Keeping His Head in a Blasted Economic Landscape
Johannesburg — HEADING Zimbabwe's biggest conglomerate in the toughest economic environment yet seen in that country is a job for only the most energetic entrepreneur, Nigel Chanakira.
Nigel Chanakira, CEO of Kingdom Meikles Africa (KMAL), seems to be just that entrepreneur; one of Zimbabwe’s most prominent business survivors.
"Business has taken a battering but has managed to survive and even make money despite a rapidly depreciating exchange rate. If you can do business in Zimbabwe now, you can do business anywhere," he maintains.
Hyperinflation accounting, which businesses have been forced to do for the past five years, has created new survival skills, he says. "We know how to make a plan. But it is a headache to run a business in Zimbabwe right now. It is difficult to satisfy clients’ requirements."
Companies are relying on high margins and arbitrage to make profits. To survive in a normalised business environment, they will have to restructure the whole way business is done, he says.
Last year, Chanakira became CEO of KMAL, one of the top five companies on the Zimbabwe Stock Exchange, after a merger in December between Zimbabwe’s oldest company, Meikles Africa, its subsidiaries Tanganda Tea Company and Cotton Printers, and the new kid on the block (relatively speaking), Kingdom Financial Holdings.
KMAL is a highly diversified group that includes financial services, agriculture, property, hotels, textiles, manufacturing and retail operations. Despite Zimbabwe’s business challenges, the company has had positive reports from brokers, based on its high-quality assets, experienced management and strong balance sheet. Its export businesses, focused on tea and textiles, have provided a cushion against foreign currency challenges, as have its hotels, which are still reporting reasonable business.
At the time of the merger, questions were asked about whether such an amalgamation of interests was not flying in the face of the modern business trend of unbundling to focus on core interests. But in an economy such as Zimbabwe’s, critical mass is important to leverage opportunities, Chanakira says.
The Meikles family, which owns 43% of KMAL, has been one of Zimbabwe’s most enduring brands, with its roots in the late 1890s when the Meikles brothers started a trading store in Zimbabwe, then Rhodesia.
The group has remained a family business at its core although it grew to become one of the country’s biggest, owning hotels, supermarkets and department stores across the country.
The subsidiaries that form part of the merger are also deeply rooted in the country’s business history. The Tanganda Tea Company was formed in 1924 and produced its first commercial crop in 1930, while Cotton Printers was formed in 1950.
Kingdom is an altogether different beast. It was launched in 1995 by members of the new business elite and quickly rose to prominence, challenging many longstanding competitors in the financial services world.
It consists of subsidiaries Kingdom Bank, Kingdom Stockbrokers, Kingdom Asset Management, MicroKing Finance and Discount Company of Zimbabwe. The company has the Moneygram franchise for Zimbabwe, which has been a winner considering remittances are now almost on a par with mining and tourism as a generator of gross domestic product.
The KMAL merger was primarily a defensive strategy to deal with the indigenisation legislation introduced by Robert Mugabe’s government last year, which made it a statutory requirement for local and foreign companies in Zimbabwe to have at least 51% indigenous ownership.
Chanakira says it was not just an issue of the Meikles group wanting to protect itself; Meikles was also a significant shareholder in Kingdom, which meant any government action against Meikles would also have implications for Kingdom. Neither party wanted to risk falling foul of the government, particularly amid concern about how the legislation might be implemented. The two entities had been partners for more than eight years and Meikles had increased its shareholding in Kingdom from 25% to 33%.
The legislation came into force only early last year, just weeks after the merger was finalised and there is now talk that it may be reviewed to reduce the shareholding requirement.
"From a business perspective, the merger was also an opportunity for me, as an investor that had been confined to financial services, to diversify and to be part of a larger group."
Chanakira spoke at the recent launch of the JSE’s Africa Board, raising the question of whether the company was looking at listing on the board.
Chanakira has frequently stated his intention to list in New York or London. So is the JSE an option?
"It is an option but you need to follow the demand for our stock. If the demand is greater on the JSE than it is in London, for example, then yes, we would look at it."
KMAL has been rocked by a public spat between senior members of the board, including Chanakira and chairman John Moxon, from the Meikles fold, primarily over the sale of the Cape Grace hotel in Cape Town to a South African company.
The boardroom battle involved heated exchanges between the new bedfellows, many of them in the media, about issues of corporate governance, management powers, race and fraud.
The hotel remains in the group and the issue has moved off the media radar. However, at Chanakira’s instigation, the Reserve Bank of Zimbabwe is investigating the externalisation of foreign currency by Moxon, which may reopen the wounds.
Whatever the facts of the case, analysts believe the issue has been unfortunate in the current politically charged environment and has dented the company brand.
Chanakira is one of Zimbabwe’s local success stories and has become a role model for many Zimbabwean businesspeople. Only 42, he was named a young global leader by the World Economic Forum in 2005 and has collected a number of awards locally. He attributes his success partly to the skills he has learned through his association with a motivational and training organisation, the Success Motivation Institute. He holds the African franchise for the institute and runs mentoring programmes in his spare time.
Chanakira has an eye on more regional opportunities for KMAL. Both parties brought regional interests to the table. Meikles brought the Cape Grace and Pick n Pay through its shareholding in Meikles’s supermarket chain, TM, while Kingdom brought with it a financial institution in Malawi and a bank in Botswana.
KMAL is positioning its hospitality business to gain from the potential 2010 windfall. Its three hotels — Harare’s Meikles Hotel, the famous Victoria Falls Hotel (in which it is in partnership with Zimbabwe’s African Sun group) and the Cape Grace — are all within a two-hour flying time radius from Johannesburg and thus well placed to get business from the tournament.
Chanakira, like many Zimbabweans, believes an economic turnaround in his country could be quite rapid once conditions are right.
Zimbabwean business is a good investment, he says, particularly KMAL with its stable of quality assets. "If you had to look at replacement costs, you would quickly see that you could not find such quality assets at that price anywhere."
The highly publicised economic meltdown has been damaging for outsiders’ perception of Zimbabwean businesspeople, he says. "But we can also capitalise on the attention the country has had. There must be very few people who don’t know where Zimbabwe is. We can quickly turn this into a positive for the country." Source: Business Day