Home » General » Failed Deals Deter Investors

A common phrase that defines logic defying behaviour is one that says “Fools rush in where brave men dread”. It is also in that same line of thinking that most would say that virtue lies between extreme opposite ends of the behaviour spectrum, in the same way that courage lies in between utter

carelessness and cowardice.

Investors’ exhibit differing risk appetites anchored on diverse market expectations, in making asset allocation decisions. In coming up with market expectations it is imperative to do a due diligence on the intended market and the exposure that the investor is looking at picking up. In this due diligence it would be naiumlve not to consider the experience of other investors that have walked the same path, in the same light.

Investors seeking to commit in any sector or country will not turn a blind eye to the experience of their predecessors who have participated in that market before. When investors consider investing in Zimbabwe, they will make an assessment of the experiences of others who have sought to make investments in Zimbabwe. When they do, the analysis of failed deals and obstacles that met their predecessors will give them a second thought before making commitments to the economy.

MorAlbert Norumedzo: Investment Analyst – albert.norumedzo@gmail.come than any other factor, failed deals that left foreign investors regretting their decision to do business in Zimbabwe will act as impediments to future capital inflows into the country. Giving testimony to this notion is the continued plummeting of doing business rankings which categorise Zimbabwe among the least preferred investment destinations on the globe. The manner in which past transactions in both the private and the public sector have been handled has fallen short of inspiring confidence in prospective investors.

Investors can handle structural inefficiencies and even a bit of political volatility. These are factors which are not unique to Zimbabwe alone. What investors will not be able to stomach is inconsistency at deal implementation and adoption level. A number of failed deals to this day still haunt the capital raising efforts of Zimbabwe’s struggling economy. Some are yet to be concluded and some have folded shop barely a year after pen was put to paper and funds committed.

The ESSAR deal which created much hysteria and hope of bringing economic revival across the mining and manufacturing sectors is still to take off half a decade later. Families, businesses and other small entrepreneurs who had anticipated the return of sustainable economic activity still hold on to the shadows of former glory and fading promises. ESSAR Africa Holdings in 2010 agreed to buy 54 percent in Zimbabwe Iron and Steel Company (ZISCO), with the Government keeping 36 percent and 10 percent owned by minority investors. The initial plan was to upgrade the existing steel plant in the Midlands and produce 1,2 million tonnes of steel at a cost of US$750 million. The deal, however, ran into problems after Government refused to transfer mineral rights to New Zim Minerals, to this day progress has been confined to boardroom meetings and resolutions that are yet to become more than just that.

In isolation the deal may seem like just one deal which can be replaced by many other deals that we have talked about. However, in principal it represents a system that remains our economy’s biggest enemy.

The financial services sector is still coming to grips with the closure of Kingdom Bank after it voluntarily surrendered its banking licence after parent company AfrAsia Holdings indicated they would not be providing further financial assistance hardly two years after AfrAsia Holdings injected millions into the financial holdings firm, consequently buying out the founder. This was a regarded as a gesture of confidence among the investing public,giving hope of more investments coming through to enhance capacity in the banking sector and Zimbabwe’s financial markets at large.

Fate, however, had other things in mind. A deal that was perceived as a significant milestone in investor confidence enhancement, in a delicate industry in Zimbabwe’s economy was in the eyes of most, a giant step in the right direction which was expected to open up more deals of a similar nature.

Hardly two years later we are now wondering of the fate of both depositors, shareholders, employees and other stakeholders after the closure of AfrAsia Zimbabwe. Is this an isolated deal that will have no consequences on future deals in the financial services sector? Far from it, this not only dissuades foreign investment but significantly reduces the level of confidence that citizens of Zimbabwe and other local stakeholders have in the banking sector.

These examples are just the tip of the iceberg, many examples of failed deals stain the country’s investment portfolio with some having failed even before being made public, across all sectors – mining, manufacturing, agriculture, financial services, to name but a few.

In all fairness cognisant of the stakes in such high value transactions (deals), when key deals collapse ending the hopes of employment opportunities, economic growth, sector enhancement among other economic synergistic benefits, responsible authorities and key stakeholders should ask themselves if they could have done more to safeguard the national interests embedded in these commercial transactions.

One would think that given the current commercial operating framework, endowed with so many regulatory, authoritative, supportive and promotional bodies overseeing the nation’s investment, trade and economic development portfolio, the investment landscape in Zimbabwe would see deals being transformed into production and contributing to the revival of ailing industries but in the contrary most of what you see are failed deals, bureaucracies, under hand dealings and failed initiatives.

When the professional fabric upon which deals and other commercial transactions are anchored on becomes questionable, undependable and difficult to work with, investment of whatever form become a dream that will forever remain in the pipeline, doomed to never see materialisation.

Unless and until stakeholders do more to protect Investors, both local and foreign and instil confidence in the playing field with respect for property rights, fair dealing and disclosure, adequate oversight and commitment from regulatory bodies such as Zimbabwe Investment Authority ( ZIA), Zimbabwe will see no meaningful investment coming through.

The collapse of significant deals will forever be a tainted reference point for potential investors in evaluating where to commit their funds across global portfolios and Zimbabwe will always lose out to neighbouring countries like Zambia, Malawi, Botswana, South Africa and others across the region like Kenya, Ghana to mention but a few.

Past investment flows into Africa speak volumes of this notion and we all know it, we know the problems and hurdles confronting investment, we just lack the will to commit to the cause.

Albert Norumedzo: Investment Analyst – albert.norumedzo@gmail.com

Source : The Herald