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Investment destination Zimbabwe:
Opportunity or gamble?
The world is experiencing the deepest economic downturn since the great depression and predictions that South Africa would be relatively safe from the fall-out have been shown to be, at the very least, over optimistic. Retail and manufacturing sectors continue to plummet, job losses are rising and companies are hard pressed to find growth opportunities. In the face of decline in the northern hemisphere, new business opportunities are being sought in sub-Saharan Africa and Zimbabwe has recently come to the fore as an unlikely source of untapped investment prospects.
The creation of the Zimbabwean Government of National Unity (GNU) during February 20091 has been touted as a forerunner of economic recovery in the embattled country. Some observers are claiming that an economic revival is springing forth from the transformed political environment and that this offers a myriad of new business opportunities to themore courageous investor. The salient question, however, remains - are optimistic reports an accurate reflection of Zimbabwe today or are investors being lured into what can only be called foolishly high risk with unlikely returns?
The potential for economic growth rests on four basic pillars: an improved investment climate; strong infrastructure to support growth; innovative productivity; and institutional capacity. When Zimbabwe is measured against these four pillars of growth, the evidence shows that economic recovery is by no means assured, significantly heightening the country's risk levels for prospective investors.
In terms of the investment climate, four basic priorities need to be met, with the first being macro economic stability. Investor confidence was buoyed by the first signs that the GNU was moving towards reform. The most important restructuring in the six-month duration of the GNU has been the dollarisation of the economy during April 2009 and the re-opening of the Zimbabwe Stock Exchange.
These slight improvements, however, fall far short of the creation of a stable macro economic environment. The country's credit rating remains unable to attract loans from private markets and the external funding needed to clear the country's USD 5 billion debts has not been streaming in from the international community in spite of Morgan Tsvangirai's international "begging bowl" tour during June 2009.2 The local money market suffers from a lack of liquidity and the hoped for inflow of dollar-based foreign direct investment has not materialised.
In spite of Tsvangirai's pleas and rationalisations, the West has maintained that it will only lift targeted sanctions once Zanu-PF shows an undisputed commitment to fulfilling the obligations of the Global Political Agreement (GPA)3. Marked dissonance remains between MDC leader Tsvangirai's pleas for financing on the basis of political reform and Zanu-PF's continued bullying of MDC supporters in rural areas and dogged pursuit of irrational and growth-inhibiting actions. The two parts of the unity government certainly don't sing off the same hymn sheet, and the differences between them appear too deep-seated for them to find common ground in the short or medium term. Furthermore, almost all concessions to date have come from the MDC side of the unity government, while Zanu-PF has successfully used a hard-line approach to secure its interests.
Should Zanu-PF continue to pursue the economic strategies that have brought the country to virtual collapse, any recovery appears ill fated. Industrial output is now below 20% due to shortages of foreign currency and electricity problems, and agriculture remains deeply in crisis, leaving Zimbabwe firmly on the macro-economic endangered list.
A second priority in securing a favourable investment climate is assuring security of tenure and inviolability of property - one area where Zimbabwe is painfully deficient. While Morgan Tsvangirai has tried to sweep the matter under the carpet, President Mugabe and his party have remained steadfast in their land-grab policies. The inclusive government has remained silent regarding the ongoing reports of farm invasions and allegations of extreme corruption in the allocation of land.
Recent targets were plots around Harare, suggesting the motive is no longer restricted to farming land - a fact that should disquieten any investor. Law enforcement continues to vacillate between complicity and powerlessness to intervene. The latest reported invasions include grabs of properties belonging to foreign nationals that should have been protected under the Bilateral Investment Promotion and Protection Agreements. According to Deon Theron, the new President of the Commercial Farmers' Union (CFU), commercial agriculture is facing total collapse in spite of so-called political reforms.4
The evidence shows that the MDC has done little to actively protest these rights violations, preferring to focus on the abysmally few positive signs in order to facilitate Morgan Tsvangirai's international fund raising efforts.
A third priority is the development of a reliable, unbiased legal system to adjudicate disputes. Once again, the Zimbabwean unity government has failed miserably in this arena. President Mugabe personally, unilaterally appointed the Attorney General and the legal system is under virtual Zanu-PF control. Mugabe has the last word on the appointment of judges and orchestrates the dismissal of defiant jurists. Poor laws are applied selectively and cases are expedited according to their political value.
With some courageous exceptions, judges make decisions based on politics instead of jurisprudence. As the enforcement arm of the legal system, the police fare no better. Law enforcement remains loyal to a political party and is unwilling or unable to intervene on the side of justice.
The ongoing conflict between all sectors of the armed forces and Morgan Tsvangirai continue notwithstanding recent secret meetings and negotiations which had tried to break the ice between Tsvangirai and the army. It was once again an MDC concession that led to some relaxation of these tensions when Tsvangirai reportedly conceded to drop some of the unresolved issues that formed part of the Global Political Agreement that directs the unity government. In exchange for military respect he allegedly agreed to drop the key issue of the unilateral appointments of Gideon Gono (Reserve Bank Governor) and Johannes Tomana (Attorney-General).
In spite of this purported agreement, many armed forces leaders continue to refuse to defer to Tsvangirai, and it appears that the badly damaged relationship between Tsvangirai and commanders is unlikely to be mended in spite of secret negotiations and concessions. The most culpable of the armed force leaders certainly have everything to gain by a failure of the unity government and regularly proclaim that they would resort to violence in the event that their interests are not protected.
A fourth priority is political stability. Investors are banking on the success of the unity government when assessing their business risk and have based their optimistic assessments on this premise - which is unfortunately also the most fragile factor at play in the Zimbabwean environment. The MDC's hold on parliament is weakening as ZANU-PF has engaged in a concerted campaign to bring legal charges against mostly MDC-T members of parliament in order to declare their seats vacant, which could easily lead to a shift in the power balance. Continued faction fighting within the MDC-M and differences of opinion in how the GPA is being followed within the MDC groups is further aggravating the situation.
Zanu-PF, in turn, has accused the MDC of not living up its commitments as per the GPA pointing out that the MDC has failed to have western sanctions lifted. The MDC and Zanu-PF are in fact deadlocked on the GPA, and it is now up to the Southern African Development Community and the African Union as guarantors of the agreement to find a solution. President Mugabe's unilateral appointments, the delay in the appointment of deputy Agriculture Minister-designate, Roy Bennet, as well as a continued crackdown on the MDC and civic activists add to the conflict.
The formation of a new constitution remains the biggest bone of contention threatening the continuation of the GNU. Zanu-PF insists on the use of the Kariba agreement drawn up in secret meetings between the two MDC groupings and the then ruling party in September 2007.5 Zanu-PF's uncompromising attitude has forced many MDC concessions - a fact that has led to criticism of Tsvangirai and accusations that he is nothing but a pawn serving ZANU-PF interests.
The new constitution is the centrepiece of the unity government's reform programme, which should lay the basis for new elections 18 months from the transitional authority's inception. Instead it has become the source of deadlock and a split in the reformist forces, which will delay progress towards elections and could easily break the power-sharing government to the benefit of Zanu-PF. At the same time, the succession battle that is heating up within Zanu-PF ranks is likely to favour hardliners who continue to act even more oppressively, building upon their opposition to any serious political reform.
On the second pillar of economic growth, namely infrastructure, Zimbabwe does show some promise. Its road infrastructure is relatively good when compared to other African countries. In terms of energy, the picture is less than rosy, and the country is no better off than most African countries with regular power cuts significantly raising the cost of doing business. The country's USD 57 million6 unpaid debts to regional suppliers dim prospects of a quick economic recovery. Without substantial external funding, the problem is unlikely to be solved in the short term, and mines and industry have been very hard hit by supply shortages.
On the third pillar, innovation, priority factors include investment in information technology and skills formation to boost productivity and competitiveness - a further area where Zimbabwe shows some promise. Zimbabwe has a working-age population that is educated far beyond the opportunities offered by their environment. The country has a skilled workforce which will certainly serve employers well. Should the country not live up to its promise and provide the country's more than 90% unemployed with opportunities, the chances of instability and violence grow exponentially.
On the fourth pillar of economic growth, namely institutional capacity, Zimbabwe once again fails dismally. The legal system in its current form will not favour the investor; corruption is the modus operandi for many political players, and Mugabe's intricate system of patronage shows no signs of being limited. In an environment where poverty, hunger and unemployment are widespread, crime remains a serious risk. All is not doom and gloom, however, and the unity government is more investor friendly and new investors will, for the most part, be welcomed with open arms. In addition, Zimbabwe has changed from one of the most bureaucratic, cumbersome systems of regulating foreign exchange, capital controls, payment of corporate taxes and import tariffs to one that is far less regulated. The liberalisation of the environment is unfortunately not the result of intentional policy changes but rather the consequence of the virtual collapse of the formal economy.
Where Zimbabwe fails dismally in the investment test is in its political stability. If one accepts that the overriding interest of investors lies in stability rather than good governance or democracy, one has to conclude that Zimbabwe remains a very high-risk environment.
Zimbabwe today could be described as a country under the fragile control of a dysfunctional unity government consisting of a cheated, divided MDC controlled by an electorally defeated Zanu-PF that has nothing to lose and everything to gain by staying in power at all costs. The whole process is furthermore threatened by a well-armed, trained and aggressive military and security establishment whose very survival depends on its ability to maintain repressive control.
In spite of optimistic opinions regarding a unity government, Zimbabwe remains polarised by institutionalised violence and optimism regarding the unity government's survival seems little more than a dogged refusal to look at the complex problems clearly. President Mguabe is unlikely to make any concessions that impact on the extent of the executive powers of the presidency. In view of the complexities and conflicts, if Morgan Tsvangirai does not continue to make unreasonable concessions, the country will merely fall into violence once again, ultimately paving the way for the military to seize control. If the Prime Minister continues on the road of pacifying and continually compromising to his own detriment, Mugabe and Zanu-PF will for some time remain in the drivers' seat and in many instances, it will be business as usual - Mugabe style.
The point, however, is not that Zimbabwe offers a favourable risk environment but that, for the moment, investors will find a more welcoming environment and that should the tide turn, those that are already established will be front runners who stand to gain hugely. Under the extremely fragile control of the faltering unity government, wise investors will avoid becoming too closely aligned with any one grouping. Those trailblazers who embrace the high risks and who are able to surf the choppy political waves in Zimbabwe today stand to win huge rewards, but in the short to medium term, many will burn their fingers in an environment where tensions are once again escalating.
Footnotes
1. Through a Global Political Agreement (GPA), Zanu-PF (Zimbabwe African National Union-Patriotic Front) and two MDC formations formed an inclusive government with Morgan Tsvangirai as Prime Minister. The two MDC factions are the MDC -T led by Morgan Tsvangirai, and the MDC-M, led by Arthur Mutambara. During the March 2008 elections Zanu-PF won 100 seats, the MDC-T won 100, and the MDC-M 10.
2. Tsvangirai managed to raise USD 150 million showing the West's ambivalence regarding zimbabwe's prospects in the short term. He had hoped to raise USD8.3 billion in reconstruction funds. www.africa- confidential.com/article/id/3133/Tsvangirai-carries-the-can, Africa Confidential, Tsvangirai carries the can, 26 June 2009.
3. Agreement made in September 2008. According to the GPA President Mugabe remains Head of State and Government and Commander-in-Chief of the Zimbabwe Defence Forces.
4. http://allafrica.com/stories/200908160006.html, The Standard, Zimbabwe, the truth govt refuses to confront, 15 August 2009.
5. The agreement was drawn up in haste under great pressure and retains all executive authority with the President with no provision for a Prime Minister. The executive is allowed to neuter Parliament and the President has the power to dissolve the Legislature at any time.
6. News Africa, 31 July 2009.
