Africa.

There is much skepticism. The national newspaper, the Herald, daily downplays the Unity Government’s achievements and suggests that the Prime Minister’s recent trip to Europe, the US and UK have been an unfruitful exercise. (The PM says he raised $500m in additional funding). The international media also seems to focus on the politics, but not the economics. We well remember the in-fighting that took place within South Africa’s GNU pre 1994, the local and international media skepticism and investors’ concerns. Unlike Zimbabwe, South Africa had the violence too. But South Africa had embarked on an irreversible path, and one which took many investors and South Africans by surprise. Emerging from the World’s worst hyperinflation after Hungary (Hanke’s estimates), why should Zimbabwe be different? Indeed, assuming that the statistical office can collate and compare the numbers, we suspect that Government’s/IMF’s GDP growth target of 6% for 2009 is way too low. Talking to the companies on the ground you would expect to see growth rates of at least 15% but coming off a very low base that was 2008.

The British Ambassador informed us that the donor community is providing US$700m per annum for Zimbabwe, almost all of which is being targeted directly at NGOs and NOT through government. That’s a great deal of money for a small economy and accounts for a sizeable boost to local demand. Add growing private sector investment to the cocktail and the combination will give Zimbabwe a welcome economic boost. In the first instance, the Unity Government simply needs to set the parameters by which the private sector must operate. That means privatise, franchise, simplify taxes and reduce Government. In short, reform, reform and reform. This is where the South African GNU and successive ANC governments have failed. Their reform has arguably been too slow. Indeed, they still have exchange control and inefficient parastatals to this day. For Zimbabweans under dollarization, it’s adapt or die. To date, the listed companies that spoke at the Imara conference are eagerly adapting, and would move faster if there was more capital available. Then again, Zimbabwe is only five months into the change, so the capital is yet to catch up. Exciting times!

John Legat

Chief Excecutive, Imara Asset Management

Corporate Profile - June 2009

noreply@blogger.com (Blog Administrator) — Thu, 18 Jun 2009 14:45:00 +0000

Dual Listings - An Expensive Luxury with little or no Return

noreply@blogger.com (Blog Administrator) — Tue, 02 Jun 2009 08:05:00 +0000

There is often a feeling or belief that the grass is greener on the other side and that there is perhaps a greater chance of raising capital outside of one's own capital market. That is not often the case. AIM and the Toronto stock exchanges have been successful 'hubs' for mining and resource companies that operate globally or in countries with no capital markets. For African listed companies, the local exchanges are more often than not the best place to raise capital especially if the local market has a growing and active local savings base.

Zimbabwe Stock Exchange:

The original Zimbabwe Stock Exchange (ZSE) was established in 1896. There is as a result a long tradition of investing on the market and an entire industry has been created. Unlike many of its neighbours, Zimbabwe has a pension fund industry, an insurance industry, a local asset management industry, unit trusts and an established stock broking community. The financial sector survived the ravages of hyperinflation as it was largely left alone by Government authorities. Indeed the ZSE became one of the few places to hide during the hyperinflationary years.

Foreign investors became active on the market following changes to the Exchange Control Regulations in 1993. This allowed foreign investors to freely invest their capital on the market and repatriate both their capital and their dividends free of exchange control. During the 1990s, foreign investors were very active on the market as a result and this enabled local companies to raise capital.

As Zimbabwe's foreign exchange pool was depleted in recent years, repatriating capital became impossible through normal banking channels whilst new money coming into the country would have been at the official and overvalued exchange rate. Taking advantage of the fungibility of Old Mutual shares, foreign investors were able to bring funds into the country by first buying shares in Old Mutual in South Africa and then selling those shares for Zimbabwe dollars on the ZSE. The reverse was also permissible for foreign investors only. For the average foreign investor, such a process was not only cumbersome but also expensive. The net result was that only a very few foreign investors chose to buy into Zimbabwe shares. The bulk of the new asset class of African Funds have very little exposure to a market that is one of the most developed in Sub Sahara Africa ex South Africa.

The domestic share registers of the majority of listed companies, are dominated by the local institutions, and primarily by the pension funds. Foreign multinationals who have listed subsidiaries on the ZSE are typically already at their legal limit with regards their ownership level.

Currently the ZSE is an expensive market to deal on for both local and foreign investors. We have been assured by the ZSE that this is a short term issue and is being dealt with to bring Zimbabwe back in line with other African markets.

Zimbabwe Pension Funds

Due to hyperinflation, most pension funds have almost 99% of their assets on the ZSE as a means to preserve capital. As the local stock market rises, they will sell into strength and look to purchase money market instruments in order to earn a real US dollar return. At the moment, the money market is reawakening but it is still small with little opportunity. Meanwhile the banking sector is beginning to lend again but at huge US dollar interest rates once fees have been added. This is an opportunity for companies to issue debt/convertibles/preference shares to pension funds at a rate that undercuts the banks. In short, the need is to bring in competition so that companies can borrow at sensible US dollar interest rates.

Zimbabwe pension funds are unable to invest in assets listed outside of the country and would be unwilling to allow any dilution in their shareholdings as a result of not having this ability.

Foreign investors:

Foreign investors are very prepared to invest in foreign and emerging capital markets so long as the infrastructure is in place. Zimbabwe has that infrastructure and it works. Furthermore custodian banks are in place, the largest being Barclays Custodial Services. Above all else, foreign investors like liquidity and will be hesitant to purchase an instrument which they cannot easily exit from.

Zimbabwe is lucky in that it has a domestic institutional savings base which provides on going liquidity to the capital markets. This enables foreign investors to buy and sell local assets with considerable ease. Foreign investors would be unwilling to buy an asset if it could only be sold on to another foreign investor. A class of shares that would be listed outside of Zimbabwe would make it impossible for domestic institutions to buy that class of shares. As a result, premiums and discounts to the local ZSE price would be likely, unpopular and unhelpful.

Zimbabwe offers a unique situation currently as the ZSE is priced in US dollars. The common denomination for foreign funds is US dollars and occasionally Euro or pounds. An investment on the ZSE therefore provides NO currency risk to foreigner investors, unlike most other African countries.

Capital Raising:

Zimbabwean companies need to recapitalize. The capital is available from local institutional investors and foreign investors. Equity prices are low at the moment, implying that issuing equity is expensive. It is therefore better to look at corporate bonds, preference shares or convertibles. If equity needs to be raised through rights issues, domestic institutions have the option to take up their rights or not. Should they not take them up, the sponsoring investment bank/broker can look to allocate those rights to foreign investors who will be attracted by the ability to buy a sensible holding in a local company without having to bid the share price up in the open market. At a later date those shares can be sold back on the local market as required.

Conclusion:

Zimbabwe offers one of the more developed capital markets in Africa and in the Emerging Frontier universe globally. Furthermore it has an active and developed institutional investor base that few other frontier markets have.

It is rare in the Frontier Market universe to have a US dollar market. There is therefore no currency risk.

Zimbabwe is accessible to visit, company management is open and annual reports are available and in English. Foreign investors are therefore happy to visit the country just as they did in the 1990s.

Zimbabwe offers the necessary financial infrastructure for foreign investors to buy, hold and sell assets.

Zimbabwe offers foreign investors liquidity independent of other foreign investors.

Given the above attributes, there would seem little reason to seek a dual listing on another exchange. Dual listings imply dual costs, dual investor presentations and dual headaches but offer nothing that an existing listing in Zimbabwe cannot offer. It could provide a short term ego boost though!

John Legat
Chief Executive Officer
Imara Asset Management (Pvt) Limited

Tel : +263 4 790090, 700000,729335
Fax: +263 4 791875

Website: www.imaraholdings.com

Imara has a story to tell

noreply@blogger.com (Blog Administrator) — Mon, 26 May 2008 07:01:00 +0000

Due to Imara's exposure to different countries and therefore different risk profiles our base of operations is extremely interesting; it provides access to established low risk highly competitive markets and also the upside potential of the higher risk frontier markets whose short term prospects look challenging, but whose long term prospects are outstanding. Imara intends to leverage its operating base and experience in these diverse markets to access growth opportunities. I have been traveling extensively in sub-Saharan Africa recently exploring new markets looking for opportunities in which Imara can add value and participate. More on this in subsequent blogs.

Our new commitment to investor relations and shareholder communications is unique and may seem out of place given our rather narrow shareholder base, but it creates a direct communications channel with each of our registered shareholders and staff. The latter owning in excess of 50% of our issued share capital. We hope that this opportunity to provide feedback is a useful tool for investors, stakeholders and your Board and results in active interest in our company leading to a growing loyal shareholder base.

Our award winning broking service in South Africa continues to offer outstanding value in online share trading. Our African investment funds under management have grown from US$1.5m in 2005 to in excess of US$300m currently. Heightened corporate activity in many markets this year provides us with the opportunity to re-align our investment portfolios and access increased levels of liquidity – a trend that is set to improve to our benefit. Our corporate finance team continues to be active in the privatisation space having recently been appointed, together with our Zambian partners, Stockbrokers Zambia, as Lead Financial Advisers for the privatisation, IPO and listing of the Zambia National Commercial Bank on the Lusaka Stock Exchange.

The Africa Funds and John Legat`s Monthly Investment Notes are already blogged on African CEO's web blog and I hope that my Imara CEO Blog complements the insights he provides from time to time. In short we have embarked on a renewed commitment to communicating Africa's growth story which is an integral part of Imara's growth story. Welcome aboard.

Mark