John Legat, the Harare-based CEO of Imara Asset Management, noted this spring in regards to the “dollarization” of Zimbabwe that it had been “extraordinary how quickly consumption has started to increase, and with it volumes and capacity utilization.” Zimbabwe has used the U.S. dollar as one of several multiple foreign currencies (notably South Africa’s rand) since January, in order to temper the hyperinflation which left the Zimbabwe dollar nearly worthless last fall. Inflation since the new currency regime has averaged around 2% through June; the last inflation figure announced before the country’s adoption of foreign currencies was last October, when prices were soaring at record 231 million percent.

A late June conference in the capitol attracted 40 overseas fund managers eager to capitalize on the increased investment that dollarization has realized. “Until recently, international owners had significant constraints on repatriating their Zimbabwe profits and did not consolidate these assets on their balance sheets,” noted Imara CEO Mark Tunmer. “This all changes in a dollarized economy. Following the global banking crisis, many companies are keen to show that their balance sheets are not over-leveraged. The ability to reflect ‘forgotten’ Zimbabwean assets could be most helpful in this environment.” Investors keen on Zimbabwe may also be pleasantly surprised by many firms’ current production capacity and potential for growth, according to Imare’s Sean Gammon. “A lot of plant in our corporate sector is relatively modern and well maintained. Many of our larger companies invested in new plant in the 1990s. It provides a robust base for operations as the country makes a new start, while any new investment would add significantly to productive capacity,” he said.

Legat, for one, points to the SAB Miller-owned Delta, Zimbabwe’s largest brewer, as an example of a firm that can expect a boost from increased consumption and more efficient (up to 4x) capacity utilization which will help the company eventually meet rising demand. “Volumes in the full year to March 2010 are expected to be about the same level as in 2005, before the big recent slide in consumption,” he theorized.

That said, some critics allege that without a continuous stream of foreign aid, Zimbabwe’s dollarization experiment is likely doomed to fail, since the federal budget can no longer be financed through domestic means, and foreign currency “vouchers” being used to pay civil servants in particular are not widely accepted by retailers or banks. Some local politicians, in fact, are already calling for “de-dollarization” (though their motives/ideological allegiances are questionable). Yet such talk is likely just that. Zimbabwe will not return to using its own currency in the near future, and any move back to the Zimbabwe dollar will be linked to export strength, Zimbabwe’s finance minister Tendai Biti emphatically said on this week.

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