By Nelson Banya
HARARE (Reuters) - Foreign investors prepared to braveZimbabwe's political and economic volatility could win big ifSaturday's election brings policy changes in the crisis-hit butresource-rich country.
Despite an economic meltdown, surreal inflation andpolitical uncertainty, some investors have cautiouslypositioned themselves for changes after a March 29 vote that isshaping up to be President Robert Mugabe's most serious test in28 years.
Mugabe's two challengers -- ex-ally Simba Makoni andlong-time rival Morgan Tsvangirai -- have placed the crippledeconomy at the centre of their campaigns.
Zimbabwe's 13 million people are grappling with chronicfood, fuel and foreign currency shortages. Some foreigninvestors have fled, but a few are seeing opportunities andsigning preliminary deals in sectors like telecommunications,power and construction.
"Zimbabwean assets are cheap, which is why some investorswho believe we are at the end of a cycle are taking a closerlook," an equities researcher, who declined to be named, said.
He said chances of a Mugabe loss were as high as they hadever been, but that even if the 84-year-old former guerrillaleader won, he might be forced into economic reforms.
Chinese companies are among those exploring opportunitiesin Zimbabwe, once the breadbasket of southern Africa, whichboasts rich deposits of gold, uranium, platinum and diamonds.
Chinese deputy Commerce Minister Gao Hucheng, who was inHarare last month on a trade mission, said Beijing had invested$1.6 billion in Zimbabwe in 2007, although analysts say Chineseinvestment has yet to really take off.
"Apart from the fanfare, we have not seen much ... thereare no real cash flows into the economy," Rashid Mudala, ananalyst at Africa First Renaissance, told Reuters. "Maybe theChinese, like everybody else, are waiting for things to clearup a bit."
"They do, however, appear to have strategically positionedthemselves here, however the wind blows after the elections,"Mudala said.
LOOKING FOR BARGAINS
Last year, Chinese mining and trading group Sinosteel Corp.took over Zimasco Consolidated Enterprises Ltd, which ownsZimbabwe's largest high-carbon ferrochrome producer.
Zimasco produces 210,000 tonnes of high-carbon ferrochrome-- used to make stainless steel -- annually, about 4 percent ofglobal production.
Chinese firms have also set their sights on Zimbabwe'sgold, platinum and coal mines, as well as thetelecommunications, power and construction sectors, by signingdeals and opening negotiations for future investment.
And China has doled out hundreds of millions of dollars inloans and grants to finance agriculture.
The Chinese are not the only ones looking.
London-listed South African firm Lonrho Plc, through itsinvestment arm LonZim, has relaunched a bid to return toZimbabwe where the investment firm used to have significantmining and property interests.
LonZim recently announced plans to raise around $140million on London's Alternative Investment Market (AIM) for thepurchase of assets in Zimbabwe, hoping to "benefit from anyradical future improvement of the economy over the longerterm," according to its Web site.
It has bought a listed Zimbabwean telecommunications firmand a chemicals manufacturer for under $6 million.
Russian investment group Renaissance Capital, LonZim'splacement agency for the Zimbabwe investment, bought into CBZHoldings -- Zimbabwe's second-largest bank by assets -- bysnapping up a shareholding sold by South Africa's ABSA lastyear.
Citigroup has approved a $25 million deal for a 20 percentshareholding in another Zimbabwean bank, African BankingCorporation (ABC), according to ABC officials.
"NAIL IN THE COFFIN"
In power since 1980, Mugabe says the economy has beensabotaged by Western states as punishment for his land reforms,which included confiscating farms from white farmers. Criticssay these policies drove many foreign investors away.
Mugabe has shrugged off criticism -- especially fromWestern governments, donors and multilateral agencies that havewithheld aid -- and focused on attracting investment from Chinaand Far Eastern countries.
The equities researcher said the Zimbabwe stock exchange'smarket capitalisation had fallen from $9.79 billion in 1997 toabout $3 billion, showing its 80 stocks were heavily discountedin real terms.
Some analysts say the bargains come with risks.
"A foreign investor looks at a number of things and assetvaluation is only one factor," Mudala said.
"Political risk is also important and in terms of generalcompetitiveness and property rights we don't rank well,although there are some investors who will put their moneyregardless, because assets are cheap," he added.
Investor sentiment was dealt another blow this month whenMugabe approved a law seeking to transfer control of allforeign-owned firms, including mines and banks, to blackZimbabweans.
The foreign-dominated mining sector makes up more than athird of Zimbabwe's foreign currency inflows.
Indigenisation and Empowerment Minister Paul Mangwana saidafterwards that not all foreign firms would be localised underthe new law, and that the government would not impose blackpartners on firms.
No one is packing up to leave just yet, with firms such asRio Tinto, the world's largest platinum miner Anglo Platinum,and South Africa's Impala Platinum showing readiness to ridethe latest storm.
But some commentators say the damage has been done.
"The consequences ... are immense, and effectively thefinal nail in the economy's coffin," wrote commentator ErichBloch.
Douglas Verden, acting chief executive of Zimbabwe'sChamber of Mines, has said the body was regularly approached byforeigners keen on investing but unsettled by the prospects ofupheavals similar to Mugabe's land reforms.
Analysts say the seizures showed a disregard for privateproperty rights, while widespread corruption and bureaucraticinefficiency make Zimbabwe a difficult and expensive place toset up business.
"Whatever happens, it's time to change tack. One hopes forthe right policies because we have the right assets and theright infrastructure," Mudala said.
(For full Reuters Africa coverage and to have your say onthe top issues, visit: http://africa.reuters.com/)
(Editing by Clar Ni Chonghaile)
