Country Profile: ZIMBABWE

This country profile was published in November 2010 in our annual 'Africa in 2011' issue. The next edition, 'Africa in 2012' will be on sale in November 2011.

Frazzled hopes and expectation

There may have been some promise in the new Zimbabwe two years ago, when rival politicians President Robert Mugabe and Prime Minister Morgan Tsvangirai formed a government, but too little has been accomplished. The euphoria that followed the formation of the government in 2009 has given way to uncertainty. There is now a degree of pessimism among those who were expecting a dramatic economic resurgence after the earlier deterioration was brought to halt.

The economic gains have at least included a fall in the inflation rate from astronomical levels at the end of 2008 to about 4% in late 2009 and to about 3.5% in September. The industrial sector’s capacity utilisation also jumped from some 10% in 2008 to about 45% in 2010. While international investors expressed a lot of early interest, with meetings and enquiries handled by various investment-promotion bodies, this has not yet translated into hoped-for inflows.

The political players have not fully complied with the Global Political Agreement (GPA), guaranteed by the Southern African Development Community and the AU, with most of the failures coming from Mugabe’s Zimbabwe African National Union-Patriotic Front (ZANU-PF). The president’s party has shown no willingness to relax its hold on the army, police and intelligence services nor to relax the iron political fist it has used since independence.?

Mugabe’s open refusal to share power with Tsvangirai has led to political complexities that have started to erode the earlier optimism. This has been most clearly expressed in the president’s failure to swear in the Movement for Democratic Change’s (MDC) Roy Bennett as deputy agriculture minister and his stubborn refusal to remove the Reserve Bank governor, Gideon Gono, and the attorney general, Johannes Tomana. They have been instrumental in maintaining Mugabe’s grip on power and their continuing presence makes a mockery of the principles contained in the GPA.?

While constitutional change was supposed to be the foundation for all other political reforms, it no longer looks like that will happen. That process has already been beset with political violence at various outreach meetings in urban areas, especially Harare. The MDC, which initially backed the exercise, has dismissed it as “messy”. “This process fails to pass the test of legitimacy, credibility and people-drivenness,” said Tsvangirai.?

If the constitutional referendum that has been proposed for 2011 actually does take place, it will most likely be fraught with problems that will only further heighten political tension. The biggest risk will be the institutionalisation of political violence, as in the course of 2008, when ZANU-PF militias openly beat thousands of MDC supporters and killed at least 500 people.

Against the wishes of the business community, Mugabe and Tsvangirai have already talked of the possibility of holding another election in 2011, even though the prime minister has warned he will not take part in another poll characterised by violence. The talk has been serious enough for Mugabe to instruct Finance Minister Tendai Biti to budget $200m for elections, but there is still lingering doubt as to whether these will take place. Mugabe may not be serious about holding elections that he cannot win without his usual freedom to use tactics of intimidation, but he said in late 2010 that he would like power-sharing to end in February. In August, the Zimbabwe Electoral Commission said that it had neither the capacity nor the funds to organise elections in 2011.

?Whatever the flaws of Zimbabwe’s political landscape, the swearing-in of the government of national unity in February 2009 marked an important turning point for the economy. Real GDP, which had shrunk every year since 2000 and contracted by a further 14% in 2008, managed to grow by 4% in 2009. Schools and hospitals that had closed in 2008 opened again as Biti embarked on a cash budgeting strategy for public services. Government revenues and grants jumped from 4% of GDP in 2008 to about 22% in 2009. The new multi-currency regime has resulted in price stabilisation, and the IMF is advising the finance ministry on the creation of a more robust tax regime.

? CountryProfile GraphZimbabwe Economic performance slowed in response to the slow pace of political reform in 2010 as parties grappled over outstanding issues. Biti had projected that economic growth would peak at about 7.7% for 2010, but by July he had downgraded his projection to 5.4%. Unemployment, standing at about 80% in 2009, rose to 90% in 2010. The projected 15% rise in industrial capacity utilisation did not materialise. There has been a clear failure to generate new domestic capital expenditure, and the government has only channelled 5% of locally-generated revenue towards capital development.?

Tsvangirai has accepted that performance in 2010 fell short of expectations, adding that, contrary to popular perception, this was not due to limited funding. “The GWP [Government Work Programme] targets were not simply aspirational, like many of the targets in the 100-day plan. They were firm commitments to produce certain results based on certain assumptions,” he said. “It looks like we have achieved or are on track to achieve only about 60% of what we undertook in the GWP. In only 28% of problems was funding identified as a significant constraint.” ?

Zimbabwe is endowed with mineral wealth that includes huge deposits of diamonds, gold and platinum. Agriculture, which was decimated in 2000 after wholesale land seizures, appears to be on the path to recovery. The government had initially anticipated growth of 18%, but it has risen to 34.1% on the back of a strong performance by tobacco producers. To add to the buoyancy, meteorologists have forecast good rains for the 2010-11 season.

?The country’s fortunes lie in its ability to attract direct foreign investment and donor funds. As he prepared his 2011 budget, Biti explained his dilemma: “This economy should generate internal revenue of $1.9bn in 2011. So what will be the size of this budget? The size of the budget if you stretch it cannot be more than $2.5bn. When you put it to $2.5bn you are in fact saying the difference between $2.5bn and $1.9bn must actually come from donors. If you are going to use the precedent of 2010 where the vote of credit did not perform, it actually means the budget ought to be $1.9bn and because you want round figures, it will be $2bn. "This illustrates the total lack of fiscal space.”?

The government is well aware of what needs to be done but has not managed to shake off the doubts about Zimbabwe’s political future. As an example, one of the MDC’s hard-won advances in economic policy has been the shelving of plans to force foreign-owned firms to cede majority stakes to black Zimbabweans. This may not be the end of this particular story, however. Tsvangirai envisages a new indigenisation programme that empowers the majority while creating conditions that let Zimbabwe compete for international investment capital. The details of this programme will be all-important for those much-needed investments to be forthcoming.

Wanted: Risk takers

Amidst all the confusion surrounding the future of Zimbabwe in 2011 and beyond, there are those who have decided that the economic gains from investing in the country far outweigh the political risk. ?

Virgin’s Richard Branson has joined the list of people calling for international donors and investors to give Zimbabwe a chance: “Zimbabwe is a magnificent country that has had a really rough few years, and either the world can continue to wait and see and not invest ... or the world can help Morgan Tsvangirai and the coalition government get Zimbabwe back on its feet.”

?Global mining giants like Implats and Rio Tinto have also steadily invested in Zimbabwe, while others hesitate on the sidelines. Mining remains one of the most attractive opportunities in Zimbabwe, and investors say the opportunities are worth the risk. ?

Mwana Africa has restarted production and is working on the second phase of refurbishment at the Freda Rebecca gold mine and was in talks to restart the Bindura Nickel project in October. ?

New Dawn was also working on a two-year development plan for five gold mines after it bought a controlling stake in Central African Gold in June. South Africa’s Sable Mining is continuing its drilling programme on the Lubu coal concession, which it estimates holds 500m tonnes.