AMONG the odd economic indicators in the Zimbabwean economy is the money supply, still a bit higher than it should be ideally, the rate of inflation, again higher than it should be when we look at the fundamentals, and the growing infla- tion in the global economy, including the US economy.
But those with fairly large sums stashed away, in both Zimbabwean and US dollars, are happy to be earning zero interest on their piled up money, albeit trying to convert their piled up local currency to US dollars, if necessary through the black market.
Yet, as a developing country, Zim- babwe is short of capital investment. It would seem obvious, and would be obvious if people were thinking straight or living in a more normal economy, to match those with surplus funds with investment opportunities.
The classic route is an equity market. At the moment the Zimbabwe Stock Exchange and the subsidiary Victoria Falls Stock Exchange basically list long-established companies. So it is old shares, those created some time ago, that are bought and sold. This is fine and one of the main functions of a decent stock exchange is to provide a market that gives equities a degree of liquidity, although the prices are set by the market, not by the holder.
But the other function of a stock exchange is to provide a platform to raise new capital, either through a rights issue, or even debentures or other approved means, by existing companies or to float new companies on the market.
The Security Exchange Commission and the ZSE have a modest pile of very strict rules, both for the accounting protocols used by listed companies and the information they are required to give shareholders, both existing and potential. There are other rules about insider trading and other scurrilous practices. A clean market with maxi- mum information is the requirement and is achieved.
The ZSE cannot guarantee that a particular company is a good buy, nor condemn a company as a bad buy. Investors have to make their own judgements but the ZSE will do its best to ensure that a reasonable amount of information is available and that this information is accurate. With the economy now growing it seems that there could be more openings for go-ahead private businesses to consider a public floatation.
The change in the economy in the last couple of decades, from a fairly small number of large businesses to a far larger number of smaller and medium sized businesses could be accommodated by a two-tier stock exchange, an upper tier for the large companies but a way of listing the smaller second tier companies. This is now an established practice globally and the ZSE and SEC would just have to follow best practice.
Buying shares in listed companies is an investment route for those who have no wish to run the business they are buying into, but who are prepared to put up part of the required capital for a share of the profits, and, in a balanced portfolio covering a number of counters, probably preserving the value of their capital against inflation as well.
A second investment route for cash- flush companies is to figure out new investments up-stream and down- stream of their business. If you make something you might want to invest into the producers of raw materials, and even set up a business to do this, or invest in the downstream end where your product meets the consumer.
Here the investor is looking at the same sort of returns an equity investment would give, but is ready and pre- pared to play a major part in the management of the new business. Some, in this area, think it adequate just to try and buy out the competition, but even if that is successful this is not the greatest strategy since a new competitor could start up tomorrow.
A third area of investment is property. Here major changes in Zimbabwe’s consumer culture has created a bit of an oddity. Downtown Harare has a surplus of supply when it comes to office space, although a lot of the empty offices are in buildings that require some serious renovation, perhaps new lifts.
But decent office space, along with commercial space, is at a premium in the northern suburbs, especially the north-eastern suburbs. The trend for far more smaller companies has seen a lot of housing in some areas converted to offices, frequently owner occupied, but this does not negate the fact that there is a growing demand for office and shop space, in the right areas.
Factory complexes are seen as a source of investment. The rise of the medium and smaller businesses mean that there is a lot of demand for rented accommodation for these companies, which frequently cannot be set up in converted housing in residential areas because of their noise, emissions or other nuisances.
Some investors have figured out how to create, or convert older property, fac- tory complexes that have a number of business tenants who can get things like security, parking and the like through shared services at an affordable rental.
Then there is the paydirt, residential property. Building for rent was, for some reason, frowned upon at one time, despite the demand. Rent boards using criteria that had very little con- tact with a real world made a formal investment market for rented accommodation almost impossible. This did not stop the less formal market. A lot of people seem to own individual flats that they rent out at quite decent returns, or houses that they make a decent return on.
Efforts by Zimre and the Mining Industry Pension Fund in the 1990s to create an institutional climate for new flat development started well but were killed off by the then rent boards as they tried to maintain rents roughly in line with inflation. These two major institutional investors simply sold off their properties as individual flats, and the tenants found themselves paying far higher rents without much recourse.
But the present Government is far more likely to be open to good ideas and likely to be far more reasonable. Those wanting to build flat or houses for rent on present private land obviously can just go ahead, and they are likely to be able to charge whatever comes out as a market rate. This investment would simply be adding to the present existing private stock.
But the Government is also interested in private development on pub- lic land. Here, obviously, there will be more detailed negotiations and potential controls. But on the other hand there is a lot more vacant public land so investors should be interested in working out deals. Rents would be subject to agreement at the beginning.
The obvious way would be to allow a fair percentage return on investment as the starting rent. The actual percentage could be hammered out in negotiations. Rent rises would be strictly governed by inflation, and that is inflation as measured by the cost-of-living index, not by black market exchange rates or any other weird standard.
There could also be a second corrective factor, the value of the property as it changes.
This would have to follow some complex formula that took into account the depreciation, pushing the value down, the replacement value, and the present market price.
But a country with our present population and five million children under the age of 16 is not going to run out of demand for new housing anytime soon. The Government’s national housing programme, while huge, will still need a lot of backing by the private sectors and private investors to meet all requirements, so it seems that there could be a meeting of minds.
The fourth way of putting money to work is to lend it out. Here banks need something more stable than a demand deposit, and preferably need longer term deposits than, say, just 30 days. So there is a challenge for banks to figure out products and rates, and some willingness by savers and investors to move beyond the demand phase.
This could include special investment vehicles, if liquidity is still desired, where fixed term bonds could be bought and sold. People might not get all their money back if they sold too early but at least they would get most, and this would also start the pro- cess of grading bonds. Some would be exceptional quality, others might be close to junk, but that would give investors a range.