Commercial banks: Local ownership is lekker

highlight several important points and show how Zimbabwean firms can grow faster than those with external majority shareholdings.
The first point to note is that several of the banks have a market capitalisation well in excess of their actual capital and the assets they own.
The market is quite prepared to pay a premium, and in some cases a very hefty premium, over the actual asset value if it sees that a company has a first-class management that knows what it is doing, is growing the business and is producing respectable profits.

The gap between market capitalisation and the asset value reflects, in the end, the value investors place on the human skills and the likelihood of business growth.
The bank list showed not only that some Zimbabwean banks have a very high value placed on their human skills, it also showed that it is quite possible for a bank to have a market capitalisation lower than the value of the assets. In other words, the shares trade at a discount to the underlying value of the assets. That seems to translate into a negative value for the management and human skills.

This share price listing of a single sector thus highlights the importance of the people who run and control a company and the importance of making the correct business decisions.
Companies with almost identical asset values can have widely differing market values as a result.

That confirms what we have seen recently in some rights issues on the Zimbabwe Stock Exchange. Those companies whose shares trade at a premium over the value of the underlying assets have little trouble raising additional capital, and thanks to that premium the extra capital is remarkably cheap.
Such companies do not need to complain about the lack of loan funds, simply because thanks to their reputation they can raise far less expensive working capital than any lender in the world can offer.

Success breeds success; failure can lead to greater failure.
This will be important when the indigenisation of large swathes of the economy is being implemented rather than just planned.

We foresee that in many cases flotations on the stock exchange, or an expansion of the shares offered to Zimbabweans in companies already floated, are likely to be the main way indigenisation of majority ownership takes place.
There are few Zimbabweans with tens of millions of dollars sloshing around their bank accounts, and in any case the nation will not gain much if a few dozen rich foreign investors are replaced by a few dozen rich Zimbabweans.

So far as we understand the policy, indigenisation implies a spread of ownership as well as a localisation of majority ownership.
This is a primary reason why flotation may well be the best way forward in several cases, since it allows the ordinary man to buy a small shareholding as well as the rich man to buy a bigger one.

The bank list shows the fact that there are Zimbabweans, rich and not so rich, who are more than happy to find money to invest in successful and well-run companies.
And, critically, it shows that having a majority Zimbabwean ownership is not a disadvantage. It may well be an advantage, especially if many of the managers and staff are shareholders as well as employees and so keen to increase the value of their own assets and in so doing increase the value of the shares owned by others – their fellow countrymen.

What is important is good management. This is presumably why a Zimbabwean start-up little more than a decade down the line is now valued far higher than an older largely foreign owned bank.
The same list shows that less innovative and successful management can see the market value of their company rank below the asset value.

Thus those companies seeking to indigenise through the stock exchange are going to have to be very open about what they do and how well they do it, plus be very open about who their management is.

Everyone knows that almost all of Zimbabwe’s larger companies have management dominated almost exclusively by indigenous Zimbabweans, regardless of the ownership structure.
Foreign investors rarely bring their own people in, being more than content to hire Zimbabweans to run their investment for them.
So presumably there will be few management changes on indigenisation, which is why it is so important to know before a flotation just who is in charge and how good they are.