Imara Investment Notes: Zimbabwe at a Pivotal Moment
Zimbabwe has had a poor and dysfunctional monetary system for the better part of twenty years with the brief exception of 2009 to 2013 when dollarization was allowed to work. The asset class that does well during such bad times is equity as it acts as a hedge against inflation and devaluation. Money market assets on the other hand will likely perform poorly as returns cannot compensate for a depreciating currency and high inflation. As a result, our high exposure toward equities has served our clients handsomely over the past five years as it did during the hyper inflationary years. Zimbabwe is now at a crucial turning point. Elections in a matter of weeks have the potential to result in a new Government that is committed to significant economic reform that could change the investment climate for the better for the first time since the 1990s. Crucial to this reform will be the monetary system that the new Government chooses to adopt; without a solid monetary foundation, the economy will forever under perform and will never attract the much needed foreign long term capital.
Fortunately the two major political parties are both committed to economic reform and are encouraging a re-engagement with the international community. This is positive and a dramatic change from the 2013 elections when the policies of the one party were diametrically opposed to those of the other. The proof though will be in the pudding; tough economic decisions will need to be made which newly elected politicians may shy away from as they seek another more palatable path to follow. They have tried this before and have always failed since those paths always arrive at a dead end…
