Zimbabwe's challenges are well documented, BUT ....

Zimbabwe's challenges are well documented, but strong GDP projections and encouraging growth at company level have increased the market's investment appeal in the current economic context.
 
Good news is in short supply for asset managers in European and North American investment centres, which only adds to the impact of authoritative reports that Zimbabwe is on track for real GDP growth of 9,3% in 2011.

The only caveat from researchers at Imara, which specialises in sub-Saharan investment research, was that the forecast could be a little conservative. The assessment came in the wake of the mid-term fiscal policy statement by Zimbabwe Finance Minister Tendai Biti.

The 9.3% figure is significant. On the face of it, the estimate puts Zimbabwe growth on a par with China. Admittedly, there are massive disparities in economic size and industrial muscle, and Zimbabwe's growth comes off an extremely low base. However, the positive perspective is likely to grab the attention of embattled Western fund managers.

Their home jurisdictions increasingly look like submerging markets in comparison to the emerging markets of Asia and Africa, The Bank of England recently cut the UK's growth forecast for 2011 to a modest 1.4%. The Eurozone will struggle to beat the British figure and the US may not do much better.

Neighbouring South Africa will get nowhere near 9% and may be challenged to reach earlier estimates of 3,5% growth. Zimbabwe's growth rate is easily one of the highest in Africa and, even allowing for a low base, indicates significant gains are being achieved.

The commodities picture is certainly reassuring. Following a good agricultural season, the country could be at least 80% self-sufficient in terms of food. Communal small-scale farmers remain the largest contributors to food security, accounting for 43% of production and achieved growth of 17% during the year,

"Following a good agricultural season, the country could be at least 80% self-sufficient in terms of food"

Mining is also doing well. Gold output is up 37.5% year on year and in mid-2011 platinum production was 61% of total 2010 production.

Government policy is becoming supportive in key areas. For example, duties on raw materials and capital goods have been removed to stimulate Zimbabwe's nascent manufacturing sector, Additional reforms focused on health and education are in the pipeline without recasting previous policy - a display of consistency that may help the country qualify for debt relief.

Business prospects also look good, judging by early indications from the mid-year corporate reporting season. A first-quarter update by Delta, the SAB- Miller subsidiary, showed a 47% rise in profit off revenue growth of 43%. First quarter volumes topped the Christmas quarter.

Strong demand for Delta products was evident in rural areas after good tobacco and cotton crops. These developments have prompted speculation that Delta may bring forward a planned capital expenditure programme to ensure capacity keeps up with demand.

The picture is also positive at farm equipment-maker Zimplow. The business reported a 43% rise in first-half revenues, with the domestic market accounting for 84% of sales. Local demand was driven by strong agricultural commodity prices, in particular cotton. Meanwhile, a first-quarter update from food retailer OK showed year-on-year revenue growth of 59,8%.

Challenges as longstanding as Zimbabwe's don't vanish overnight. Anyone studying the mid-term fiscal policy statement can spot distortions with the potential to impede sustained growth at some stage. Bureaucracy remains bloated. Salaries still account for 61% of the national budget. But even this has an upside. Recent increases in civil service pay will support consumer demand, underpinning third-quarter prospects - which may mean Zimbabwean growth in percentage terms will remain on a par with China's for a little longer.