ZIMBABWEAN SNAPSHOT

2012 Quarter 2
Inflation - Headline inflation averaged 3.9% y-o-y in the 12 months ending April. Official inflation data remains unreliable due to the outdated and unrepresentative consumer spending basket used to calculate it, with the current basket founded on a spending survey conducted in 1990. We believe that y-oy inflation is currently at low double-digit levels. Growth - After forecasting over the past year economic growth of more than 9% during 2012, the finance minister announced during mid-July that real GDP growth will reach only 5.6% this year. He indicated that during H1 of 2012 the local economy had experienced its most challenging period since the general turnaround seen in early 2009. National development plan - During June, economic planning and investment promotion minister, Tapiwa Mashakada, confirmed that almost all of the past 12 months' targets set by the countrys Medium-Term Plan (MTP) for 2011-15 had been missed. Since the political and economic turnaround in 2009, various structures of the Zimbabwean government have launched a multitude of short- and medium-term economic plans. Most (if not all) had two major flaws: overambitious views of the countrys outlook as well as a lack of dedicated financing.

OPPORTUNITIES The country was once seen as the bread basket of the region, and has massive scope to increase its agricultural production. Large mineral reserves offering long-term investment potential dependent on political issues, of course. Increasing cooperation with Namibia on logistical channels between Harare and Walvis Bay, which will benefit imports and exports. The government is re-engaging multilateral organisations, which has already led to progress in the process of securing external debt relief.

STRENGTHS Multi-currency regime keeps consumer prices intact, and increases liquidity in the economy due to external sources of cash. While many highly educated Zimbabweans are now living abroad, the countrys literacy rate remains high. Economic growth (albeit more moderate in the short-term) is again entrenched after a decade-long recession up to and including 2008. Trade with (no. 1 export/import partner) South Africa is supported by geographic proximity, as well as currency and language similarities.

VULNERABILITIES

WHAT IS BEING DONE?

Political uncertainty ahead of elections is the main impediment to a faster Some parts of the government are actively courting foreign investors, while economic recovery as it curtails foreign investment interest. other elements counteract this with anti-Western statements. Highly dependent on imported food & consumer goods some 75% of local Not much. The local factory sector's capacity utilisation increased to 57% in goods are acquired from the South African economy. mid-2011, and has since remained stuck at this level. Government finances are handled on a cash basis due to a lack of domestic and The state has issued small amounts of debt instruments via semi-state entities, external borrowing opportunities. though have so far attracted limited interest. Domestic electricity generation is currently 35% below peak consumption The Zimbabwe Electricity Supply Authority (ZESA) has reduced its debt to demand, with hours-long blackouts a daily occurrence. $20m in order to resume imports from neighbouring countries.

MEGA TRENDS Population Population growth rate (%) Life expectancy at birth HIV/AIDS 12,619,600 (2012 est.); Age 15 - 64: 54.3% 4.357% (2012 est.) Total population: 51.82 years; male: 51.95 years; female: 51.68 years (2011 est.) Adult prevalence rate: 14.3%; People living with HIV/AIDS: 1,200,000 (2009 est.)

Adult literacy rate (age 15 and over can read 92% (2009 est.) and write) Urbanisation Population below poverty line Unemployment rate Employment (% of total) Labour participation rate (% of total population ages 15+) Business languages Telephone & Internet users Sources: CIA World Factbook, World Bank Urban population: 38% of total population (2010); Rate of urbanisation: 3.4% (2010-15 est.) 68% (2004) 95% (2009 est.) Agriculture: 65%; Industry: 10%; Services: 25% (2004) % of total labour force: 86% (2010) English, Shona, Sindebele Main lines in use: 379,000; Mobile cellular: 7.7 million; Internet users: 1.445 million (2010)

Total
Corruption Perception Index 2011 (1 least, 182 most corrupt) Doing Business 2012 (1 best, 183 worst) World Competitiveness 2011-12 (1 most, 142 least competitive) 132 96 154

Zimbabwe 182
183 142 179

171

Economic Freedom 2012 (1 most, 179 least free)

HDI Ranking 2011 (1 most, 187 least developed)
Source: NKC Research

173 0 20 40 60 80 100 120 140 160 180

187 200

Risk environment / Risk outlook

Zimbabwe vs Africa NKC Sovereign Risk Scores (weighted average: 0 = best; 100 = worst)
100 90 80 70 60 50 40 30

NKC Political Risk Rating

Source: NKC Research

Moderate Sovereign Risk Ratings S&P N/R Fitch N/R Moodys N/R

Overall Africa NKC Risk Score

Zimbabwe

Countries used for Africa average are Algeria, Angola, Benin, Botswana, Cameroon, DRC, Egypt, Ethiopia, Gabon, Ghana, Kenya, Lesotho, Libya, Malawi, Mauritius, Morocco, Mozambique, Namibia, Nigeria, Rwanda, Senegal, South Africa, Swaziland, Tanzania, Tunisia, Uganda, Zambia, and Zimbabwe.
Socioeconomic Development Low, social spending mostly from NGOs

Infrastructure Dilapidated, limited spending

Diversity of the Economy

Banking Sector

Continuity of Economic Policy

GDP Growth

Key Balances

Foreign Investment

Forex Reserves

Quite diverse

Still Continued functioning, but populist reforms fragile

Strong during 2009-11

Large deficits

Volatile

Very limited

Stock Market ZSE Capital Market No

Primary Listed Companies 75 Development None

Liquidity Reasonable Liquidity N/a

Market Cap $3.2bn Maturity Range N/a

Dominant Sector General industrials Municipal Bonds N/a

Daily Trading Volume $6.6m Corporate Bonds N/a

Macro-economic overview
Zimbabwe still has one of the most diversified economies in the world despite its collapse during the decade ending 2008, and has the potential to once again become a regional bread basket. The introduction of a multicurrency regime during early 2009 has been a big supportive factor in the economic turnaround seen over the past three years. However, it is quite possible that the country during 2009-11 maximised the growth catch-up potential available after the political situation improved. The Zimbabwean economy is now faced with cash shortages, an electricity supply deficit, massive external debt obligations, the after-effects of an exodus of skilled labour, a weak infrastructure environment, as well as continued sanctions against its leaders from the West. The mining and agricultural sectors are the industries currently powering the Zimbabwean economy back to its former glory. The export of gold, platinum and tobacco are the most important foreign exchange earners at present alongside expatriate remittances, while state revenues are highly dependent on consumer spending. The banking sector remains fragile and faces significant liquidity constraints, making it hard for companies to access credit and for financial institutions to convince ordinary Zimbabweans to increase their deposits.

Economic Structure as % of GDP, 2011

Source: NKC Research

Agriculture/ GDP 18.4% Service/GDP 44.4%

Industry/GDP 37.2%

Zimbabwes cereal harvest will decline this year by 33% compared to 2011 and will be 14% below the 2007 -11 average. This years maize crop will be significantly below the countrys expected consumption of 1.8 million tonnes, signalling a greater need for i mports from within the Southern African Development Community (SADC). Confederation of Zimbabwean Industries (CZI) President Kumbirai Katsande said in mid-July that the manufacturing sectors capacity utilisation had improved to an average of 57% at the time. While this is much better than a mere 10% recorded during 2008, it implies that there has been no progress over the past 12 months. Regarding the tertiary sector, the Government Gazette laid out new rules on July 3 about the indigenisation of more enterprises like motor vehicle companies and tourism operators, amongst others. The Movement for Democratic Change (MDC) remains of the opinion that the indigenisation process is illegal and has not been approved by the Cabinet though this has not stopped the process from moving forward.

Real GDP Growth & Net FDI/GDP

15.0
Source: NKC Research

2.8 2.4 2.0 1.6 1.2 0.8 0.4 0.0 2006 2007 2008 2009 2010 2011E 2012F 2013F GDP Growth (y-o-y, %) (lhs) Net FDI/GDP (rhs)

10.0 5.0 0.0 -5.0 -10.0 -15.0 -20.0

Zimbabwe Investment Authority (ZIA) CEO, Richard Mbaiwa, revealed during May that $6bn worth of approved investment projects failed to take off last year, i.e. about 90% of the value of all approved foreign investment projects. (The majority of interest came from entities in China, India and Mauritius.) In this regard, the Financial Gazette recently reported that a former executive at the Chamber of Mines indicated some $4bn in mining investments were lost due to investors retreating in light of the countrys indigenisation drive.

2011E
Imports ($ bn) Machinery, nuclear reactors, boilers Vehicles other than railway, tramway

2012F

2013F

Main Imports: % share of total Machinery, nuclear reactors, boilers Vehicles other than railway, tramway

2011E 14.65 9.86 8.15 5.29 2011E 27.73 13.34 10.74 10.61

2012F 13.40 14.51 5.58 6.70 2012F 28.00 9.20 8.40 10.00

2013F 12.99 14.21 6.09 7.10 2013F 26.55 9.20 8.50 9.91

Electrical, electronic equipment Mineral fuels, oils, distillation products

Electrical, electronic equipment Mineral fuels, oils, distillation products

Exports ($ bn)

Tobacco & manufactured tobacco substitutes Iron & steel Ores, slag & ash Cotton

Main Exports: % share of total Tobacco & manufactured tobacco substitutes Iron & steel 0.0 0.2 0.4 0.6 0.8 Ores, slag & ash Cotton

Source: NKC Research

Zimbabwe's main exports are minerals and soft commodities (tobacco). The most important buyers of these goods are China, South Africa, the Netherlands, Italy, Zambia and the US, showing that those countries seen as politically friendly (China and South Africa), as well as more hostile states (the US in particular) are all important for Zimbabwean exports. Suppliers of imports are of a similar nature, and include political allies and foes. South Africa has experienced a healthy trade surplus with Zimbabwe over the past decade, simply because of the vast variety of exports it can offer its northern neighbour, along with the dire state of the Zimbabwean economys increasing dependence on external supplies of food and con sumer goods.

0.0 -5.0 -10.0 -15.0 -20.0

Current Account & Budget Balance (% of GDP)

-2.0 -4.0 -6.0 -8.0 -10.0

Source: NKC Research

-25.0 2006 2007 2008 2009 2010 2011E 2012F 2013F Current Account/GDP (lhs)

-12.0 Budget Balance/GDP (rhs)

Zimbabwes exports increased by a larger-than-expected 14% y-o-y during the first quarter to $900m, resulting in an upward revision in our export forecast for this year to $3.4bn. The import bill was 41% y-o-y larger at $1.85bn, and is projected to record a full-year figure of $5bn. This will equate to a trade account deficit of $1.6bn which is slightly larger than the shortfalls recorded during 2009-11 due to a larger appetite for imports. This will include a big purchase of Zambian maize due to the local food security situation as well as more expensive fuel products given the recent jump in international oil prices. This is expected to contribute to the countrys current account deficit remaining large this year at around $570m, now estimated to e qual 8.3% of GDP. However, the narrowing trend set in motion during 2010 is still continuing.

Average CPI (% change, y-o-y)

4.6
Source: NKC Research

4.4 4.2 4.0 3.8 3.6 3.4 3.2 3.0 2009 2010 2011E 2012F Zimbabwe is famous for its hyperinflation situation during 2006-08, with headline inflation calculated at 250,000,000% y-o-y in mid-November 2008. The abandonment of the Zimbabwean dollar resulted in goods and services being priced mostly in US dollars, and the measurement of inflation also being based on these numbers. Inflation was quite low during 2009-11, though these numbers are based on an outdated income and expenditure survey. Official inflation figures should remain below 5% y-o-y in coming months, while actual inflation in the absence of quality data is estimated to be two to three times higher.

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