Business Editor
a TOTAL 4,5 percent Zimplow Holdings shares were offloaded yesterday on the Zimbabwe Stock Exchange after an investor foreclosed on a debt owed by Tetrad Holdings.
During trades on the ZSE, a block deal of 30 million shares was pushed through at US3,27 cents by brokers MMC Capital representing around 4,5 percent of the total shares in issue of Zimplow of 622,7 million (Tetrad acquired the stake at US3 cents while the rights issue was conducted at US5 cents). The block deal was worth US$981 000.

Well placed sources say Tetrad had pledged part of its shares as security after the group obtained loans from various investors in order to fund the rights issue.

Tetrad hold just over 38 percent stake in the group. However, the sources added that the group, which has been struggling as of late, only holds just under 30 percent of the group as the remaining shares are held as security against loans including with one of the country’s major pension funds.

As was reported in Herald Business on Monday, Tetrad intends to dispose its 27 percent stake in agriculture and mining implements company to raise capital for its banking division, Tetrad Investment Bank.

“The group is looking for buyers of its shareholding in Zimplow and they are talking to a number of potential buyers,” said one source who requested not to be identified.

“It has close to 39 percent but it can only sell 27 percent stake because some of the shares were pledged as security for money borrowed by the bank.”

Tetrad’s strategic focus is on mining, agriculture and property. The group used to have an investment in another listed entity TSL but sold the stake and bought the Zimplow stake.

Sources say that two years ago the group was offered US11 cents for the stake but turned it down. Zimplow has lost value since its merger with Tractive Power and is now trading at US4,1 cents.

TIB is among the small indigenous banks that have been struggling to meet their financial obligations, including funding withdrawals. The others include Trust Bank and Metropolitan Bank.

The banking sector continues to suffer from a plethora of problems ranging from general market illiquidity, non-performing loans and at the same time lack of adequate capital levels.

In terms of its capital, the group closed the March period at US$33,21 million with the investment bank at US$26,47 million.
The bulk of the $33,21 million was largely made up of non-distributable reserves at US$25,37 million.

CHARTERED Systems Integration in conjunction with Moore Stephens introduced a plethora of services, amongst them emphasis on Rule Book, to replace a pricing spread sheet for most Zimbabweans and the General insurance market at an event held last week at Meikles Hotel in Harare.
Speaking during the unveiling, Chartered System Integration chief executive officer  Dr Panashe Chiurunge said that they are working in partnership with Moore Stephens to revolutionise and ease pressure for most Zimbabweans via bespoke technologies.
Chartered Systems Integration is a leading provider of solutions and services in the realm of ICT in Africa. They are front runners in the design of domain solutions across major banking, revenue authority and governmental platforms.

Representing Moore Stephens, Mr Stephen Darko said: “As a renowned international  consulting firm we speak and understand insurance, and so we are uniquely positioned to respond to all issues affecting your business. If you believe that Data is a critical asset for your business, we can help you unlock its full potential.”

Moore Stephens consulting a wholly owned subsidiary of Moore Stephens LLP which is a member firm of Moore Stephens International Limited, a worldwide network of independent firms authorised to audit in the UK and Ireland by the institute of Chartered Accountants.

What is the Rule Book for pricing?
Rule Book for pricing is a product line agnostic, pricing and quotation tool that has been designed to replace the myriad of pricing spreadsheets that are prevalent in Zimbabwe and general insurance markets.

The Rule Book Maintenance web application provides a browser-based interface for administrators of the Rule Book website to manage the distribution and permissions of products via schemes, the creation and maintenance of lookup factors, loadings and reference data via matrices and the management of companies, teams, users, and groups that participate in the Rule Book platform.
Being internet-based, Rule Book Maintenance ensures a “zero footprints” application base in that it does not require the installation of any software on a user’s PC and requires a minimum amount of training for an administrator to self -serve their use of the configured products in Rule Book.

It can be integrated with the existing Policy Administrator Systems to minimise the rekeying of risk information, reducing the underwriters’ administrative workload and helping to address data quality issues. Furthermore, Rule Book complements, rather than replaces functionality within existing Policy Administration Systems, maximising the investments already made in technology.
From a management information perspective, it can be integrated with an organisation’s Data Warehouse solution to provide rich pricing and quotation analytics.

This integration ensures that the pricing solution can provide contexts specific performance metrics and pricing information at the time of quoting, facilitating more informed pricing decisions.

It offers a full quote to bind workflow solution and provides the ability to author and produce comprehensive quote documentation, populated with data captured through the pricing process.

Rule Book for Pricing is powered by the Moore Stephens’ Rule Book engine, a strategic tool for the creation, maintenance and execution of complex rules all powered by the latest Microsoft technologies.

What are the benefits?
Improved pricing: by allowing actuarial and underwriting teams to respond more quickly to market changes.
Extended deployment reach: of pricing models inside and outside the organisation through a web-based interface.
Reduced underwriter administrative workload: through integration with Policy Administration Systems and Data Warehouses.
Improved surety and accountability:  of pricing models to meet internal governance and regulatory needs.

Improved confidence and accuracy: in pricing models through mass simulation of pricing scenarios.
Reduced risk: from the key man dependencies through auto generated documentation of pricing model
John Stanford, a representative of Moore Stephens,  and Dr Chiurunge said the CSI, Moore Stephens partnership will greatly impact  technology  as specialists with an unmatched depth of knowledge of the general insurance sector form synergies.

Kudzi Sharara Business Correspondent
A FEW years ago just after dollarisation, recapitalisation was the buzzword among Zimbabwean companies.
Several listed companies were engaged in various capital raising strategies to revitalise their operations.
Some like OK Zimbabwe were successful as evidenced by their current financial position as well as profitability.
However, for most manufacturers the plan went horribly wrong.

From our observation the recapitalisation plans failed because the companies focused on getting funds to pay off part of their expensive debts, without necessarily making changes to their operations or product offering.

One such company was Art Corporation – with its going concern status now in question.
In 2010 the group had a rights offer to raise US$4,67 million of which US$3,9 million was for debt settlement.
Fast forward to today and the group is still saddled with debt with short-term borrowings amounting to US$6,7 million.
Auditors are now having to issue modified review conclusions of financial results of the group with current liabilities now exceeding current assets.

When hanging on for the rainy day can be costly
We believe recapitalisation while retaining the “business as usual” mentality was not the best way to handle the new economic environment.
Increased competition has left many inefficient companies struggling to survive.

The globalised nature of the “new” economic environment is now characterised by cheap and in most cases quality imports.
Companies were supposed to quickly realise that cheap imports would put pressure on profit margins, while dollarisation would make costs real.

A lot of companies now have their viability status seriously in question despite raising new capital in the last couple of years.
However, there is now the realisation that being nostalgic to old business models and oversized plant and equipment will drag the companies to the “graves”.

There are several cases where one can see that an organisation continues to suffer yet they are a machine or two away from being in the right spot.

Rationalisation should be the new buzzword
Statements from several company executives in Zimbabwe and across the globe points to a new buzzword in town.
Rationalisation is now topical at most company briefings and there are many forms of it too.

At its last AGM Hunyani said it expects a leaner structure this year as part of the group rationalisation process, which has resulted in the disposal and leasing of mainly its non-core assets.

Olivine also said it is currently engaged in product rationalisation to focus on products where it has a competitive advantage in the face of increased foreign product competition. Presenting the group’s financial performance for the six months to June, M&R also hinted that the group was considering staff rationalisation.

Dairibord this year concluded its rationalisation exercise that will help the group make net savings of approximately US$1 million per year.
The list goes on with several other companies realising that selling off or closing down some plants or units to reorganise operations will help improve efficiencies or cut costs.

Spar Corporate Store rationalisation implemented during last year showed positive results. Pearl Properties’ rationalisation and realignment of group shared services helped the company save 25 percent payments.

Even internationally companies like HSBC, Europe’s largest bank, sold off assets as part of a  three-year US$3,5 billion cost-cutting and rationalisation exercise.

In short, there is no doubt that rationalisation either via long-overdue consolidation or a shift in business model can be a new way to improve the viability and profitability of Zimbabwean companies.

Other forms of rationalisation can be consolidation of suppliers or renegotiating existing agreements, for example your credit payment terms.
Product line rationalisation can also help companies to focus on their best products by eliminating or outsourcing the marginal products.
In that way resources that were being wasted on the low-leverage products can then be focused on growing the “cash cows”.
Some companies are already doing that, for example, Powerspeed has been building its business around retailing, through the Electrosales brand and analysts believe that further rationalisation of the Electrosales and IE branches will deliver even greater efficiencies.
In the fast changing global corporate scenario the rationalisation of organisational structure is now reigning supreme.
Reducing costs in this climate for every business, charity or public sector organisation is a necessity.

However, before chopping and cutting companies must be cognisant of the fact that cutting in the wrong places can seriously affect the ability to bounce back if and when the economy improves. In that aspect companies need to cut costs.

BRUSSELS. — The European Union imposed a record 1,7 billion euros in fines on six institutions yesterday for rigging key interest rates that affect vast sums of money around the world.
The sanction comes after several other massive penalties imposed on the world’s biggest banks over the malpractices which have besmirched the reputation of the sector.

After boom years on Wall Street and in London, the financial crisis of 2008 has exposed various abuses by banks, including the reporting of false interest rates or the hiding of junk home loans in derivatives sold as high-quality assets.

Yesterday, the European Union dredged out one more malpractice by the institutions, with German Deutsche Bank fined a total of 725 million euros for involvement in cartel rigging of both the European Euribor and Japanese Tibor rates.

French Societe Generale was fined 446 million euros for manipulating the European Euribor rate while British bank RBS, already mired in controversy, was fined 391 million euros for involvement in cartels which rigged both rates.

The European Commission’s anti-trust authorities had never previously imposed such big fines overall, Competition Commissioner Joaquin Almunia told a Press conference.

“What is shocking is not only the manipulation of benchmark but (the) cartel,” said Almunia, adding that the ruling was meant to both “punish and dissuade”.

With further investigations ongoing, he warned that it is “not the end of the story”.
In total, four financial institutions were involved in a cartel which rigged the Euribor rate and six in a cartel which manipulated the Tibor rate.
In the Euribor case, British bank, Barclays benefited from immunity and will not pay a fine because it revealed the existence of the rigging to the commission. Deutsche Bank was, however, fined 466 million euros and Societe Generale and RBS were fined 131 million euros in the Euribor case.

Investigations are continuing concerning French bank Credit Agricole, HSBC of Britain and US bank JPMorgan.
In the Tibor case, Swiss bank UBS avoided a fine because it admitted the cartel’s misdoing to the commission.
Deutsche Bank was fined 259 million euros, RBS 260 million euros, JPMorgan 80 million euros, US bank Citigroup 70 million euros and British broker RP Martin 247 000 euros in that case.

The investigations and fines come after a separate scandal broke over the rigging of the London Libor rate, which is the benchmark rate that underpins the terms of US$500 trillion of contracts ranging from mortgages to student loans around the world.
The Euribor, Tibor and Libor interest rates are calculated slightly differently but fulfil a vital function as a reference for the rates which banks are charging to lend each other. — AFP.

Zimbabwe needs a total 150 000 tonnes of AN and a similar tonnage of Compound D fertiliser for the current farming season.

Rumbidzai Zinyuke Business Reporter
THE tedious process of importing and transporting inputs needed for the production of Ammonium Nitrate fertiliser is contributing to its looming shortage as the sole fertiliser producing company continues to grapple with liquidity and power shortages.
The country is facing acute shortages of Ammonium Nitrate as the country’s biggest fertiliser producer, Sable Chemicals, was operating at 25 percent capacity due to financial and other challenges.

Zimbabwe needs a total 150 000 tonnes of AN and a similar tonnage of Compound D fertiliser for the current farming season.
In an interview with the Herald Business, Chemplex Corporation chief executive Mr Misheck Kachere said the unreliability of the railway system, which is mainly used to transport inputs, meant that the company had to rely on road transport which was more expensive.

“We import inputs that are used in the production of fertiliser through the Beira and Durban ports but we have been facing logistical challenges because it takes between four to six weeks for the inputs to get here instead of 10-14 days.
“We now have to rely on road transport which is proving to be more expensive,” he said.

He said the situation was being exacerbated by the liquidity challenges the company was facing.
Mr Kachere said the banks were not offering cheap loans which local companies could utilise to increase their production.
“As it stands, we have arrangements with some international suppliers but the inputs are stuck at the ports because the company has no money to bring them to Zimbabwe,” he said.

He, however, said although there were problems with the production of AN fertiliser, there were enough stocks of Compound D fertiliser.
He said Dorowa Mine, the country’s sole phosphate producer, was running smoothly and producing enough to meet demand.
“At maximum, we produce 10 000 tonnes of phosphate per month but because demand has been low, we are producing 8 000 tonnes which is more than the 5 000 tonnes needed by the market,” he said.

He said Dorowa Mine was also facing power shortages although this had not affected production.
“When the rainy season starts, we experience problems with the power line from Rusape which is usually down but this has not had any effect on our production targets,” he said.

Chemplex has in the past blamed the challenges they are facing on unpaid debts.
The company is owed more than US$20 million.

The financial problems have not only affected Dorowa Mine and Zimphos, but has spread to other companies under Chemplex Corporation such as Sable Chemicals and Zimbabwe Fertiliser Company.

Tinashe Makichi Business Reporter
PLAYERS in the paint industry have failed to meet the 60 percent capacity utilisation target set by the industry since the dollarisation of the economy, an official in the industry confirmed yesterday.
The industry players have bemoaned the growing influx of imported paints and liquidity challenges on the market which has led to the recent slump in capacity utilisation among different paint manufacturing companies.

The paint manufacturing industry is currently dominated by Astra Industries Limited and Dulux Zimbabwe.
Competition and Tariff Commission of Zimbabwe this year said most local industries were in their infancy due to the hyperinflation that affected Zimbabwe since year 2000, and industry was in dire need of protection from foreign competition until such a time as they can stave off competition.

In an interview with Herald Business, Astra Industries managing director Mr Mackenzie Mazimbe said the paint industry has been under threat from global factors.

“The industry targeted 60 percent capacity utilisation but for now as industry players, we have not been able to meet that figure due to liquidity challenges.

“It has proven to be difficult to deal with imports considering that as the industry, some of the players have been operating below the standard production capacity. In addition to that demand has been softer lately,” he said.

He said the paint industry was currently on 35 percent capacity against the targeted 60 percent.
Mr Mazimbe said the issue of disposable income has also been another huge hindrance to growth in the paint industry considering that there have not been big projects currently taking place.

He said paint companies should not look for too much protection from Government but should come up with initiatives that boost their competitiveness, because everything has gone technological.

Mr Mazimbe said Astra was operating at 35-40 percent production capacity. He, however, added that by next year the group would be able to ramp up production.

He said Astra is currently re-orienting its business model through coming up with latest branding and new marketing strategies that will cater for all consumers on the market

This year, Japanese paint manufacturing giant Kansai Plascon acquired 49 percent of the Reserve Bank of Zimbabwe’s 63 percent stake in Astra Industries in a deal worth US$5,5 million.

Minister Shamu

Technology Correspondent
THE Ministry of Information Communication Technology, Postal and Courier Services will be holding their annual ICT achievers awards 2013 on  December 7 at the University of Zimbabwe Great Hall.
The permanent secretary in the ministry, Engineer Sam Kundishora, said the awards would honour outstanding personalities in ICT in Zimbabwe.

Zimbabwe is one of the world’s fastest ICT developing countries from a mere 13 percent in 2009 to 99 percent in 2013, according to official documents produced by the  International Telecommunications Union ranking Zimbabwe the second fastest ICT developing nation in the world after Ghana.

Information Communication Technology, Postal and Courier Services Minister Webster Shamu said: “I would like to take this opportunity to invite organisations to participate in this prestigious event.”

This year’s ICT Achievers will be awarding players from 16 various categories who have excelled above the rest, this has seen the ministry cutting out three categories which were contested last year.

This year’s awards will cover these following categories:
ICT Project of the Year (Private Sector), ICT Project of the Year (public sector), NGO Promoter of ICTs, ICT Businessman of the Year, ICT Businesswoman of the Year, ICT Company of the Year, ICT Journalist of the Year, Web Developer of the Year (company), Public Sector Website of the Year, Young ICT Innovator of the Year, ICT Educator of the Year (institution), ICT Rural School of the Year, ICT Urban School of the Year, ICT Supportive Bank of the Year, ICT Enabled Courier Company of the Year, ICT User Ministry of the Year.

Unki has partnered with the local community in initiating, implementing and financially supporting sustainable projects that focus on poverty alleviation, education and skills development and safety, health and welfare development

Martin Kadzere Senior Business Reporter
ANGLO American plc has invested US$350 million in its Zimbabwean unit, Unki Platinum Mines and will spend a further US$100 million next year as it consolidates operations.
“The first phase of this development consists of a mine, concentrator and housing at a total cost of US$450 million,” Unki Mine chief operating officer Mr Colin Chibafa said.

“The mine and concentrator, developed at a cost of US$350 million, have been operational since 2011, processing 120 000 tonnes of ore per month. The remaining component of the project relates to the construction of approximately 1 000 houses and related infrastructure to cater for employees at a total cost of US$100 million which will be completed during 2014. In the short term, Unki will focus on consolidating its operations and will maintain its current production levels for the immediate future.”

Anglo operations in Zimbabwe dates back to the early 1920s. The company’s tradition lives on in historic towns such as Bindura, Hwange and Triangle in the Lowveld.

As a result of major corporate restructuring, in line with its global strategy, Anglo American commenced in 1997 with the targeted disposal of its portfolio of assets in the country to mainly indigenous Zimbabweans. These assets included equity stakes Bindura Nickel Corporation, First Merchant Bank, Founders Building Society, Mashonaland Holdings, National Foods and Zimbabwe Alloys among others.
Unki Platinum Mines is the only significant remaining asset in Zimbabwe, Mr Chibafa said.

To stimulate the economic development and eradicate poverty in Shurugwi and surrounding communities, Unki has partnered with the local community in initiating, implementing and financially supporting sustainable projects that focus on poverty alleviation, education and skills development and safety, health and welfare development.

Some of the projects implemented since 2010 include Tongogara Community Share Ownership Trust
“Unki is the only mining company to date that has fulfilled its commitment to the community share ownership trusts by contributing the full US$10 million seed capital to establish the Tongogara Community Share Ownership Trust,” said Mr Chibafa.

Nigel Chanakira

Business Reporters
While Government did everything it could to create a conducive economic environment for indigenous entrepreneurs to thrive, many have fallen by the wayside after failing to navigate the high waves of economic turbulence.
Like a malignant cancer on the bone, fate has also claimed the scalps of innumerable companies that were headed by Zimbabweans raising questions about what is wrong with the leadership qualities of independent indigenous executives.

Zimbabwe adopted the US and other monetary currencies to reverse total economic meltdown. All seemed well, businesses had misread the economy, inflation and other ills of a chaotic economic system were in the rear-view mirror, so it seems, but a new challenge was brewing in the not so distant horizon. Maybe money grew on trees.

The owners, chief executives and financial directors forgot the first lesson in business. Rather than running their financial models and analysing debt and equity, the whole lot quickly leveraged non-cash generating businesses 100 percent in debt, and none thought of equity placements. However, the economy had called their bluff and suddenly showed its true colours.

The high profile entrepreneurs and executives that failed to stand the heat included Kingdom Financial Holdings’ Nigel Chanakira, Interfin Banking Corporation’s Farai Rwodzi, Renaissance Merchant Bank’s Patterson Timba, Barbican Bank’s Mthuli Ncube and First National Bank’s Nicholas Ruturi.

Most intriguing about these founding directors is the fact that most of them were invested in the financial services sector and at one point or the other had significant spells with owner-managed arrangement in running the companies.

Collapse of indigenous founded companies is not the only feature characteristic of the post-dollarisation era that saw several indigenous companies, mostly banks, going under after they failed to adapt to the new economic dispensation.

But the trend stretches way back into history, raising concern about the unsustainability of owner-managed companies and the importance of strong corporate governance structures.

Other indigenous entities that became casualties of  owner management include Time Bank, founded by Chris Tande, ENG Capital started by Gilbert Muponda and Nyasha Watyoka, Intermarket Holdings by Nicholas Vingirayi and Lifestyle Holdings by Tawanda Nyambirai as well as Royal Bank’s Jeffrey Muzwimbi.

Save for TN Financial Holdings, most of the failures of these financial services companies involved allegations of abuse of power and resources, which also exhibited strong signs of serious corporate governance deficiencies.

Former RioZim managing director Josh Sachikonye left the company on the brink of collapse as did                  starafricacorporation under former chief executive Pattison Sithole.

The script was not different for Edwin Chimanye’s David Whitehead Textiles and TransZambezi Internationals’ Edwin Moyo, Cecil Muderede’s Jaggers Wholesalers.

Harare businessman Zac Wazara’s Medical Air Rescue Services is under judicial management while its sister company Valley Technologies is dead and buried.

Similar misfortunes befell indigenous firms such as Cairns Holdings Limited, which was once headed by the late Philip Chigumira, Fred Mtandah’s CAPS Holdings and Oliver Chidawu’s Pelhams Limited.

It should, however, be noted that the transition to dollarisation resulted in most indigenous owned and managed companies failing to adapt to the new rigorous environment characterised by tight liquidity, high cost of labour, funding, utilities, power and stiff competition from lower priced imported products.

But it has not been the same situation for companies with strong external links for effective corporate governance and financial resources support and these include Delta Corporation, Schweppes Zimbabwe, Nestle, PPC Zimbabwe, National Foods, Zimplats, Mimosa Mining Company, to name but a few.

The jury is still out on whether these firms succumbed to the sanctions poisoned environment or the managerial weaknesses of the owner managers.

Alternatively the reason could be the sector they ventured into – the financial services sector – was not ready for many players.

Business Reporter
Zimbabwe’s first sale of diamonds to the European Union is imminent, with officials from the Antwerp currently sorting a float which the Zimbabwe Mining Development Corporation intends to sell.
ZMDC general manager Mr Jerry Ndlovu confirmed in an interview yesterday that the sorting process had started but refused to divulge further details as the matter was “sensitive and cannot be discussed over the phone”.

The EU lifted sanctions on ZMDC, a State-owned mining entity involved in the extraction of diamonds in Chiadzwa under partnerships with different foreign investors.

Zimbabwe has been unable to export its gems to the EU due to sanctions the block imposed on the country.
Zimbabwe is expected to produce 16,9 million carats this year. Last year, it produced 8 million carats, generating US$685 million of revenue.  According to the EU, the lifting sanctions could boost Zimbabwe’s tax revenue by US$400 million.

Martin Kadzere Senior Business Reporter
THE insurance and pension industry is seeking to raise US$6 million through private placement bonds to mobilise funds for on lending to banks to finance low cost housing development.
The bond is the first tranche of the US$45 million to be mobilised under the Insurance and Pensions Housing Fund, information obtained by Herald Business shows.

It will be issued by the Insurance and Pension Housing Company, which oversees the Insurance and Pension Housing Fund, while Old Mutual Property will administer the fund raising.

The bond, to be sold to only local insurance companies, insurance brokers, pension funds, pensions administrators and other entities in the insurance and pensions industry will be sold at a fixed interest rate of 8 percent per annum from issue date.

It will be issued in two series. The first for about US$3,14 million to be issued on January 2, 2014 and the second for US$2,85 million to be issued on January 31 next year.

According to documents gleaned by this newspaper, the bond will have a one year tenor. It will be guaranteed by Government while the accrued interests will be exempted from taxation.

The principal amounts of the bonds and interest payment will be amortised over a period 12 months and will be paid bi-annually commencing 24 months after the issue date.

In 2011, Ministry of Finance, the Insurance and Pensions Commission, the Zimbabwe Association of Pensions Funds and the Zimbabwe Association of Funeral Assurers signed a Memorandum of Understanding to set up the Insurance Pension Housing Fund.

Under the MOU, each signatory assumed certain obligations to fulfil.
The Finance Ministry has since fulfilled its obligation of granting the prescribed asset status to the fund.

In terms of the Memorandum of Understanding, IPEC’s obligation includes mobilising insurance and pensions industry players to contribute to the housing fund.

“As this project has been stalled for a considerable period of time, all signatories to the MOU are urged to play their part expeditiously so as to ensure that the construction of housing units under the fund becomes a reality,” said Mrs Mernat Mpofu, Commissioner of Insurance, Pension and Provident Funds, in a note to industry players.

Currently, Zimbabwe is faced with a significant housing challenge. The current housing shortage is estimated at 1,25 million housing units which translate to a national backlog of five million citizens or more than 40 percent of total population. These housing problems resulting from constrained formal housing finance and public capital funding streams.

Housing finance schemes which are currently available have little incremental effect on the national housing stock as these are either exclusively packaged for a few targeted groups or are priced beyond the reach of the poor.

Vandudzayi Zirebwa Buy Zimbabwe
Economists the world over have found out that the biggest challenge nations face in reviving their fortunes for the better is more often than not, a function of a collective mindset.
Confidence on whether an economy is set to rebound or remain stagnant has in many instances led to panic buying and massive bank withdrawals that have led to the collapse of financial institutions while resulting in stock markets going through a period of stagnation as investors keep their money or direct it to countries where they get better returns.

Inasmuch as there are some real structural issues to be attended to, it is an undeniable fact that our country is going through a period where confidence on the direction of the economy is possibly at its lowest since the end of the hyperinflation era.

All of a sudden the euphoria that greeted the introduction of the United States dollar has vanished and industries that for the past years were recording remarkable recovery, moving from capacity utilisation levels of below 30 percent and going past 50 percent are scaling down operations.

Projections were that the positive growth would rise to levels above 60 percent and that exports from the manufacturing sector, which are supposed to be a source of foreign currency, would recover.

Meanwhile, our imports have continued to increase and by the first six months of the year had risen by over 25 percent, with fertlisers, fuels, and an array of basic commodities accounting for the bulk of the bill.

The liquidity crunch being experienced is also a function of this dip in local confidence and selecting foreign products rather than local ones.

Sadly, as much as the general competitiveness of local products has to improve against foreign products, we have a number of local champions that have fallen prey to the collective sentiment.

Rather than search for those Zimbabwean products that can match and even beat foreign products and services at quality and even price, many consumers have registered in their minds that we are poorer across the board and without discrimination are moving across the border to spend their money.

As this happens we lose more jobs, companies find it hard to recapitalise, local demand becomes more deflated and the same person who has taken the decision to venture elsewhere wriggles in pain as their small business fails to recover and raise enough to pay workers and meet basic expenses.

In short, the loss the loss of confidence in our industries, in our own future and in our abilities has driven us to import more and created a situation that we face at the moment where our liquidity is getting worse by the day.

Building the necessary confidence among key stakeholders at Government, consumer and industry level is thus a major intervention necessary to remind Zimbabweans that we can positively impact our future.

At some point a well-known industrialist and leader of one of a top organisations in the country argued that we should not focus on Buying Zimbabwe and that we must seek to produce Zimbabwe.

While it is true that supply side constraints are a major constraint in our economic growth and must be attended to, we feel that any focus that does not seek to manage sentiment as well as being market driven is bound to fail.

In the early days of the Industrial Revolution, it did not matter what you produced, the presumption was that the market would absorb whatever comes from the factory.

Unfortunately, today’s markets are known to be totally irrational, influenced by a number of factors that include advertising, government subsidies and the simple belief that certain products are better than others.

Just watch how the youths respond to products that are marketed by American celebrities.
A few weeks back our neighbours, South Africa, launched the Buy Back South Africa campaign.

One of the television commercials that are being played on SABC features young South Africans roaming the streets without jobs and foreigners that are stealing jobs and a proud nation that has done so much for the world, produced Nelson Mandela and hosted the World Cup but is struggling.

The appeal is that South Africa must be bought back from cruel foreigners. Our neighbours are pushing a positive national sentiment.
Let’s celebrate our local champions by Buying Zimbabwe.

Till we meet again be blessed.

Email: vandudzai @buyzimbabwe.org.zw; cell 00263773751878

Fact Jeke Behind the Wheel
December is the best month of the year, not only do we celebrate the birth of Christ Jesus, but we also get to have a long break from work and do a lot of travelling to different places.
Some travel to the rural areas while others visit lodges and chalets dotted around the country which are accessible via dirt roads which require a reliable, comfortable and convenient vehicle

For those shopping around for such a vehicle or those who want to hire or choose one from your collection, I suggest you consider the following 4x4s.

The Toyota Fortuner is one such vehicle. With its long frame, the Japanese vehicle clearly delivered. The fabulous Fortuner has been a success since it was first introduced to this part of the world in 2006. It has over the last two years gained a new family member in the form of the powerful 2.5-litre diesel derivative.

This firm family favourite is much loved because of the fact that it offers luxury, no fuss reliability and proven off road capabilities.
With generous interior space and modern exterior, you can see why Toyota always comes out tops. When it comes to fuel consumption and general service and maintenance on a budget, you will defiantly save with this car. It’s also available at a generous price from Toyota Zimbabwe.

Another beauty is the Land Rover Discovery with its outstanding off-road capabilities. The one millionth Land Rover Discovery was produced early last year at Jaguar Landrover’s Solihill manufacturing plant near Birmingham in the UK.

When you hop behind the wheel of this 4×4, it’s easy to understand why. The interior smacks of luxury, it can seat seven passengers so it’s perfect for your five kids.

It has a load space of 2 500 litres making it stand out in its class. Packed with technology including Land Rovers award winning Terrain Response System and many other unique techno features, this is among my favourites and it’s available at Premier Auto Services.

And from the East we have H5, which is a Sports Utility Vehicle that is manufactured by Great Wall Motors.
It is well equipped and it comes with just about everything. The drive wasn’t so exciting for me but hey when everything else works, it makes up for the shortcomings. If you are looking for a large SUV that practical and low on pricing, this will be it for you.

GWM is Chinas biggest privately owned automotive manufacturer. When I first came into contact with this brand, I was concerned about quality and back-up services and after test driving a few of their offering available at Zimoco and after touring their service centre I was converted.

Finally, we have the Trailblazer from General Motors. The trailblazer, which is part of the Chevrolet family, is a robust seven-seater SUV.
It does not compromise on quality and practicality. A few of these vehicles have hit our streets and am sure more will grace our streets.

Since I am writing about the festive season I would like to look at some safety tips that can possibly help drivers this holiday.
In terms of security solo drivers are often the most likely targets for criminals so as we celebrate this festive season, make sure you don’t drive alone and if you are be attentive on the road.

Be alert and trust no one, even a child needing assistance. This might be a trick for you to make you stop and get out of your car. Another favourite tactic that robbers use is bumping into you and pretend that it is genuine accident.

When you stop to check for damages they pounce on you. Some might recall a recent accident involving a lorry being driven by thieves and a security vehicle carrying money for salaries for workers in Nyanga recently.

Fact Jeke is an auto enthusiast who has over a decade worth of experience having attended auto shows and rallies around the world and written for various publications. She can be contacted on email missjeke@gmail.com or on Facebook, torque with Fact Jeke & YOOKOS

After reading my previous article on causes of road traffic accidents in Zimbabwe, a reader suggested that I had left out one major one – traffic hogging.
This feedback prompted me to highlight the need to use common sense when driving. Drivers and other road users must always bear in mind that the law does not give anyone indisputable ‘‘right of way’’.

In fact, drivers and riders must always exercise due care and attention with reasonable consideration for other road users while upholding courtesy and common sense. The point is that the roads are not for one person but for everyone. These are our roads and hence, we must share them. This totality of care and courtesy when driving is what I have termed ‘‘common sense’’ driving. Research has shown that 99 out of 100 road accidents that could have been prevented are due to lack of common sense and courtesy.

It is the duty of every driver to avoid accidents regardless of them having the right of way. Actually, there is no such a thing as right of way in defensive driving.

If it makes you prevent an accident, then always give way to other traffic. Even when you feel that you have the ‘‘right of way’’, you ought to still make sure that the other road user is going to give you way before proceeding.

Road safety activists generally agree that such application of common sense cultivates common courtesy and, therefore, driving courtesy is a must.

We have observed that there are several blunders and stupid things that some drivers commit daily. Our heroes on the roads are those drivers who always express common sense and courtesy over and above obeying road traffic rules and regulations. One can only pray that other drivers may emulate this best road safety practice. Courtesy is the fundamental basis upon which all defensive driving elements, skills and techniques are founded.

How can common sense driving be exercised? Below are some tips and guidelines that can inculcate common sense driving in some drivers:
Don’t overreact to thoughtless or deliberately aggressive driving behaviour by another driver/road user;

Remain calm when others are angry/ aggressive. An eye for an eye on the road aggravates the road carnage problem. Forgiveness is a Christian virtue. We hear that more than 75 percent of Zimbabweans are Christians. I wonder why forgiving each other for road traffic mistakes should be a problem;

Stay alert. Always be able to scan and understand the road ahead, the road behind and the road at your sides.
Make an allowance for children, cyclists, parents with babies, the frail or elderly, the disabled and the mentally challenged who might not be able to move quickly;

Communicate effectively. Let the people around you know what you are doing so that they don’t need to guess;
Get out of the way. If there is at least a dual carriageway, don’t hog traffic. Keep to the left lane and leave the fast lane for faster vehicles.

Most of us are not police officers and thus do not need to control how fast someone goes. Don’t stay in the fast lane hoping that you are regulating the speed of your fellow drivers. Once those you hog manage to drive around you, they are tempted to speed in order to cover up for lost time. Use the fast lane when overtaking. Avoiding hogging traffic helps keep road rage down. Also, while the primary benefit of using at least a two-way road is to ease traffic congestion, the benefit is blown when traffic hogs the fast lane. Those who might have driven along Harare-Ruwa, Harare-Norton;

Harare-Chitungwiza and other similar roads might have realised this frustrating scenario I have described above. Out of the resultant road rage, some drivers have since designed and have started using undesignated yet, to them, convenient ‘‘lanes’’. At the end of the day, the congested traffic jungle degenerates into traffic tangle. This obviously often renders some intersections along Julius Nyerere Way impassable without the presence of traffic cops directing traffic.

If you agree with the contents of this article, please spread the word to fellow road users.
Common sense driving can reduce road traffic accidents.

The writer, Tatenda Chinoda is a Traffic Safety Officer — Marketing and can be contacted on email: chinodat@trafficsafety.co.zw / teechinoda@yahoo.com; cell: 0772 966 075 or phone 04-751203.

The front view of Junction 24

Isdore Guvamombe Tourism Matrix
A spitting distance from the Hunyani River Bridge, on the way to Chitungwiza and to the east, lies the  latest joint – Junction 24, that has an imposing posture that reminds one that you can still have a decent place for family outings in Harare.
Over the years, Harare had run out of places compatible with family outings due to a coterie of indecent activities that take place at some of the joints available.

One would, for example, not want their children to see male or female revellers relieving themselves in the open. Fetid!
Tucked away from the hullabaloo of the city centre, epitomised by screeching vehicle tyres, a frenzy of hooting, criss-crossing people and the general hustle and bustle, Junction 24 is quiet, serene and oozing with fresh air from the adjacent riverine vegetation.

The place is just in a league of its own and one feels relaxed and ready to have a good time.
Junction 24 is one of the few places tastefully decorated, especially for family outings.

Well-manicured lawns and grounds, environmental and security friendly parking, under tree sitting, children’s play centre, five toilets each (for male and females), five restaurants for variety, five drinking places and a braai stand sum up the superstructure.

Highly impressive is the fact that the 10 toilets are each cleaned every 30 minutes, and, there, Junction 24 beats all and sundry in open-air entertainment. There are separate staff toilets, hence you will not bump into the staff in the same toilets.

The place is just clean and conducive for family outings.
The carefully chosen playlist of family music completes the aura.

Children play, intermittently shifting their attention to the multifarious array of planes as they land at Harare International Airport.
Proprietor Mr Tavepi Madzingira says he came up with the idea after noticing that many outdoor entertainment joints in Harare were out of sync with the family code.

“To be honest, we took the Mereki concept for braaing, the Garwe concept for traditional food, the Pamuzinda Highway Xscape for entertainment concept and the National Art Gallery concept and put them together into one huge project, modified to suit any family, local or international.

“We then improved on these concepts so that we could de-cluster people and provide them with personalised service according to their expectations.

This is how we came up with five bars,  the Mas Vergas, 419 Lounge, Wine and Spirit, Musoni Sports Bar and Pandari,  for specific customers.

“We also have two kitchens, one for braai and the other for traditional and conventional meals,’’ says Mr Madzingira. Junction 24 also has space to accommodate 250 people in a tent for functions such as weddings.

While many people do not even know where the meat they braai comes from, Junction 24 has only one meat supplier and that is Montana Meats, a highly rated abattoir.

“We had to make that decision to have one meat supplier to ensure food safety and security for our customers. We cannot just buy from everyone and anyone because it puts our customers at risk. We want guaranteed quality.

“We are also into partnerships with Delta Beverages, Afdis and CBZ -  all to ensure we maintain high standards of service and quality of products.

“We have also built a convenience shop where you can pick one or two things to take home, instead of driving elsewhere,’’ says Mr Madzingira.

When all is said, Junction 24 is the place to be with family and friends.
It is different and unique! It is for the family and an ideal place to visit especially during the festive season.

Feedback: guvaz2008@yahoo.com

Mining constituted US$2 billion of the US$3,3 billion total exports in 2012, meaning the lion’s share oiled foreign economies

Golden Sibanda Senior Business Reporter
mining companies are banking a mere 3 percent of the billions of dollars from their export proceeds with the balance kept in offshore accounts amid the crunching liquidity bite pervading the entire economy, banking sector sources said.
Banks, through their umbrella body the Bankers’ Association of Zimbabwe, are said to have made innuendos for Government to intervene through measures that compel miners to bring home export revenues.

Efforts to get a comment from BAZ and Chamber of Mines presidents Mr George Guvamatanga and Mr Alex Mhembere, respectively, were fruitless yesterday as both were not answering their mobile phones.

While mining firms bank only 3 percent of their export revenues locally, individuals contribute a staggering 16 percent of the total bank deposits. Tight liquidity in the economy is constraining efforts at rebuilding the economy after the hyperinflation battering of the decade to 2008.

Banking sector sources questioned where the mining firms kept their money if they did not bank the export revenues with local banks. Last year, mining constituted US$2 billion of the US$3,3 billion total exports, meaning most of it oiled foreign economies. And this is particularly the case when you consider that the nature of material and equipment used in mining operations is by and large sourced in foreign countries.

“BAZ has been talking to Government about challenges facing the economy and why the country is illiquid and one of the points they raised was that deposits are mostly demand deposits.

“They said of the total deposits 16 percent comes from individuals, transport and distribution about 1,7 percent and mining 3 percent, yet mining accounts for close to 20 percent of our GDP,” said a source.

“The banks are also questioning how Government can account for the export proceeds from mining when the mines are not banking locally.”

With Government relying on a thin revenue base due to a myriad of challenges affecting industry, which has seen quite a number of companies collapsing and thousands of people losing jobs, the economy needs to benefit a significant chunk of the billions of dollars generated from its natural endowments.

Retaining export proceeds offshore as is being done by mining companies, banking sector sources said, was akin to externalising liquidity and sabotaging collective efforts to mend deep scars and rejoin detached limbs of an economy battered by sanctions during the largely forgettable decade to 2008.

The behaviour does not help the cause for mining companies, who should offer a good explanation why it makes more sense for them to think their money is safer in foreign countries, after exporting a local commodity, than their investment back home. For a country in need of the collective might of its people and resources the practice does also not help miners’ credibility amid already existent suspicions they understate their exports.

Considering Zimbabwe does not print its own currency, but uses a basket of currencies dominated by the greenback, exports, foreign direct investment and donor support are critical in creating liquidity.

But there have been little inflows in the form of FDI, donor support and international lines of credit to Zimbabwe over a decade, leaving export revenues the main avenue the country can manoeuvre for liquidity.

Mining is central to Zimbabwe’s economy, accounting for 65 percent of the country’s total export earnings. Government anticipates the sector to anchor economic growth in the medium term period, 2014 to 2018.

Against this background, sources said banks were considering lobbying parliamentarians and Government to adopt measures that compel mining firms to bank onshore their revenues to enhance liquidity.

The BAZ is also said to be concerned about issues regarding the high level of non-performing loans, which is now hovering around 15 percent in that is feared could limit the amount loans to productive sectors.

The majority of borrowers said to be defaulting on bank loans are corporate, which could further whittle down loan advances to industry.
Banks have also reportedly called on Government to define its priorities in terms of loan advances amid concerns that agriculture is not getting enough support. According to BAZ, the sector gets 25 percent of loans.

In addition, BAZ has made representations for Government to expedite recapitalisation of the central bank to enable it resume its lender of last resort function as well as to demonetise the local currency balances held by banks to enhance confidence in the sector.

“There also is concern about the role of the Reserve Bank of Zimbabwe as the lender of last resort. BAZ said they want the its lender of last resort to be restored and for its capacity to supervise to be rebuilt. The other issue relates to the Deposit Protection Corporation. Bankers feel that the Deposit Protection Corporation has taken over the legitimate role of the Reserve Bank and feel that its creation was not very relevant,” the source said.

Other issues said to be of concern to the bankers’ lobby group include the fact that 65 percent of total bank deposits are controlled by a few big banks while the majority of banks, have the smaller share of the  35 percent balance making survival in an illiquid market close to impossible.

Minister Mzembi

Travel Writer
Zimbabwe’s tourism and hospitality industry should benchmark itself with Cuba’s tourism industry experience due to similar sanctions-induced economic challenges, Tourism and Hospitality Industry Minister Engineer Walter Mzembi said yesterday.
In an interview after meeting Cuban Foreign Affairs Minister Mr Bruno Rodriguez Parilla in Harare to exchange notes on the two countries’ tourism industries, Minister Mzembi said Zimbabwe could learn a lot from their counterparts in terms of running the tourism sector in an economic milieu that is offset by western sanctions.

“Cuba has been under sanctions since 1961 when the US broke diplomatic relations with Cuba and immediately they lost 90 percent of their source of international arrivals. And in the mid-90s they also suffered near collapse of the tourism sector due to the collapse of the Socialist countries in Eastern Europe who were major replacement markets after the collapse of the US market. So they have suffered two major market collapses.

“How have they evolved their international tourism? For me this is the model, which we as Zimbabweans must interrogate,” said Minister Mzembi.

To this extent, the minister has proposed to send a delegation to Cuba to carry out a benchmark study to find out how they are managing to rake up positive tourist arrival statistics despite being under prolonged sanctions. Notwithstanding the sanctions faced by the Cuban tourism industry, it also suffers perennially from meteorological phenomena in the region, that is, hurricanes and storms that hit yearly.

Another factor is strong competition in the region. Cuba is surrounded by very competitive tourism markets such as Jamaica and Barbados among others. However, its tourism sector has managed to negate these challenges to become one of the most effective in the Caribbean.

Compared to Zimbabwe, Cuba has better tourism infrastructure. For instance, the city of Havana alone has over 12 000 beds, which is almost at par with Zimbabwe’s estimate total of 12 000-15 000 beds.

The area of tourism infrastructure is one in which Zimbabwe can draw lessons from their counterparts.
“Arrivals in Cuba now reach three million, that is, international arrivals alone, earning them almost US$2,6 billion in revenue.

“We have an equal number of arrivals into Zimbabwe – a combination of both local, regional and foreign tourists earning us about US$1 billion. The question is: where are we getting it wrong? We negotiated away our sanctions in the sector by June 2009. We do not have a single travel advisory against us from the entire world.

“We have opened our doors to the United States and they are now the biggest travellers to the country but none that exceeds a 100 000 tourists,” said the minister.

Clara Mawere Business Reporter
THE country’s largest building society, CABS, has since 2010 disbursed US$$125,7 million in mortgage finance for 440 units, mostly low cost.
Speaking at the Real Estate Institute of Zimbabwe workshop yesterday, CABS general manager responsible for retail banking Mr Ken Chitando said they had resorted to financing low-cost housing projects which can be afforded by the majority.

He said this was in view of the fact that there is an estimated backlog of 1,5 million units of housing stock in the country.
“Harare alone has only 500 000 units which means that there is serious shortage of housing stock. What is happening is that the houses you (real estate agents) are selling are mostly existing stock which is just changing hands, but there is need for us to increase our housing stock,” he said.

Mr Chitando also said there was high demand for housing across the board from high-, medium- to low- density. The country has struggled to invest in infrastructure over the past decade due to shortages of working capital and a debt of about US$10,7 billion. According to a Bard Real Estate property market report released last year, the country continues to experience a huge demand for serviced residential stands in most towns, while the lack of key infrastructure has hindered the supply side of new stands.

The report noted that the lack of infrastructure such as good road networks, consistent water and electricity supply have contributed to an increase in the number of properties, especially in Harare’s low-density suburbs being difficult to let or be sold.

The report pegs the average prices for serviced high, medium and low-density land in Harare at US$25, US$18 and US$15 per square metre, while in Bulawayo they average US$12, US$10 and US$6 respectively.

Completed housing units in the two major cities were also pegged at an average of US$30 000 for high-density, US$80 000 for medium-density and US$150 000 for low-density in Harare while in Bulawayo prices averaged US$12 000, US$50 000 and US$120 000 for the high-, medium- and low-density units respectively.

Business Reporter
ZIMBABWE is now firmly set to optimise the value of proceeds from the exploitation of its vast diamond resources through beneficiation after the country built the requisite expertise for local cutting and polishing of the precious stones.
According to Zimbabwe Diamond Technology Centre chairman Mr Lovemore Kurotwi, the country has since 2010 been training locals in three main gem beneficiation areas, namely valuation grading, cutting and polishing of the gems.

“We can now do value addition here. We now have the know-how. Zimbabwe is now boasting all these skills.
“We are training and bringing in skills,” he said.

Despite accounting for 25 to 35 percent of the global diamonds supply, the country receives a few hundred millions of dollars from the multibillion-dollar global trade, which for many years has largely benefited non-diamond producers.

With the global diamond cutting and polishing trade valued at US$47 billion while jewellery is at US$71 billion, Zimbabwe could make up to 25 percent from each of the two if the country fully develops its cutting, polishing and marketing systems.

“This is not an experiment, it is what other (non-diamond producing countries have done). Those that are benefiting are non-producers,” Mr Kurotwi said.

As part of efforts to realise significantly more from the exploitation of diamonds through beneficiation or value addition ZDTC will on the 10th of this month hold an event to launch initiatives for diamond beneficiation in Zimbabwe.

“With all these skills, we have now decided to launch beneficiation and value addition where ZDTC has invited all stakeholders in cutting, polishing and jewellery making to come together to showcase their workmanship,” he said.

An estimated 100 000 jobs down and upstream of the diamond industry are expected once Zimbabwe starts beneficiation and value addition of diamonds with up to 500 companies expected to establish and invest in the industry.

Mines and Mining Development Minister Walter Chidhakwa will grace the event along with other high-profile local and foreign diamond industry stakeholders.

Following huge investment in honing local expertise, also using expatriates from countries with top of the range technical know-how such as Armenia, the diamond beneficiation launch will be held at the Rainbow Towers in Harare.

“As a major producer there are certain fundamentals that we should do as a country so that we realise the full benefits of this. At the moment, we are just taking diamonds from the mine to the market.

“By so doing we are only recovering 20 percent of the value, the other 80 percent is in value addition,” he said.
“Since we can realise just 25 percent of the value of our diamonds, if we agree to realise the balance (through beneficiation and value addition) it means that this liquidity problem we are always complaining about will go away.

“Diamond is one resource which can easily assist in the economic turnaround of this economy, unlike agriculture, diamonds once you exhume them, you just add value, market and make money immediately,” Mr Kurotwi said.

Having established the Zimbabwe Diamond Training Centre, to ensure the country becomes a self-dependent gem mining and marketing centre, Mr Kurotwi said plans were afoot to establish a centre that offers the security, regulatory approvals and financial system that investors want in diamond trade.

Zimbabwe is, by most accounts, the best place on the planet to farm Nile crocodiles

Richard Sainsbury Business Correspondent
AFTER a strong bull run on the Zimbabwe Stock Exchange during 2013, looking at the economic fundamentals, a market correction is imminent.
We, therefore, expect to see increased volatility on the ZSE for 2014, which in our opinion result in investors taking a more defensive approach to their portfolio construction.

One of the many strategies implemented by local fund managers over the years has been to increase their exposure to dual listed stocks such as PPC, BancABC and Old Mutual which derive most of their income from outside of Zimbabwe.

One interesting company that is often overlooked under companies on the ZSE with limited exposure to Zimbabwe is Padenga.
Padenga is a 100 percent export company, selling crocodile skins to tanneries owned by large luxury brands such as Louis Vuitton and Hermes to name a few.

Therefore, the company does not have significant exposure to the Zimbabwe economy but is, however, exposed to risks in the global economy.

After the global financial crisis of 2008, Padenga observed that demand for lower-end crocodile skins used mainly in the watchbands industry dropped off significantly, whilst the demand for large quality skins used mainly for the production of handbags and other luxury accessories, stayed strong or in some cases even increased.

Against this background, Padenga was forced to rethink and restructure its business model to meet the new demands of the crocodile skin market.

Whilst the recession financially crippled a lot of people, it did not change the fact that super wealthy people were super wealthy and they would continue to spend on luxury products such as crocodile leather handbags and other accessories.

Crocodile skin handbags on luxury brands can go for as much as US$50 000 with a five-year waiting period whilst top quality skins sell for as much as US$600 per skin.

The main reason why these luxury brands can afford to sell these products at this high price is the exclusivity of the product.
Like all products that are considered to be a part of the luxury industry, the difficulty in attaining the materials used contributes heavily to the price that can be charged.

Because of the difficulty in farming these crocodiles to the specifications that the premium market desire, the supply remains limited and doesn’t meet the demand.

The reason for this is that crocodiles are extremely difficult to farm due to the aggressive nature of the animal not only against handlers but also against each other.

They are highly territorial animals and as a result have no problem biting each other to show dominance.
However, this is a problem for the farmer whose price is determined by the quality of the skin sold and any bite marks would seriously decrease the price.

Saltwater crocodiles can fetch the best price as they are bigger animals and the premium market demands big skins.
However, saltwater crocodiles are again more difficult to farm than Nile crocodiles.

This is because this species is more territorial and aggressive by nature than Nile crocodiles and therefore, is harder to farm effectively.
With breeding these animals being a matter of life and death and a strong barrier to entry into that market, the supply of these skins is fixed to a certain extent, as there is only so much supply to meet a growing demand.

Therefore, in order to guarantee their individual supply as well as maintain the exclusivity of selling premium crocodile skin products, many of these luxury brands have had to invest in the supply structure of the skins especially over the last three years.

French luxury goods world leader, Moet Hennessy Louis Vuitton SA acquired a 51 percent stake in Heng Long Tannery in Singapore for approximately US$161 million.

Heng Long was a tannery listed on the Singapore Stock Exchange and was a tannery specialising in rare skins.
Louis Vuitton also bought a farm in Innisfail (Australia) in far north Queensland for US$2,5 million, while Hermes has bought a farm in Cairns, also in the state’s north and two in the Northern Territory.

In January 2013, French luxury brand, Hermes announced that they had acquired French calf leather tanners, Tannerie d’Annonay located in Annonay in the French Rhone valley.

The tannery is one of the four owned by Hermes through their subsidiary HCP (Hermes Cuirs Precieux).
There are a few more suspected acquisitions and investments but cannot be confirmed at this stage.

This illustrates the huge investment into this supply chain in order to meet the demand for these luxury brands.
Padenga has changed the structure of their business model in order to meet this demand. They have started growing their animals larger and more efficiently in order to meet the requirements set out by their market.

This has forced them to invest quite heavily in working capital in order to do this. However, the increment in price received for growing these products more than offsets the cost of doing so.

Most of these luxury brands have seen both increases in revenue and earnings.
We believe that the market for these products is mainly for the extremely rich people who are unlikely to have been affected by the recession.

We also think that with the growth experienced in the emerging markets during the previous decade, a new crop of ultra wealthy has risen and as a result increased the market for these products.

We believe it is the exclusivity and the “classic” nature of the crocodile skin accessory market that drives the demand.
Padenga is now coming to the end of their restructuring exercise and will see the first full implementation of this business cycle by December 2013.

Padenga’s target is to sell at least 43 000 large premium skins per year and from their half-year results, it seems they are on course to meet this target.

As one can see, Padenga does not rely on local demand for their product and its market seems to be exempt from the recurring economic problems in Zimbabwe.

Aside from the occasional fluctuations in the price of feed, Padenga is not susceptible to the country’s depressed demand or weakening disposable incomes.

Much like the tobacco industry, they are well-positioned to sustain any economic downturn within the country compared with other industries.

Another reason why they are likely to do well is the climatic competitive advantage, which they hold by operating in Zimbabwe.
Zimbabwe is by most accounts, the best place on the planet to farm Nile crocodiles.

This coupled with the difficulty in farming these prehistoric beasts are the reasons they are unlikely to be overburdened by competition within the region or anywhere else.

Feedback: richard@zam.co.zw