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Will investors be tempted back to ‘new’ Zimbabwe?
JOHANNESBURG, Aug 7, 2018 (BSS/AFP) – Newly-elected President Emmerson
Mnangagwa has declared Zimbabwe “open for business” — but analysts say that
reversing the disastrous investor exodus of the Mugabe years will require
more than words of encouragement.
Considered one of southern Africa’s most promising economies when Robert
Mugabe took over in 1980, it was one of the most isolated economies in the
world by the time his 37-year rule ended last year.
Agricultural output plummeted after his regime started seizing white-
owned farms in 2000, and he presided over hyperinflation so drastic it
prompted the printing of a 100-trillion-dollar note.
But Mnangagwa, the former Mugabe ally who replaced him with army backing
in November, has made Zimbabwe’s biggest overtures towards the West in years.
“We want to leapfrog and catch up with other developing countries,” he
said Friday after winning an election marred by deadly violence and
opposition claims of fraud.
Despite the havoc Mugabe wreaked on the economy — overseeing the
sharpest peacetime contraction of GDP in world history — some investors see
rich potential.
“Zimbabwe’s has had such a tarnished reputation over the past few
generations that very few people have looked at it, but the interest has
always been there,” said Robert Besseling, executive director of risk
consultancy EXX Africa.
Some are eyeing its bounteous natural resources — the second-biggest
platinum reserves in the world, as well as other minerals, coal and diamonds.
Others are hunting for opportunities in the recovering agriculture
sector, notably tobacco, or predicting a consumer boom in its 16 million-
strong population.
Hafez Ghanem, the World Bank’s vice-president for Africa, told Bloomberg
last week that Zimbabwe could become “an upper middle-income country” in a
decade.
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Jack Ma, the billionaire founder of Chinese e-commerce giant Alibaba,
visited last week — apparently on vacation, though it did not stop state
media speculating he was scouting for opportunities.
– Mnangagwa, an unknown quantity –
Yet even keen investors are daunted by the array of economic problems
Zimbabwe faces as well as the possibility of more Mugabe-style repression,
despite Mnangagwa’s insistence that the country has turned a page.
Millions have fled abroad in search of work, and those who stayed still
face mass unemployment. Public services are in ruins, corruption is endemic,
and infrastructure crumbling.
Charles Laurie of analysts Verisk Maplecroft said that until the
election, Mnangagwa was progressing well in his efforts to woo investors.
He reversed much of a law forcing foreign firms to cede 51 percent stakes
to locals, and offered compensation to white farmers stripped of their land.
But that was before troops opened fire in Harare on Wednesday on
demonstrators alleging the election had been rigged, leaving six people dead.
The opposition MDC party, which disputes the vote results, has since
complained that its members are being targeted with abductions and criminal
charges.
“For investors who are low on trust with Mnangagwa and searching for
signs of his true colours, this rapid return to violent means to achieve his
objectives is going to shake investor confidence,” Laurie said.
“It conjures up images that if the tables were slightly turned, indeed it
could be these investors who are the target of the Zimbabwe government.”
– Tough decisions ahead –
Beyond politics, Mnangagwa has major money problems.
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His cash-strapped government owes some $1.7 billion in arrears to the
World Bank and African Development Bank, and cannot get new loans until they
are paid off.
Companies hoping for lucrative contracts to rebuild the transport, water
and power infrastructure Mugabe left in ruins face a government that, for
now, will struggle to pay them.
The currency crisis is another major issue.
Zimbabwe has mainly used the US dollar since scrapping its own currency
in 2009 to halt hyperinflation under which prices doubled every day.
But dollars remain scarce, and a little-trusted token currency known as
“bond notes”, introduced two years ago, has done little to improve the
situation.
Analysts say the government will at some point have to bring in a proper
currency again — and that this could prove messy, a prospect not lost on
investors.
To get new loans from the multilateral banks it will likely also have to
agree to tough structural changes, such as tax hikes or cuts to the massive
public sector.
“For risk-wary investors, neighbouring countries offer a safer and more
attractive investment environment,” said Laurie.
Besseling added that progress is likely to be slow.
“The one-year outlook: we could potentially still be where we are today,”
he said.
“But considering the huge potential, you’re going to see great successes
in Zimbabwe over a 10-year outlook,” he predicted.
BSS/AFP/MR/ 1122 hrs