1. Analyst: James T Chiuta
Email: jchiuta@bancabc.com
INITIATION OF COVERAGE

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CONTENTS
1 Country Overview ........................................................................................................................2
2 Introduction ................................................................................................................................3
3 Economic Overview......................................................................................................................3
4 Post-Election Developments .........................................................................................................4
5 The Economic Slowdown Explained...............................................................................................4
5.1 Government Expenditure too little to spark economic growth ..................................................4
5.2 The Consumer’s spending capacity shrinking..........................................................................5
5.3 Stagnant Investment growth.................................................................................................5
5.4 Trade Deficit continues to widen ...........................................................................................5
5.5 “Liquidity Crisis” - The visible symptom..................................................................................6
5.6 A drop in Sales follows..........................................................................................................6
5.7 Non Performance of Loans grew to alarming levels.................................................................6
6 Light at the end of the tunnel.......................................................................................................7
6.1 A fast growing, young population ..........................................................................................7
6.2 Highly educated population...................................................................................................8
6.3 Advanced infrastructure framework eases business ................................................................8
6.4 Fast growing levels of Urbanization .......................................................................................9
7 Recommendations .....................................................................................................................10

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1 COUNTRY OVERVIEW
Country Snapshot
Capital City Harare
Languages English, Shona, Ndebele
Population (Millions) 14,15
2012 2013 2014
Y-O-Y Inflation Rate (%) 2.9 0.3 -0.8
GDP (USD'bn) 12.4 13.1 13.5
GDP/Capita (USD) 952.0 990.0 1,010.0
Trade Deficit (USD'bn) -3.6 -4.2 -3.3
Bank Deposits (USD'bn) 3.9 4.2 4.4
Loans to private sector (USD'bn) 3.2 3.2 3.6

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Source: Bloomberg/ABC Estimates
-
50.00
100.00
150.00
200.00
250.00
300.00
350.00
400.00
450.00
1-Jun-12
1-Sep-12
1-Dec-12
1-Mar-13
1-Jun-13
1-Sep-13
1-Dec-13
1-Mar-14
1-Jun-14
1-Sep-14
1-Dec-14
1-Mar-15
ZSE Industrial Index
Projected ZSE
performance
before Elections
2 INTRODUCTION
We initiate coverage on Zimbabwe highlighting the major factors leading to the
recent retreat of the stock market as well as reasons not to write-off Zimbabwe
as an investment destination. This report attempts to condense these
developments and hopefully bring out the long term value Zimbabwe holds.
3 ECONOMIC OVERVIEW
The economy has witnessed a sharp slowdown since 2013. After enjoying GDP
growth rates as high as 11,9% in 2011 most economists have forecast 2015
GDP to actually decline, in line with the negative 1,2% y-o-y inflation recorded
in March 2015.
In the same season, we have witnessed a drop in capacity utilization from post
dollarization highs of 57,2% (in 2012) to 36,3% in 2014, which is not far ahead
of the 2008 low capacity utilization levels of 32%.
Most economists forecast
GDP to decline in 2015
Source: ABCH Economics
0
200
400
600
800
1000
1200
-2
0
2
4
6
8
10
12
14
2009 2010 2011 2012 2013 2014 2015F
GDPGrowth(%)
GDP Growth (%)
GDP per capita USD [RHS] GDP Growth % [LHS]

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4 POST-ELECTION DEVELOPMENTS
The investment community has been observing the government’s ability to
sustain the reforms introduced between 2009 and 2013, as was the case in
Kenya in 2012 and Brazil in the late 1990s. Since the 2013 elections in
Zimbabwe, there have been developments that have signified the promotion of
reform that can be noted. Talks with the IMF and World Bank continued
despite the fall away of the “Unity Government”, with the IMF reopening their
country office in Zimbabwe in 2014. In addition, the European sanctions list
was revised, resulting in the removal of most Zimbabwean companies and
individuals from this list. Internally, government has begun to highlight the
importance of curbing corruption, reducing civil servants’ costs, reforming the
banking sector as well as softening the indigenization laws. There are a few
infrastructure projects with heavy involvement of foreign stakeholders that are
currently ongoing and are being fairly well-managed. These include the
Plumtree-Mutare Highway which is near completion and the Kariba South
Hydro Power Station expansion project whose negotiations began during the
life of the unity government and maintained positive traction even afterwards.
On the other hand, the much welcome adjustments to the indigenization laws
are yet to be legislated. Furthermore, the continuation of the land redistribution
continues to renew fears that the (non-compensation) strategy of wealth
redistribution will be extended to the industrial sector through the
indigenization laws. The IMF - recommended reduction in civil service costs is
yet to be implemented. The revenue authority, ZIMRA, continues to crowd
mining houses with huge tax burdens such as the new tax on raw platinum
exports which was introduced earlier this year.
5 THE ECONOMIC SLOWDOWN EXPLAINED
5.1 GOVERNMENT EXPENDITURE TOO LITTLE TO SPARK REAL GROWTH
The 2015 Budget targets expenditure of $4,1b with 81% of it going towards
employment costs. This leaves less than 20% ($800m) or 5% of GDP, to
finance development expenditure. This may be too small a figure to stimulate
significant job creation or make much economic impact since not every dollar
will be spent locally.
The real impact of government expenditure will therefore probably come from
the consumption expenditure by civil servants. Therefore, in as much as
government needs to drop recurrent expenditure to free finances for capital
expenditure, they have to do so in an appropriate way that will not cancel out
the consumption impact on of civil servants.
There are a few
infrastructure projects
with heavy involvement of
foreign stakeholders that
are currently ongoing and
are being fairly well-
managed.
The real impact of
government expenditure
will probably come from
the consumption
expenditure by civil
servants

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5.2 THE CONSUMER’S SPENDING CAPACITY SHRINKING
There has been a sharp rise in companies filing for judicial management or
liquidation from 96 to 147 in 2014, whilst the number of retrenchments rose
63% to 6,338 in 2014. Given credit to private sector has actually grown by 4%
to $3,8b with households consistently contributing to 18% of this, we believe
consumers’ spending capacity has been greatly reduced through increased
unemployment, reduced salaries and increasing household credit.
5.3 STAGNANT INVESTMENT GROWTH
The abovementioned closure of companies also suggests a negative growth in
investment. This is exacerbated by the slowdown of FDI inflows. In 2014, FDI
stood flat at $400m. This brings cumulative FDI into Zimbabwe for 2009 to
2014 to a paltry $1,5b. Compared to neighbors Zambia and Mozambique that
received cumulative FDIs of $8b and $15,7b for the same period respectively,
there is every reason to expect Zimbabwe to grow at a much slower rate than
the region’s 4,5%.
5.4 TRADE DEFICIT CONTINUES TO WIDEN
In addition to the decline in FDI growth, the economy has been suffering from
widening trade deficits. The lack of competitive scale has found Zimbabwe
becoming a net importer. The drop in exports was mainly caused by a drop in
commodity prices. As such, the 17% decrease in imports in 2014 to $6,4b was
nullified by a 13% decline in exports to $3,1b, maintaining a high trade deficit
of $3,3b (2013: $4,2b). From 2009 when Zimbabwe dollarized, imports have
soared, resulting in a cumulative trade deficit of $22,7b. With the
strengthening of the USD against currencies of Zimbabwe’s major trade
partners such as South Africa, Zimbabwe is likely to remain less competitive
since the major currency they use is the USD.
The 17% decrease in
imports in 2014 to $6,4b
was nullified by a 13%
decline in exports to
$3,1b, maintaining a high
trade deficit of $3,3b
Source: Zim Stats/ ABCH Economics
(6,000,000,000)
(4,000,000,000)
(2,000,000,000)
-
2,000,000,000
4,000,000,000
6,000,000,000
8,000,000,000
10,000,000,000
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
Zimbabwe Trade Performance 1998 - 2013
Total Imports Total Exports Trade Balance

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5.5 “Liquidity Crisis” - The visible symptom
Loans and deposits are no longer growing at the prior rates they used to.
Between 2009 and 2011, loans and deposits grew at a 3 year CAGR of 50%
and 34% respectively. On the contrary, 2014 loans growth dropped to 8%
whilst the deposit growth dropped to a mere 1%. In addition to these are the
earlier mentioned flat FDI at $400m and $3,3b trade deficit. The net effect has
been a reduction in money circulating in the economic system. Interestingly the
stability of deposits suggesting that it is likely that it is the informal sector that
has been hit the hardest by this surge in net flows out of the economy.
5.6 A drop in Sales has then followed
Sales across all sectors have been dropping. Beer volumes were down 17% for
the 12 months to March 2015. Consumer based BAT, Colcom and Dairibord
witnessed a drop in sales for 2014 with BAT shedding 14%, while the others
were marginally down 1%. The few companies that witnessed defensive
revenues and profits were those that diversified their income streams, offered
inelastic goods or had some form of export reach. Delta has expanded their
sorghum beer output to compensate for the drop in beer volumes, while
Econet has increased data and overlay service subscriptions significantly,
mitigating the drop in voice revenue.
5.7 Non-Performing Loans began to grow
NPLs have grown significantly in the same period. Consensus among banks is
that most NPLs were derived from loans that were originally written between
2009 and 2012 when most loans were written purely on relationships with no
track record of operating in a USD environment. However, there are renewed
fears that with company closures the collapse of certain business synergies and
increased unemployment will spark a new wave of NPLs derived from economic
slowdown in 2015/16.
Source: ABCH Economics
0
5
10
15
20
Botswana Mozambique Tanzania Zambia Zimbabwe
NPLs (%)
2009 2010 2011 2012 2013 Mar-14

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6 LIGHT AT THE END OF THE TUNNEL
There is no doubt 2015 will be as slow a year as 2014, if not slower. ABCH’s
Economics department forecasts GDP to drop by 1%. More closures and
retrenchments are expected, whilst banks continue chasing non-performing
loans.
It is very difficult to expect any real change to happen in the short term. In fact,
we expect the walk with IMF and World Bank to be longer than expected
before it results in solid monetary since there were no time frames given to this
end in their last reports on Zimbabwe. There may be many commitments to
support Zimbabwe’s infrastructure programs by the European Union, China and
Russia. However, given their magnitudes we expect these talks to take longer
than 12 months before they translate to inflows into the country. Others, such
as power station projects, take time to gestate before they start to contribute
to the economy.
The consumer has retreated slowly over the past few years and is likely to
remain constrained for the rest of 2015. However, hope lies in Zimbabwe’s
infrastructural and demographic strengths. Given this season is likely to correct
with the inflow of FDI and monetary aid, we are urging investors to look at the
constant factor before and after these inflows resume. The consumer!
6.1 A FAST GROWING, YOUNG POPULATION
Zimbabwe has a 14,15 million population. Of this, the median age is 20 years.
This implies that Zimbabwe has a very young population compared to
European countries whose median age is close to 40 years. Furthermore, this
population is growing at 2,1% per annum. This again is significantly higher
than most developed countries that are growing at close to 0,5%. According to
a study done by the UN, Zimbabwe is among the countries likely to double in
population by 2030 (from 2010 population) meaning that both labour force and
the consumption capacity could double in the next 15 to 20 years.
Source: UNDP
0.0 10.0 20.0 30.0 40.0 50.0
Uganda
Angola
Zambia
Mozambique
Malawi
DRC
Tanzania
Nigeria
Ethiopia
Guinea
Kenya
Zimbabwe
Swaziland
Ghana
Lesotho
Namibia
Botswana
South Africa
BRIC
Developed countries
Median Age (Yrs)
0 1 2 3 4 5
Developed Markets
BRIC
Swaziland
Botswana
Tanzania
Namibia
Zimbabwe
Uganda
Ghana
Zambia
Ethiopia
Nigeria
Guinea
South Africa
Malawi
Angola
Kenya
Mozambique
Lesotho
DRC
Population Growth Rate (%)
According to a study done
by the UN, Zimbabwe is
among the countries likely
to double in population by
2030 (from 2010
population) meaning that
both labour force and the
consumption capacity
could double in the next
15 to 20 years.

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6.2 HIGHLY EDUCATED POPULATION
Another interesting characteristic of this 14,15 million population is that it has a
youth literacy rate of 90,7%, the highest in Africa. An educated employee is
most likely to be more efficient, whilst an educated consumer is also highly
likely to have understanding of more sophisticated products and services that
the market will offer, over and above the basic ones. Higher literacy rates
therefore improve both productivity and consumption capacity. Projecting 10-20
years from now, Zimbabwe’s population should therefore be more productive.
6.3 ADVANCED INFRASTRUCTURE FRAMEWORK EASES BUSINESS
From an operational point of view, Zimbabwe offers a much more enabling
infrastructure framework for business operators than most other regional peers.
With a road network of 25km/100sqm Zimbabwe is behind South Africa (at
30km/100sqm) and Uganda (at 27km/100sqm). This implies that intra-country
distribution costs are lower in Zimbabwe than elsewhere in the region, holding
all other factors equal. In addition, based on Econet’s network coverage, every
part of the country has got basic mobile network coverage with the exception of
game parks.
Source: UNDP
0
10
20
30
40
50
60
70
80
90
100
Ethiopia
Zambia
DRC
Nigeria
Mozambique
SSA
Malawi
Angola
Tanzania
Rwanda
Kenya
Lesotho
Uganda
World
Egypt
Zimbabwe
Youth Literacy Rate (%)
Source: Econet Source: World Bank
4 4 4 4
7
9
11 12 13
20 21 21 21
24 25
29 30
Angola
Botswana
Ethiopia
Mozambique
DRC
Tanzania
Kenya
Zambia
Malawi
Lesotho
Nigeria
Swaziland
Togo
Ghana
Zimbabwe
Uganda
SouthAfrica
Road Density (km per 100 sq km)

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6.4 FAST GROWING LEVELS OF URBANIZATION
39% of Zimbabwe’s population lives in urban areas and that ratio is growing at
a fast rate as the economy slowly shifts away from being an agricultural
economy to being more diversified. According to our estimates, over half the
population 50% of the country will be living in the urban areas by 2040, which
in turn should improve consumer spend. The importance of urbanization to an
economy’s development and growth is that it increases access to diversified
income streams for the worker and being in an urban setting exposes the
consumer to a wider range of products and services thereby increasing his/her
spending. There is a positive correlation we have observed between
urbanization and both mobile penetration and alcohol consumption.
Source: World Bank/ABCSB estimates
0
10
20
30
40
50
60
1980 1990 2000 2010 2020F 2030F 2040F
Zimbabwe's Urbanisation Rate (%)
Source: UNDP/Econet Investor Presentation

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7 RECOMMENDATIONS
The current economic slowdown in our view will slowly be corrected as FDI
inflows begin to grow. The timing may be difficult to accurately predict, but we
believe the current inroads being made in rebuilding foreign relations as well as
re-aligning policies with guidance from multilateral lenders means that
Zimbabwe is set to recover soon. Furthermore, recent engagements with both
Eastern and Western Investment representatives and subsequent investment
pledges will in due season bear fruit, thereby re-igniting economic growth. As
such, our recommendations are that investors take positions in stocks that can
weather the current proverbial “storm” while also positioning themselves for the
forecast recovery.
For this reason we place a LT BUY recommendation on consumer stocks with a
dominant market position, cash generative capacities, stable business models
and modernized equipment. Stocks within our watch list are BAT Zimbabwe,
Colcom, Dairibord Zimbabwe Limited, Delta Corporation, Econet
Wireless Zimmbawe, Innscor, Natfoods, OK Zimbabwe.
We also place a LT BUY recommendation on the financial stocks that have
managed to contain their NPL position, are cleaning up their balance sheets and
have taken remedial steps to ensure their balance sheets will remain fairly clean
going forward. We believe that the well capitalized banks are best positioned to
survive and offer a decent return on equity as the economy begins to recover.
These banks are Barclays, CBZH, FBCH and NMBZ.
We however place a firm BUY recommendation on export or regionally
diversified stocks that are enjoying stable sales growth through being tied to
more stable markets, yet also standing a great chance to enjoy further growth
in local sales volumes as Zimbabwe recovers. Bindura Nickel Corporation,
Padenga, Seedco and TSL Holdings are the stocks that fall in this space.
TSL may not be a direct exporter, but is linked to an export crop, tobacco.
Throughout the course of the year we will be releasing detailed
reports on the selected stocks and their respective sectors.

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T: 263 4 703071-9
T: 263 4 781837-40
E:abcresearch@bancabc.com
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