How to Invest on the Zimbabwe Stock Exchange

Last week, we took a look at sub-Saharan Africa’s top-performing stocks of 2011. Zimbabwean firms dominated the list. In light of this, I thought it might be helpful to run through the details of actually buying and selling stock on the Zimbabwe Stock Exchange.

Last week, we took a look at sub-Saharan Africa’s top-performing stocks of 2011. Zimbabwean firms dominated the list. In light of this, I thought it might be helpful to run through the details of actually buying and selling stock on the Zimbabwe Stock Exchange.

Before I begin, however, let me state clearly that investing in Zimbabwe, in my view, entails a significantly higher degree of political risk than does investing in most other sub-Saharan markets. The government of national unity between Mugabe’s ZANU-PF and Morgan Tsvangirai’s MDC is fragile at best, so don’t invest any money that you can’t afford to lose.

That said, if you’re comfortable with the risks, you’ll find a lot of interesting companies among the exchange’s 78 listed stocks. Moreover, because the Zimbabwean economy has been dollarized, currency risk is not an issue for U.S. investors.

Zimbabwean Stockbrokers

My previous experience investing in Zimbabwe was as an institutional investor. This is a rather different process than investing on your own as an individual. An introducing broker and custodian shepherded us through our transactions. We didn’t have to deal with the nitty-gritty of establishing a working relationship with a local Zimbabwean stockbroker.

So I compiled a list of stockbrokers who trade on the market. (This took a bit of digging because the Zimbabwe Stock Exchange’s website has been down for maintenance for weeks.)

Photo by Kevinzim

I then emailed each broker. I asked them if they catered to foreign investors and, if so, how much they required in order to open an account. Of the dozen or so brokers that I contacted, I found the following four brokers to be especially helpful and responsive.

  • EFE Securities – ($1,000 minimum to open account) Founded in 2003, EFE Securities publishes daily market commentary and occasional company research reports on its website, both of which are available to registered users. Registration is free.
  • Lynton-Edwards Stockbrokers – ($1,000 minimum to open account) One of Zimbabwe’s larger stockbrokers, Lynton-Edwards’ slick website provides stock charts and company results for a selection of firms.
  • MMC Capital – ($10,000 minimum to open account) A relative newcomer, MMC Capital was founded in 2008. Executive Director Itai Chirume is a Chartered Financial Analyst. You can join MMC’s research mailing list via their website.

The process of opening an individual trading account and buying and selling shares is essentially the same for all Zimbabwean brokers. In fact, they even charge the same commissions and fees. They differ only in their minimum funding requirements and the quality of customer service and research they provide.

Trading Costs

Here’s how much it will cost you to buy and sell stock on the Zimbabwe Stock Exchange:

  Buying Selling
Total Commission and Fees as % of Total Transaction Value 1.73% + US$2.00 2.41% + US$2.00

Note that Zimbabwe levies a 15% withholding tax on dividends. This is deducted by the issuing company before the dividend payment is made.

Opening a Zimbabwean Brokerage Account

Now let’s walk through the process of opening an account and buying your first shares.

Step 1: Complete and Return the Account Opening Form

The account opening form (aka the “Know Your Client” or KYC Form) typically requires disclosure of your passport number or other ID number, your address, and banking details.

Take note here that the Zimbabwe Stock Exchange still issues actual paper certificates as proof of share ownership. So, they will be mailed to you unless you specify that you would like your broker to hold them on your behalf. If you prefer not to hold these certificates in your filing cabinet or safe deposit box, I suggest you ask your broker to set up a Nominee account. This will allow your broker to hold share certificates on your behalf as well as to directly deposit any dividends directly into your trading account.

Step 2: Review, Sign, and Return the Broker Agreement

Most Zimbabwean brokers require a signed broker agreement or mandate form before they will open an individual account. The document outlines the terms of service to be provided.

Step 3: Provide a Certified Copy of Your Passport

If you don’t have a valid passport, a certified copy of your driver’s license may suffice.

Step 4. Provide a Copy of a Recent Utility Bill or Other Proof of Residence

A scanned copy of your electric bill should work just fine.

Step 5. Wire Funds to Your Brokerage Account

After opening your trading account, your broker will provide you with its bank details so that you can fund your account. The most efficient way to do this is via wire transfer. If you haven’t sent an international wire before, I suggest that you take your broker’s bank details to your local bank branch and ask them to walk you through the process. They’ll make sure that your funds arrive securely. Note that most US banks charge about $25 for outgoing international wires.

Step 6. Submit a Trade Order

You’ve done your research and found a stock that you’d like to buy. What now?

While some brokers will request a signed trade mandate form, for most brokers, all you need to do is send an email to your broker with your trade instructions. Keep in mind that some Zimbabwean shares are rather illiquid, so I advise specifying a limit price for all of your orders. This will help you avoid paying significantly more for your shares than you had intended to pay.

Your broker will then execute your trade and send you a contract note that specifies the buy or sell price, commissions, and fees.  Settlement of share trades takes seven days in Zimbabwe, so if you’ve sold shares, don’t expect to receive the proceeds of a sale for an entire week unless you’re willing to incur a penalty to settle the trade more quickly.

Mission Accomplished

That’s it! Follow these steps and you’re a Zimbabwe investor.

The process of opening a foreign brokerage account can be confusing. If you found this walk-thru to be clear as mud, please don’t be shy. Post your questions in the comments, and I’ll do my best to get answers for them.

[If you’d like tips on opening a Kenyan brokerage account, check out this interview on how to invest on the Nairobi Stock Exchange.]

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The 10 Best-Performing African Stocks of 2011

It’s been a tough year for Africa investors. Most sub-Saharan indexes are in the red and some have dramatically underperformed the S&P500. But a handful of frontier listings managed to buck the trend.

Here’s a list of Africa’s top-performing stocks year-to-date.

It’s been a tough year for Africa investors. Most sub-Saharan indexes are in the red and some have dramatically underperformed the S&P500. But a handful of frontier listings managed to buck the trend.

Here’s a list of Africa’s top-performing stocks year-to-date. (Note that returns are dollar-adjusted, and all companies average weekly trading volumes in excess of $10,000.)

10. ABC Holdings (ABCH:BG) — 61.5% YTD Return
The Botswana Stock Exchange’s top performer thus far is regional bank, ABC Holdings. ABC grew after-tax earnings by 33% during the first half of the year thanks to a stabilizing economic environment in its largest market — Zimbabwe.

9. First Banking Corp Holdings (FBCH:ZH) — 62.9% YTD Return
This Zimbabwean financial services firm also owns a large share of Turnall, a local manufacturer of construction materials. After more than doubling its first-half earnings, management rewarded shareholders with a hefty mid-year dividend payment.

8. Produce Buying Company (PBC:GN) — 68.0% YTD Return
Ghana’s largest dealer of cocoa and shea-nuts nearly doubled its profits in the first six months of its 2011 fiscal year. The company may have benefited from political instability in neighboring Côte d’Ivoire, a major cocoa-producer.

Photo by beckstei

7. Total Petroleum Ghana (TOTAL:GN) — 80.5% YTD Return
The subsidiary of the French oil giant operates more than 200 service stations throughout Ghana. Half-year results showed a 45% increase in profits, but third quarter results indicate much less scintillating growth. The share price has since been on a downward trajectory.

6. ZB Financial Holdings (ZBFH:ZH) — 100.0% YTD Return
A diversified Zimbabwean financial services company, ZB Financial derives most of its income from commercial lending. It also operates a sizable insurance business. Investors were cheered by a dramatic increase in profitability during the first half of the company’s fiscal year.

5. Dar es Salaam Community Bank (DCB:TZ) — 101.8% YTD Return
A Tanzanian bank focused on lending to small and medium enterprises, DCB management boosted its 2010 dividend by 71%. Earnings increased 23% in the first nine months of 2011, propelled by a big gain in net interest income.

4. Société des Caoutchoucs de Grand-Béréby (SOGC:BC) — 104.0% YTD Return
The Côte d’Ivoire-based SOGB produces two very hot commodities: rubber and palm oil. Accelerating vehicle sales in China and India have driven up rubber prices, while palm oil prices are on the rise due to its increased usage as a bio-fuel.

3. AEL Zambia (AELZ:ZL) — 109.4% YTD Return
The company supplies explosives to the Zambian mining and construction industry. Its 2011 financial results have been nothing to write home about. Investors may be speculating on long-term growth in the local mining sector.

2. Truworths Zimbabwe (TRUW:ZH) — 137.1% YTD Return
A leading Zimbabwean clothing retailer, Truworths operates 59 stores and also manufactures apparel for export. The company benefited immensely from dollarization with 2011 fiscal year operating profit soaring 204%.

1. Fidelity Life Assurance Company (FLIFE:ZH) — 536.4% YTD Return
Africa’s top performing stock thus far in 2011 is Zimbabwe’s oldest insurance company. Fidelity Life made its shareholders extremely happy by growing profits by 431% during its 2011 fiscal year on the back of strong local demand for insurance products and a growing operation in Malawi.

Clearly, the Zimbabwe Stock Exchange was chock full of hidden gems one year ago. Are there more to be unearthed in 2012?

Throughout the month of December, I’ll be scouring African markets in search of bargain stocks. Stay tuned to see what I dig up.

Disclosure: I own shares of Dar es Salaam Community Bank.

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Three Innovative (and Profitable) Kenyan Banks

This guest post is by Michael Abrahams, General Partner of the New Markets Financial Fund, L.P.

While Kenya’s safari and ecotours remain more popular, banking tours may soon catch up. I’ve just returned from a self-guided tour of that country’s banks and came away impressed by the innovation, social impact, and profitability of banking the un- and underbanked there.

In Nairobi, I met with both commercial banks and non-profit microfinance institutions. The companies included:

  • Equity Bank (EQBNK:KN), a global leader in banking the unbanked with creativity and innovation. At its launch, Equity’s management focused on answering a simple question: How can we lower the consumers’ cost of entry to banking? While the bank now has a broader ranger of offerings, with some strength in SME lending, 60% of new customers are still from the ranks of the unbanked. Now with 6.7 million customers, the bank has cut costs and improved access by offering a low cost, flexible back office system and a focus on mobile phone banking, whose costs are approximately a tenth the cost of a branch-originated transaction. Equity has also developed a low-cost agency system to serve customers in rural areas. These agents are self-employed individuals (often operating out of their own retail stores) who are trained to provide Equity’s basic banking services, particularly in deposit-taking and small balance lending.
Photo by WhiteAfrican
  • Family Bank is a company founded in 1984 expressly to serve the underbanked. Although their average deposit is only $200, Family has $160 million in deposits and 61 branches. The company is not yet listed but expects to debut on the Nairobi Stock Exchange shortly.
  • Co-op Bank (COOP:KN) was established in 1965 by tea, coffee and sisal farmers whose cooperative savings groups could not obtain banking services. Cooperatives are widespread in Kenya, and much of Africa, and they remain about 20% of the bank’s business. The bank has an active consultancy devoted to helping in the formation of new cooperatives as well as assisting existing co-ops flourish.

How profitable are these banks? Very. The two publicly traded banks, Equity and Co-op, have returns on equity exceeding 25% and show growth in both loans and earnings per share in excess of 40% annually. Family Bank, not yet publicly traded, is not quite as profitable as the other two banks or showing as rapid growth through year-end 2010 but is still doing very well.

Perhaps the most revolutionary banking product in decades is M-Pesa, transaction banking through simple 2-G mobile phones, which has spread like wildfire in Kenya. Following the introduction of M-Pesa by the mobile provider Safaricom (SAFCOM:KN) in March 2007, it is now utilized by 14.9 million people, or 65% to 70% of the adult population.

And this is not the very limited mobile banking service found in the US, but a full range of transaction services, including the purchase of goods and services, remittances, and bill-pay. For M-Pesa customers who link their phone to a bank, particularly the three above, a full banking platform is available including interest-bearing savings accounts and credit.

Innovation is not limited to cell phone banking. Seventy percent of Kenya’s 41 million people work in agriculture, typically very small-scale farming. Historically, banks have lent little to this sector because of its high risks, in part due to the highly volatile nature of crop production and prices.

Currently, Equity, Co-op and Family Bank are testing the use of index-based crop insurance, a low-cost insurance that will provide farmers a payout should total rainfall come in below some threshold level. This insurance, sometimes combined with forward purchase agreements for farmers’ crops by large financially sound buyers, will substantially reduce risks to borrowers and lenders, permitting an expansion of credit to this large sector.

New developments in mortgage lending are permitting lower income borrowers to build a roof over their heads. We met with Select Africa, a subsidiary of African Alliance, a leading pan-African securities firm, who provide incremental mortgages to their customers. Incremental mortgages are structured to safely and soundly meet the repayment abilities of lower income consumers.

The poor in much of Africa often build a home over years, first acquiring land, then building one room at a time with much of the labor provided by the owner. Now, some lenders are financing each stage, with each loan maturing in about two years and a new loan being granted only after the first is paid off. For example, a borrower may borrow enough to build the framing and roof, payoff that loan over time and then take out a new loan to finance the construction of outer walls. While it may take some years to finish the home, the financing never becomes overwhelming to the borrower. The loans may be as small as US$800 or as large as US$3,500. In addition, only days ago, Equity Bank announced their partnership with a Kenyan building supply company. Equity Bank will provide micro-mortgages to enable borrowers to purchase building construction materials for as little as US$2,000.

I left Kenya very encouraged by the financial institutions I had met. Unlike banking in much of the US and Europe, financial institutions are designing and introducing products that meet the needs of their customer base. Because so much of that potential customer base has been un- and underbanked to date and because that base is so large, the banks are having a huge positive social impact and have tremendous growth potential. It is really impressive to see what banking can be.

[Editor’s Note: Read more about Mike Abrahams’ approach to investing in Africa’s banks in this interview.]

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Orca Exploration: A Big Fish in East African Energy

Tanzania’s rapidly growing economy is hungry for electricity.

Energy demand is propelled by a booming mining sector and pro-business policy reform, but a long-running drought has slashed output from the nation’s hydro dams. Consequently, blackouts in the commercial capital, Dar es Salaam, are now commonplace, dramatically increasing the cost of doing business in the country.

Photo by Blue Moon In Her Eyes

Orca Exploration, a Canada-listed natural gas producer, is poised to help alleviate the power shortage. Read why I think the stock merits inclusion on Africa investors’ watchlists over at Seeking Alpha.

5 Essential (Free!) News Sites for Africa Investors

Successful investing requires good information. Last month, we highlighted a few places to find annual reports and financial statements for African companies. Now let’s look at some (free) resources that provide superior, continent-wide coverage of market trends.

The following five sites have become staples of my media diet.

  • Reuters Africa is an excellent source of African financial news from Cape to Cairo. If you want to know the latest inflation figures for Malawi, Ivorian cocoa prices, or rumored M&A activity in South Africa, then bookmark this site. If you are interested in news pertaining to a specific country or prefer to have your news delivered to you to read at your leisure, check out their collection of African RSS feeds.  Reuters also provides price quotes for most publicly-listed African companies, but if you don’t know the Reuters ticker symbol, they can be rather difficult to track down.
  • Bloomberg also provides comprehensive coverage of African economic news. Its reporting often overlaps that of Reuters, but, in my experience, Bloomberg tends to put a bit more emphasis on corporate news and news-makers. I’ve also found Bloomberg to be the best platform to access African stock quotes. Simply type the company name into the search bar in the upper right-hand corner, and you’ll be on your way to getting a price chart plus a snapshot of the company’s fundamental financial data.

  • If you like your news in video format, you should check out CNBC Africa’s YouTube channel. Lerato Mbele, Eleni Giokos and the rest of the talented team of presenters conduct interviews with regional executives, policy-makers, fund managers, and analysts. The programming has a heavy South African focus, but there’s plenty of news from other markets, too. Each day, they interview a Kenyan and Nigerian stock analyst to discuss happenings in their respective markets. The channel also launched a studio in Lagos recently which has widened its coverage of the Nigerian Stock Exchange.
  • My latest fave is the free African stock market digest published by pan-African broker, African Alliance. You can find a link to the most recent PDF in the lower right hand corner of their home page under the “Market Data” heading. The weekly 60-page report is chock full of data and commentary from all African markets in a well-organized format. It’s a treasure trove. I’m told that an email subscription service will soon be available, too.
  • Finally, consider adding the African Capital Markets News blog to your feed reader. Editor Tom Minney is a true expert in the field, having not only covered African stock markets as a journalist for Reuters and the BBC, but also heading up the Namibian Stock Exchange for over five years. His informative, well-researched posts are an excellent chronicle of the continent’s financial markets. Recent stories include coverage of privatization in Ethiopia, the Johannesburg Stock Exchange’s financial performance, and the Nigerian SEC’s efforts to educate investors.

Do you have a favorite source of free African stock market news? Nominate one in the comments.

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