As Zimbawe's economy collapses, a tiny few make huge profits

At one end of the stock exchange a man writes numbers on a whiteboard with a blue marker; at the other brokers tap sums into large calculators. Shares are bought and sold in crisp, verbal transactions; the deals noted on ledgers filled with carbon paper. In the corner a man with a laptop, the only computer in the room, keeps a record of the trading.

It resembles a scene from another era, but this is one of the world's best-performing stock markets. In January alone it doubled in value and the bull run is set to continue. Welcome to the surreal world of Zimbabwean economics.

Inside this exchange, on the fourth floor of one of the less dilapidated buildings on Nkwame Nkrumah Avenue, serious profits are being made while outside, businesses are collapsing, driving millions of people into penury.

Zimbabwe has the fastest shrinking economy outside a war zone, with unemployment pushing 80% and inflation a rampant 913%. But amid the meltdown a small minority - some legitimate investors, others crooks - is thriving. "Where some see crisis others see opportunity," said Jonathan Waters, an economist and commentator.

The winners in today's Zimbabwe are an eclectic group of share traders, currency dealers, estate agents, small-time entrepreneurs and cronies of Robert Mugabe's government, which is widely blamed for ruining what was once of Africa's most developed economies.

The stock exchange, comprising 16 broking firms trading in the shares of 75 companies, including Barclays, British American Tobacco and First Mutual, is perhaps the most incongruous success.

Distorted market

"It's quite embarrassing because the exchange is supposed to mirror the reality of the economy," said Emmanuel Munyukwi, the institution's chief executive. "We have benefited from the distortion of the market."

The stock market has stayed ahead of inflation and is worth $3bn (£1.68bn) according to the official exchange rate - a dramatic surge. Under the more realistic black market rate it is worth $1.5bn, still an impressive performance in a crumbling economy.

Mr Munyukwi said negative interest rates and inflation had caused a stampede for assets, which had driven share prices to record highs, even in real terms. "Pension funds and other institutional investors have made a killing." He admitted that there was some insider trading but said most deals were legitimate. "The early bird catches the worm. You come in now and reap the benefit."

However, the profits are on paper and could yet vanish because currency controls make it difficult to take money out of the country.

Analysts say the stock market boom masks the fact that thousands of businesses have gone bankrupt, slashing exports and halving the size of the economy since 2000.

"Those who are flourishing are finding ways to make money that is not productive," one western diplomat said. "Buying and selling in this way does nothing for the economy. The economy is being hollowed out."

President Mugabe, 82, who has led the former British colony since independence in 1980, has blamed the crisis on successive droughts which hit commercial agriculture, and western powers who "punished" Zimbabwe for taking over white-owned farms.

Printing money

Critics say the fault lies with his Zanu-PF government, which gave land to loot-minded cronies and under-capitalised black peasants, frightened away investors and then printed money to cover budget deficits - triggering inflation which some say is close to 2,000%, more than double the official rate.

The impact on living standards has been catastrophic. About 4.6 million people rely on food aid; children miss school because their parents cannot pay fees and hospitals lack basic equipment and medicine - handing a death sentence to those with Aids and other treatable diseases.

Yet for some these are good times. "Property prices are steadily picking up," said Justin Machibaya, the director of Homelux, a Harare-based estate agency. A top-of-the-range house with four bedrooms, a swimming pool and maybe a tennis court cost $160,000, up from $100,000 a few years ago, he said.

Institutional investors and individuals from South Africa and Britain were eyeing property in the belief that prices would soar if and when Mr Mugabe stepped down and investors regained confidence. "Everybody is waiting in anticipation," Mr Machibaya said.

Some have already swooped, notably the controversial British tycoon Nicholas van Hoogstraten. In addition to the stock market, he has invested heavily in property and mines. Earlier this year he denied reports that he had given Mr Mugabe $10m but made no secret of his financial engagement. "I'm probably the sole supporter, up in the UK, of this country and I think I'm the sole major investor in this country," he said.

Chinese and Indian firms have also snapped up mines and land at bargain prices, filling a gap left by western investors skittish about the risks. Some Zimbabweans welcome this investment as a lifeline, others condemn it as exploitation of a country's desperation.

Perhaps the biggest winners are senior Zanu-PF officials who have helped themselves to the best farms and assets. Three cabinet ministers, Joseph Made, Christopher Mushowe and Didymus Mutasa, have been accused of looting Kondozi farm, a once thriving vegetable concern in Manicaland, which is now in ruins. Harare city council reportedly plans to buy 329 sedans and pick-up trucks for its managers and staff, while the capital's state-appointed mayor, Sekesai Makwavarara, has been accused of buying a plush house from the council for just 5% of its market value. The reserve bank governor, Gideon Gono, is said to be building a huge mansion.

Some members of the elite are not ashamed to flaunt their wealth. Senior army and government officials knock back doubles of Chivas Regal whisky at the Big Mug, a Harare pub, running up tabs of the equivalent of several hundred US dollars in the space of an hour.

With a soft drink costing Z$90,000 it takes bricks of notes to buy anything, spawning a boom in demand for electronic note counters. Sales of the Chinese-made devices are the one bright spot for the electronics industry. "Everybody is buying them - the university, the council, hotels," said Botho Chigwedere, a salesman at Arvee Wholesalers. "We've almost sold out."