Zimbabwe Business Forecast Report Q2 2009

Publication Date	March 2009
Publisher	Business Monitor
Product Type	Report
Pages	56
ISBN Number	1746-5818
Product Code	BMI03524

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Summary

Change In The Air?

In addition to the new power-sharing government arrangement which took effect earlier this year, the ruling Zimbabwean African National Union-Patriotic Front (ZANU-PF) party is showing some signs that it is ready to acknowledge some of its economic policies are not working. Most notably, the country has formally recognised the use of foreign currency as legal tender in Zimbabwe, and presented its budgets in US, as well as Zimbawean, dollars for the first time since independence in 1980. This should help end the scourge of hyperinflation, at least in foreign currency terms.

That said, any economic recovery will remain almost impossible in our view so long as Reserve Bank of Zimbabwe governor Gideon Gono and President Robert Mugabe remain in power. As such, we see a return to economic growth only in 2010, in a best-case scenario.

Following months of political stalemate and tough negotiations, the opposition Movement for Democratic Change (MDC) and Robert Mugabe's ZANU-PF finally formed a new coalition government in the middle of February. While a positive development in itself, the list of challenges that the new unity government faces is long, and a renewed breakdown can by no means be discounted over the coming months, with the most potent threat coming from the military. Manifold hurdles lie ahead: the real and difficult work of agreeing, legislating, and implementing the policies needed to initiate national recovery has hardly begun.

Meanwhile, the economy has essentially hit bottom, with unemployment estimated at 90% and the harvest forecast to be the worst in generations. As such, with almost no economic activity left to shed, we see growth holding flat in 2009, rather than contracting. While the dollarisation of the economy will help end hyperinflation and implicitly recognises the unsustainable nature of seigniorage, the policy has been implemented with little planning, and we do not believe the country has enough foreign currency to sustain its needs and grow. At this point, only international assistance can get the economy back on track, and this remains dependent on an acceptable resolution to the country's political problems.

The business environment remains extremely inhospitable. Firms frequently find themselves without water or electricity, while the search for fuel for transport is constant. Lately, the fixed line telephone network has been operating only intermittingly and hardly at all outside cities. Forex can now be used legally throughout the economy, but dollarisation is no panacea and risks exacerbating income inequalities. Nonetheless, the domestic markets have reacted positively. The new finance minister, Tendai Biti, is highly respected, and has said that he is determined to wrest back effective control of the fiscal finances from the profligate central bank.

Content

Executive Summary
- Change In The Air?
Chapter 1: Political Outlook
- SWOT Analysis
- BMI Political Risk Ratings
- Domestic Politics
- Unity Government: Formidable Challenges Ahead
- Following months of political stalemate and tough negotiations, the opposition Movement for Democratic Change
- (MDC) and Robert Mugabe's Zimbabwean African National Union-Patriotic Front (ZANU-PF) finally formed a new
- coalition government in the middle of February.
- Foreign Politics
- Africa Unlikely To Be Top Of The Obama Agenda
- We expect ties between the US and Africa to increase under Obama's tenure, in recognition of the rising
- importance of the continent.
Chapter 2: Economic Outlook
- SWOT Analysis
- BMI Economic Risk Ratings
- Economic Activity
- Contraction Hits Bottom
- Last year was another desperate one for the real economy with all major sectors contracting once again.
- Monetary Policy
- Divided Cabinet Will Delay Economic Reforms
- Economic reform will likely prove the most immediate challenge faced by the new power-sharing government, as Gideon
- Gono, the Reserve Bank of Zimbabwe governor and architect of Zimbabwe's disastrous economic policy, clashes with the
- newly appointed opposition finance minister, who it is believed will push for more orthodox economic policy.
- Exchange Rate Policy
- Dollarisation: Poorly Implemented, But Long Overdue
- The lifting of exchange controls last December was overdue, but inadequately planned for.
- Fiscal Policy
- Moot Budget Hints At Willingness To Reform
- The 2009 budget revenue and spending proposals recently presented by the ZANU-PF headed government are unlikely ever
- to be implemented as the finance cabinet portfolio is now in the hands of MDC-T.
- Investment Climate
- Stock Exchange Will Struggle To Thrive
- After three months of inactivity, the Zimbabwe stock exchange could reopen soon.
Chapter 3: 10-Year Forecast
- The Zimbabwean Economy To 2018
- Political Outlook Calls The Shots
- There is every prospect of a measured economic recovery over our ten year horizon, provided political stability is secured.
Chapter 4: Special Report
- China
- A Seismic Upheaval In 2009?
- One of the biggest - and least discussed - 'wild cards' that could rear its head in 2009 is dramatic political
- upheaval in China.
- United States
- Europe
- Big Trouble For European Banks In 2009
- The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine
- to spell trouble for the financial services sector in 2009.
Chapter 5: Business Environment
- SWOT Analysis
- BMI Business Environment Risk Ratings
- Business Environment Outlook
- Institutions
- Infrastructure
- Market Orientation
- Operational Risk
Chapter 6: BMI Global Assumptions
- Global
- Economic Activity
- Monetary Policy
- Commodities
List of Tables
- Table: Zimbabwe Political Overview
- Table: ECONOMIC ACTIVITY
- Table: Monetary POLICY
- Table: EXCHANGE RATE POLICY
- Table: ZIMBABWE Long -Term Macro economic Forecasts
- Table: Banks' Leverage Ratios
- Table: Assets As % of Home Country GDP
- Table: Assets As % of Home Country GDP When Euro zone Is Considered 'Home Country'
- Table: Exposure As % of Tot al Exposure To Region
- Table: Banks' Foreign Exposure (US$ mn)
- Table: Exposure As % of National GDP
- Table: BMI BUSINESS AND OPERATIONAL RISK RATINGS
- Table: BMI LEGAL FRAMEWORK RATINGS
- Table: LABOUR FORCE QUALITY
- Table: Middle East & Africa Annual FDI Inflows
- Table: BMI TRADE RATINGS
- Table: TOP EXPORT DESTINATIONS
- Table: Global Assumptions
- Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
- Table: Developed States, Real GDP Growth Forecasts
- Table: Emerging Markets, Real GDP Growth Forecasts
- Table: DEVELOPED MARKET EXCHANGE RATES
- Table: EMERGING MARKET EXCHANGE RATES