Zimbabwe is suffering from capital flight, a liquidity crunch, regular power outages, falling commodity prices and other manifestations of an economic crisis.
But beyond these well-documented woes, there are several “mysteries” that throw up searching governance questions for the regime of Robert Mugabe, the 90-year-old president.
The bad old days of hyperinflation
In a week where currency after currency in the emerging markets have been battered, it’s nice to keep your options open. In which case, Zimbabwe seems to have the right idea. Its citizens can now pick any of nine currencies to use.
As of Wednesday, four new currencies are legal tender in the southern African state: the Australian dollar, the Chinese yuan, the Indian rupee and the Japanese yen.
Zimbabwe’s proposed sovereign wealth fund – gazetted in Harare last week – is unlikely to have a material impact on private investment. But, if well-managed, it could do wonders for the country’s bloated public sector. A draft parliamentary bill proposes that a maximum of 25 per cent of mining royalties should be paid into the fund to be managed by the Reserve Bank of Zimbabwe. The SWF will “support fiscal or macroeconomic stabilization” and the achievement of the government’s long-term development objectives.
It’s a 15,000-word document setting out how the government will “prioritise its programmes… and address the country’s socio-economic challenges.” It’s one of the few substantial documents that analysts can get hold of to look for insights into an opaque administration’s intentions.
No, this is not China. It’s Zimbabwe, with this week’s publication of a document titled Zim Asset (Agenda for Sustainable Socio-Economic Transformation). So Robert Mugabe has also set out his stall for Zimbabwe’s next stage. What’s in it?
Zimbabwe is increasingly pinning its hopes on its mining industry to beef up the government coffers. The government is keen to tap into the sector’s huge potential – it holds the second largest platinum reserves globally and its diamond fields are also reportedly ranked among the top five diamond reserves in the world.
But mining needs support to get over the constraints of high production costs, excessive fees, and falling commodity prices. So the government is planning to issue it’s first bond aimed at financing the mining sector. Will it be able to convince investors to participate?
Research by Harvard’s Ricardo Hausmann has found that Mexico, Zimbabwe and Egypt are well-positioned to grow. Qatar and Brazil are less well-placed, while China risks recession. In part two of a discussion with John Authers, he explains his unexpected predictions.
At least someone is selling
In just under two weeks the Confederation of Zimbabwe Industries (CZI) is due to hold its annual congress. The main focus will be restoring growth at a time when factories and shops are fighting to stay open. Zimbabwe’s industry is still in a perilous state, but following Robert Mugabe’s election victory in July, what can be done?
The Zimbabwe Industrials Index fell 11.1 per cent on Monday, wiping out all the gains made since mid-May. Retailers were some of the hardest hit.
Despite a coalition government achieving some stability since 2009, the poor state of the economy is a pressing issue for voters and investors as Zimbabweans await the results of their first election since a disputed ballot five years ago, says the FT’s Southern Africa bureau chief Andrew England.
As Zimbabweans prepare to vote in Wednesday’s fiercely contested election, their neighbours in South Africa will be watching closely. Its outcome will set the scene for the development of trade and investment between the two countries.
A dash of good news from Harare, Zimbabwe’s capital city: construction work on a Hilton hotel is due to begin in October. With a cloud of political uncertainty hanging over the country and in the midst of a messy “indigenisation” of foreign businesses, it’s a pretty bold move.
The Hilton will need some contingency plans, given the chronic water shortages and power cuts that plague the country. It may find it harder to deal with low occupancy rates across Zimbabwe.
Investing in Zimbabwe is not for the faint-hearted. But its stock exchange has been booming of late. To maintain the momentum, management at the Zimbabwe Stock Exchange is planning to sell shares in the organisation this year to raise funds for modernisation.
Tafadzwa Chinamo, chief executive of the Zimbabwean Securities Exchange Commission said in an interview with Bloomberg that an initial public offering would take place before the end of the year, with a likely valuation of around $15-20m.
Zimbabwe this week started consultations on proposed new mining policies aimed at increasing the state’s role in the industry in everything from environmental management to marketing.
The move echoes the controversial indigenisation and empowerment law, requiring companies to divest 51 percent of their shares to indigenous (black) investors. The approach is different – with officials intending transparent in contrast to the secretive methods of the political radicals who pushed through indigenisation. But there is still much to worry the mining industry.
Investors appear to be getting pretty jittery about placing their money in projects in Zimbabwe, as official foreign direct investment figures from a government agency indicate.
After the country’s recent economic turnaround (post-dollarisation), investors are being turned off by the uncertain political climate, and the small matter of not knowing if they will be stripped of half a business.
Zimbabwean president Robert Mugabe’s plan to hold a general election by June 29, when the current parliament will be dissolved, looks increasingly like a pipe dream. Do the maths and you’ll see that it is impossible for the country to hold a vote before the end of July at the earliest, the country’s finance minister Tendai Biti said.
“It’s a processing issue which will determine the date of the election,” he told beyondbrics from the sidelines of a talk at Chatham House, the think tank. “It is not possible to have elections before at least the end of July”.