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Could the Atlas-Mara deal be a catalyst for Zimbabwe FDI?

11 April 2014, 07:28
The announcement of the Altas-Mara $210 million investment into ABC Holdings (ABCH) last week was an important piece of positive economic news for a business environment that has been plagued with negative headlines of late. In particular, the banks that are not part of major multinational groups have been reporting increased concern about non-performing loans and the need for more rigorous credit risk management.

The last significant foreign direct investment (FDI) announcement was the $750 million Essar deal that saw them take over ZiscoSteel and significant iron ore reserves to supply the mill. The conventional wisdom has been that further large injections would also be in the resource sector as this was export facing and also required massive amounts of capital.

Unfortunately, since the 2011 announcement of the Essar deal there has been nothing in the way of FDI mega-deals and the dearth of new capital has underpinned the sluggish growth the economy is currently undergoing.  Also, disturbingly, the Essar transaction itself has not been fully consummated yet amidst reports of haggling between the incoming investors and government over certain aspects of the deal. From the time of announcement to date, several developments which can be considered negative for attracting investment have occurred. Chief among them has been the rigorous implementation of the indigenisation policy, which has reportedly scuppered some deals which were close to being finalised. This background makes the announcement of the ABCH transaction very interesting.

ABCH is a pan-African banking group with offices across six African countries and the investment by Atlas-Mara can hardly be viewed as a pure play on Zimbabwe. Indeed, the London Stock Exchange (LSE) listed investment house has its eyes on Africa as the continent with six of the world's fastest growing economies and investment opportunities that are more attractive than emerging markets. ABCH was merely the starting point for an Africa-wide investment surge and just last week, Atlas-Mara announced that it had signed a memorandum of understanding with the government of Rwanda to buy a stake in the state-owned Development Bank of Rwanda.

It can also be argued that BancABC Zimbabwe is ABCH's biggest and most important subsidiary and therefore any investment in ABCH is a significant signal of confidence in the country as an investment destination. The principals of Atlas-Mara, Bob Diamond and Ashish Thakkar certainly expressed their excitement about Zimbabwe as an investment destination that presented attractive opportunities when they visited the country last week to talk about their partnership with Doug Munatsi on ABCH.

It's important to note that Atlas-Mara, with nothing more than a vision for banking opportunities in Africa and the reputations of its two founders managed to raise $325 million in equity capital in December 2013. Globally, there are very few investment managers that can raise hundreds of millions of dollars to fund an idea with no underlying assets apart from the passion of its promoters, especially if Africa is the investment destination. Therefore, it's a big deal if this team's very first acquisition comes with significant exposure to Zimbabwe especially considering that the majority of investors in Atlas Mara are Americans (US) who have generally given Zimbabwean investment a wide berth in the past. Investors everywhere keep tabs on what the smart money is doing, and as far as Africa is concerned, Atlas-Mara is considered the smart money.

Banking is a key sector in any economy because bankers play an important role in raising and allocating capital. In fact, in his presentation at ABCH last week, Bob Diamond emphasised that what Atlas-Mara brings to the table is capital, liquidity and technology. Given that they were able to raise hundreds of millions in equity capital, they will be able to raise billions in lines of credit and debt. It stands to reason that as a key subsidiary in the group, BancABC Zimbabwe will be one of the beneficiaries of this new money.

The Atlas-Mara network of contacts will be unleashed into the territories where they have operations to see for themselves the opportunities that Bob Diamond and Ashish Thakkar are excited about. It is conceivable that investment bankers that were put off by Zimbabwe in the past based on their desktop research and assessments of the risk/return profile will put their misgivings aside, get onto a plane and give the country a fresh look with a perspective that has been influenced by Atlas-Mara. This could prove to be game-changing.

Its early days and the ink on the Altas-Mara/ABCH deal is hardly dry. It remains to be seen how the execution will pan out and to what extent they will mobilise the capital, liquidity and technology they have intimated. In my view, it will be clear in the next twelve months whether this deal was a catalyst for significant additional FDI inflows or the first step of a pan-African investment strategy that bought ABCH in spite of Zimbabwe, not because of it.
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