Zimbabwe Business Forecast Report Q3 2009

The instalment of Jacob Zuma as president of South Africa will not solve Zimbabwe's domestic problems, but is likely to be supportive of the country's peace process over the longer term. Although Zuma has so far said little about his future policy towards Zimbabwe, our view is that he will be supportive of the Movement for Democratic Change (MDC) and will focus more than Mbeki on practicalities rather than sentimentalities. Both Zuma and Tsvangirai count on their respective labour movements for political support, and share similar personal backgrounds of great achievement without the benefit of much formal education. They are also very aware of the realities of economic globalisation and the importance of foreign investment, which will be key to Zimbabwe's long-term recovery. While Zimbabwe's growth prospects will remain dim in 2009, real GDP growth is expected to grow by 3.0% in 2010, barring a collapse of the unity government.

The Government of Unity (GNU) is functioning at a sub-optimal level, but there are encouraging signs that its game could be raised if it were not for the alleged spoiling tactics of ZANU-PF hardliners.

For the GNU to work, it needs funds from abroad, but donors are holding back until it performs better, which creates a vicious circle that will prove difficult to break. Our view is that the coalition will probably survive the short term, but whether it can last the (minimum) 18-24 months needed to take the country to a new election is very much in doubt. With Robert Mugabe and the ZANU-PF unlikely to depart, the real question is how long the MDC is able to withstand the provocations it is faced with.

Finance Minister Tendai Biti intends to bring discipline to budgetary management but faces a number of hurdles. There is impatience amongst government workers for improved pay, and although the GNU is trying to pay each state employee a monthly hard currency stipend of US$100, it is battling to afford the cost. In addition, until economic output recovers and collection mechanisms are improved, tax capture will remain inadequate to fund even current expenditure. At the political level, Central Bank Governor Gideon Gono and Biti remain locked in a power struggle over control of policy, which is jeopardising a holistic approach to economic management. Gono retains the backing of Mugabe, but donors would strongly prefer a change at the top of the central bank.

In the World Bank's 2009 Ease of Doing Business rankings Zimbabwe came in at a lowly number 158 out of 181 economies assessed. Recently, the IMF opined that the country was still an extremely challenging place for private enterprise to operate, a view echoed by several multinational corporations, particularly in the mining sector. Nonetheless, there is little doubt that there is considerable pent-up FDI interest in Zimbabwe. According to the GNU, which took office in February 2009, it is realistic to aim to raise gross fixed capital formation to 25% of nominal GDP over the medium term, from our current 8.0% estimate.