HARARE (Reuters) - Foreign investors prepared to brave Zimbabwe's political and economic volatility could win big if Saturday's election brings policy changes in the crisis-hit but resource-rich country.
Despite an economic meltdown, surreal inflation and political uncertainty, some investors have cautiously positioned themselves for changes after a March 29 vote that is shaping up to be President Robert Mugabe's most serious test in 28 years.
Mugabe's two challengers -- ex-ally Simba Makoni and long-time rival Morgan Tsvangirai -- have placed the crippled economy at the centre of their campaigns.
Zimbabwe's 13 million people are grappling with chronic food, fuel and foreign currency shortages. Some foreign investors have fled, but a few are seeing opportunities and signing preliminary deals in sectors like telecommunications, power and construction.
"Zimbabwean assets are cheap, which is why some investors who believe we are at the end of a cycle are taking a closer look," an equities researcher, who declined to be named, said.
He said chances of a Mugabe loss were as high as they had ever been, but that even if the 84-year-old former guerrilla leader won, he might be forced into economic reforms.
Chinese companies are among those exploring opportunities in Zimbabwe, once the breadbasket of southern Africa, which boasts rich deposits of gold, uranium, platinum and diamonds.
Chinese deputy Commerce Minister Gao Hucheng, who was in Harare last month on a trade mission, said Beijing had invested $1.6 billion in Zimbabwe in 2007, although analysts say Chinese investment has yet to really take off.
"Apart from the fanfare, we have not seen much ... there are no real cash flows into the economy," Rashid Mudala, an analyst at Africa First Renaissance, told Reuters. "Maybe the Chinese, like everybody else, are waiting for things to clear up a bit."
"They do, however, appear to have strategically positioned themselves here, however the wind blows after the elections," Mudala said.
Last year, Chinese mining and trading group Sinosteel Corp. took over Zimasco Consolidated Enterprises Ltd, which owns Zimbabwe's largest high-carbon ferrochrome producer.
Zimasco produces 210,000 tonnes of high-carbon ferrochrome -- used to make stainless steel -- annually, about 4 percent of global production.
Chinese firms have also set their sights on Zimbabwe's gold, platinum and coal mines, as well as the telecommunications, power and construction sectors, by signing deals and opening negotiations for future investment.
And China has doled out hundreds of millions of dollars in loans and grants to finance agriculture.
The Chinese are not the only ones looking.
London-listed South African firm Lonrho Plc, through its investment arm LonZim, has relaunched a bid to return to Zimbabwe where the investment firm used to have significant mining and property interests.
LonZim recently announced plans to raise around $140 million on London's Alternative Investment Market (AIM) for the purchase of assets in Zimbabwe, hoping to "benefit from any radical future improvement of the economy over the longer term," according to its Web site.
It has bought a listed Zimbabwean telecommunications firm and a chemicals manufacturer for under $6 million.
Russian investment group Renaissance Capital, LonZim's placement agency for the Zimbabwe investment, bought into CBZ Holdings -- Zimbabwe's second-largest bank by assets -- by snapping up a shareholding sold by South Africa's ABSA last year.
Citigroup has approved a $25 million deal for a 20 percent shareholding in another Zimbabwean bank, African Banking Corporation (ABC), according to ABC officials.
In power since 1980, Mugabe says the economy has been sabotaged by Western states as punishment for his land reforms, which included confiscating farms from white farmers. Critics say these policies drove many foreign investors away.
Mugabe has shrugged off criticism -- especially from Western governments, donors and multilateral agencies that have withheld aid -- and focused on attracting investment from China and Far Eastern countries.
The equities researcher said the Zimbabwe stock exchange's market capitalization had fallen from $9.79 billion in 1997 to about $3 billion, showing its 80 stocks were heavily discounted in real terms.
Some analysts say the bargains come with risks.
"A foreign investor looks at a number of things and asset valuation is only one factor," Mudala said.
"Political risk is also important and in terms of general competitiveness and property rights we don't rank well, although there are some investors who will put their money regardless, because assets are cheap," he added.
Investor sentiment was dealt another blow this month when Mugabe approved a law seeking to transfer control of all foreign-owned firms, including mines and banks, to black Zimbabweans.
The foreign-dominated mining sector makes up more than a third of Zimbabwe's foreign currency inflows.
Indigenization and Empowerment Minister Paul Mangwana said afterwards that not all foreign firms would be localized under the new law, and that the government would not impose black partners on firms.
No one is packing up to leave just yet, with firms such as Rio Tinto, the world's largest platinum miner Anglo Platinum, and South Africa's Impala Platinum showing readiness to ride the latest storm.
But some commentators say the damage has been done.
"The consequences ... are immense, and effectively the final nail in the economy's coffin," wrote commentator Erich Bloch.
Douglas Verden, acting chief executive of Zimbabwe's Chamber of Mines, has said the body was regularly approached by foreigners keen on investing but unsettled by the prospects of upheavals similar to Mugabe's land reforms.
Analysts say the seizures showed a disregard for private property rights, while widespread corruption and bureaucratic inefficiency make Zimbabwe a difficult and expensive place to set up business.
"Whatever happens, it's time to change tack. One hopes for the right policies because we have the right assets and the right infrastructure," Mudala said.
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Editing by Clar Ni Chonghaile