Chabvonga gears up for growth as Zimbabwe moves forward
April 21, 2009
South Africa Hedge >
Zimbabwe
Ronald
Chabvonga believes Zimbabwe’s "decade of destruction” is truly at a close and
has
teamed his
Gondo Capital firm with Patrice Moyal’s Visio to take advantage of impending
change.
read articleChabvonga gears up for growth as Zimbabwe moves forward
April 21, 2009
Ronald Chabvonga believes Zimbabwe’s
"decade of destruction” is truly at a close and has
teamed his Gondo Capital firm with
Patrice Moyal’s Visio to take advantage of impending change.
Ronald Chabvonga is, at last, seeing exciting signs
of change in his homeland, Zimbabwe.
"We call it
the decade of destruction,” he says of the past 10 years, during which the
market capitalisation of the Zimbabwe Stock Exchange withered from US$9.7
billion in 1997 to $1.2 billion as of the end of 2008. "I speak as a Zimbabwean
and understand how the environment works. When you begin to see certain things
happen, then you know the wheels are beginning to turn. These developments
paint a picture of change.”
Speaking
from his Johannesburg office on the eve of a roadshow to visit prospective investors
in Europe, Chabvonga notes several key changes since Morgan Tsvangirai was
sworn in as prime minister in February, after his Movement for Democratic
Change formed a government of national unity with Robert Mugabe’s incumbent
Zanu-PF.
The Ministry
of Finance has reinstated fungibility on dual-listed shares (such as Old
Mutual, which is listed in London, Johannesburg and Harare), meaning shares can
again move between exchanges. Used as a way to take money out of the country,
this had been deemed in breach of exchange controls.
The
country’s new finance minister Tendai Biti announced a revised budget in late
March (following on from
February’s Zanu-PF budget), outlining new government policies.
And with
rands and US dollars now in use, the Zimbabwe dollar is defunct, meaning that
the Central Bank is no longer able to ‘print cash’. That minimizes exchange-rate
risk, and points to hyperinflation becoming less of a problem. In fact,
inflation in February 2009 stood at just 3.1%.
"There is
now food in the supermarkets, as local retailers are able to settle in US
dollars. Salaries and allowances are being paid,” says
"There
are still issues, and we won’t gloss over those, but there is a realisation
that we cannot dwell on the past; that we need to move forward and build the
country – and that this is a massive opportunity”.
Chabvonga.
"These are basic things that outsiders take for granted. But the fact that they
are happening – that the budgets are being revised, that the Ministry of
Finance is asserting its authority – indicates change. There are still issues,
and we won’t gloss over those, but there is a realisation that we cannot dwell
on the past; that we need to move forward and build the country – and that this
is a massive opportunity.” In preparation for impending developments, last year
Chabvonga teamed up with Patrice Moyal at Visio Capital, one of South Africa’s
most respected hedge fund firms, forming a joint venture with his own firm,
Gondo Capital (see AfricaHedge, September 2008).
Visio is
already allied with Malungelo Zilimbola of Mazi Capital, managing over R2
billion in South African equity-based strategies. The partners are preparing to
launch two Zimbabwean funds on 1 May – one investing in listed shares and the
other in unlisted opportunities, with Chabvonga as CIO.
Raised in
Karoi, northwest of the capital, Chabvonga completed his A-levels at Churchill
High School in Harare. He then finished his articles at KPMG, where he spent
nine years, covering a variety of sectors and specialising in banking and
finance for the last few years.
In 2000, he
joined Stanbic Bank as CFO, before moving to South Africa in 2002 with Century
Holdings, which was aiming to develop an Africa-wide international money
transfer business. When that struggled to get off the ground in the aftermath
of the 9/11 terrorist attacks, he rejoined Standard Bank for a further three
years, before joining Anglo Plat’s corporate finance team in September 2006,
where one of his briefs was to manage and negotiate the company’s $400 million
investment in Unki Mines in Zimbabwe.
"I have a
good understanding of companies in Zimbabwe and access to management and
leadership is made easier for me because of my background,” he says. "Many of
the leaders in these companies are my peers. I have had access to government
officials and regulators. These people remain just a phone call away.”
Chabvonga
travels to Zimbabwe every couple of weeks, doing his own research and building
models in conjunction with the Visio/Mazi team, which totals seven investment
professionals known for their value-driven, bottom-up research and execution
skills. The listed equity fund will be known as "Takura”, the Shona word for
"we have matured”.
While there
have been some delistings, new listings and consolidation over the past decade,
Chabvonga notes that little has changed materially in the composition of the
index – other than the destruction of value brought about by the country’s
political and economic debacle. "There has been an enormous loss of value for
companies and there has been minimal foreign investment,” he says. Growing from
a low base, Zimbabwe is expected to be decoupled from international trends.
"Currently,
most companies are using just 20-30% of installed capacity, even in the listed
space,” says Chabvonga. "We need to ramp that up to 80-90% before the full
benefits are realised. There is an immediate need for working capital.”
The fund
will be predominantly long (shorting is not an option within Zimbabwe) but
external hedging opportunities are available via instruments listed elsewhere,
leaving scope for both correlated and uncorrelated shorts.
The funds
also have both rand and US dollar classes, with currency risks hedged where
necessary. While the listed fund has a broad mandate, Chabvonga notes that
hyperinflation has killed off most fixed income opportunities, although the
switch to a dollarised economy means there is an opportunity for the
development of the country’s capital markets.
The private
equity "Dura” fund takes its name from the Shona word for a traditional granary
– a pole and dagga structure with a small opening via which one can enter and
retrieve as much grain as one needs.
"Dura could
potentially be a series of funds,” says Chabvonga. "It could reach $200 million
to $500 million. That’s how huge the opportunities are in the unlisted area.
The types of opportunity we choose to take will impact the size of the fund.
"That said,
we don’t want too many opportunities in the portfolios. We will focus on the
sectors we are interested in. If we raise $200 million, ideally we wouldn’t
want more than 10 opportunities to invest in. That’s a large amount in the
current context – you can do a lot with it.”
While the
team has access to a range of potential opportunities, each will be appraised
on a case-by-case basis and in sectors of particular interest.
"It
takes somebody with a bit of vision to appreciate what we are trying to do
here. We need to be invested for the long haul. There might well be down
moments during the tenure of the investments, but the opportunity is massive”
"We may
inject straight equity, or we will provide loans with conversion options,” he
says. "It will be a combination of listed, unlisted and delisted companies – in
some cases we might be looking to take a company off the exchange, fix it and
then re-list as a way out of the investment. We will interact closely with
management and may appoint people to company boards.” Among the subtle changes
Chabvonga is beginning to see in news reports are a recent commitment from the
South African government to grant an R800 million loan to its northern
neighbour – the first financial assistance in many years to a country that was
once South Africa’s largest trading partner.
"Zimbabwe
could end up being a predominantly rand-based economy – simplistically, it
could become the 10th province of South Africa. It only makes sense
for there to be a stable and developing Zimbabwe,” he says. Despite the eyes of
the international community being on the beleaguered nation, Chabvonga is a
firm believer in increased dependence on private-sector funding.
"Meaningful
aid is probably two to three years away,” he says. "While it would be a ‘nice
to have’, it shouldn’t be what Zimbabwe depends on.”
Now that
the wheels have begun to turn, Chabvonga believes the country needs stability
for the new government to succeed. "It would be good to have the political
status quo in place until change reaches a level where there is no going back,”
he says.
While the
rest of the world faces contracting growth, as the financial industry crisis
takes its toll on the rest of the global economy, Chabvonga sees outsize
opportunities in his homeland in the short term, where the economy has
contracted 80% over the past nine years against strong growth around the world.
He expects the country to evolve as a recovery play over time, as did Brazil,
Israel or Poland, which went on to generate exceptional returns. In addition,
the country – previously one of the largest exporters of tobacco and
agricultural goods on the continent – already has installed (albeit neglected)
capacity, and underutilised intellectual capital (its literacy rate at 90% is
one of the highest on the continent).
"Typically
we are looking at a three year horizon, although we think there are
opportunities for significant value accretion over the next 18 months, which
will allow for disposal or exit of some investments,” says Chabvonga. "We
anticipate a steep growth period over the next 24 to 36 months and then returns
may normalise somewhat.” For now, Chabvonga is well aware that finding
investors who share his vision is key to success.
"This is
not a short-term game,” he says. "We need to match the profile of the
investment with the right investor. It takes somebody with a bit of vision to appreciate
what we are trying to do here. We need to be invested for the long haul. There
might well be down moments during the tenure of the investments, but the
opportunity is massive.”
