Businesses operating in Zimbabwe will have to be nimble enough to manage switching suppliers and maintain liquidity to survive periods of low sales in 2021 while investors should seek exposure in companies that have defensive business models.
These include those that are cash generative, export oriented and not dependent on local economies.
The comes as the Covid- 19 pandemic is seen presenting hurdles associated with deteriorating disposable incomes that can translate to limited aggregate demand during the year .
Companies that focus on luxury or non- essential goods are seen taking the fall while tourism and hospitality will likely remain in the doldrums.
An Equity strategy paper by Morgan & Co however notes that consumer facing companies offering defensive mass market oriented goods could be able to surf the tide.
The paper also notes that while Zimbabwe has remains a hard sale on the global investment matrix, there are however certain themes that continue to attract a lot of attention among investors.
These include sectors such as agriculture, mining and financial services.
Zimbabwe economy is dependent on agriculture and the sector is expected to recover by 11,3% in 2021 according the Ministry of Finance.
One of the main concerns has been low productivity as output of different sectors of the economy drops.
However rapid population growth and increased economic prosperity in the future is set to increase substance demand for food.
“Overall there is an opportunity for a country like Zimbabwe to increase food production output given that these dynamics can translate to an uptick in agricultural produce there is no silicon valley in Zimbabwe but agriculture can grow the economy and generate the much needed foreign currency . The advantage here is that Zimbabwe has arable land in economics competitive advantages are conditions that allow a country to produce a good of equal value at a lowest price or in a more desirable manner. These conditions allow the productive entity to generate more sales or superior margins compared to its rivals.” said Morgan & Co.
Agricultural businesses that provide key inputs into the food production chain are seen positioned to take advantage of this growth.
The mining sector on the other hand contributes 7-8% to GDP and presents long term solution to the foreign currency shortages in the country.
The sector is expected to recover by 11% in 2021 as gold proceeds have been on an awards trend given the safe haven status of the yellow mineral.
Global risks and geopolitical uncertainties are expected to help maintain the bullish trend in the outlook period.
“We note that most commodities rebounded in the second half of 2020.In oil priced lagged the broader recovery in commodity prices due to the prolonged impact of the pandemic on global oil demand .Base metals prices were on net broad flat in 2020. As sharp falls in the first half of the year were followed by a strong recovery in the second half due to rising demand from China. Prices are expected to increase 50% in 2021 alongside the expected rebound in global demand,” Morgan & Co said.
The dynamic has been that governments all over the world are pushing towards renewable energy vehicles given that they are ingredient for the achievement of low carbon societies.
Mining groups such as BNC (Bindura Nickel Corporation) are set to experience growth as the story of EVs play out. Gold producers such as Rio Zim and Padenga holdings are set to benefit from the gold price trend.
The financial services sector and insurance in Zimbabwe is also expected to grow by 72% in 2021.
“Our research reveals that there is scope for M & A (Mergers and Acquisitions) activity in the sector in 2021 and this could present interesting opportunities for investor in in the banking sector as NSSA disposed its ZBHF stake , increasing its stake in CBZH. There is also scope of activity in the insurance sector. We opine there is scope for consolidation in the insurance space.” Morgan& Co said.