Welcome to Zimbabwe, where new President Emmerson Mnangagwa wants to sell eurobonds to revive one of the world’s weakest economies and end its isolation from international capital markets. The odd thing is, the pitch might just work.
“It is a tall order, but no longer out of the question with the change in leadership,” said Hasnain Malik, the Dubai-based head of equities research at Exotix Capital, who covers Zimbabwe.
Mnangagwa, 75, is mingling with the elite of the capitalist world in Davos this week, two months after replacing Robert Mugabe.
Under Mugabe, 93, who ruled the southern African nation for almost 40 years until the military ousted him in November, Zimbabwe turned from one of the continent’s most promising economies into a virtual pariah state. His sanctioning of violent takeovers of white-owned farms from 2000 crushed agriculture, the mainstay of the economy, and caused investors to flee.
Inflation surged to 500billion percent, according to the International Monetary Fund (IMF), as Mugabe printed money in a desperate attempt to get out of the hole he’d created. Hyperinflation only ended in 2009 when Zimbabwe scrapped its worthless dollar and adopted US currency, which is still the dominant legal tender among a basket of notes.
While Mugabe’s exit paves the way for Zimbabwe’s reintegration into the global financial system, bond investors will first want to see credible elections, more fiscal discipline and a deal with the IMF for financial help, Malik said.
Mnangagwa, a former spy chief who was close to Mugabe throughout his presidency and the nation’s liberation war before that, plans to hold elections within five months and invite international observers, he said in an interview with Bloomberg in Harare, the capital, last week. He’s confident he’ll win.
While it could take several years before Zimbabwe can reintroduce its own currency, it may start the process soon by building reserves of gold and diamonds, Mnangagwa said. His government will also prioritise repaying roughly $1.8billion of arrears to external lenders and getting support from the IMF, he said.
Until Zimbabwe does that and obtains credit ratings, “no one will buy from these guys,” said Kevin Daly, a London-based money manager with Aberdeen Standard Investments, which oversees $900bn including African sovereign debt.
Still, there have already been improvements in Zimbabwe’s local markets. The nation’s stocks became skewed under Mugabe: they soared for all the wrong reasons last year as locals, worried about a new round of money-printing, sought to hedge against potential inflation.
Since Mugabe’s exit, they’ve dropped to more realistic levels in a sign of rising confidence, according to Malik of Exotix. The gauge is down 39percent from its November peak, paring its gain in the previous 12 months to 330percent.
Even if Zimbabwe does the right things, the earliest it would be able to issue a eurobond is the end of this year, according to Rick Harrell, a sovereign analyst at Loomis Sayles & Co, which manages $268bn of funds. The task would be that much easier if the high global demand for emerging-market debt is sustained until then.
“They have a laundry list ahead of them,” said Harrell, who is based in Boston. “But the market environment couldn’t be any better for an issuer.”