Zimbabwe Business Forecast Report Q4 2008

Country In Limbo Awaiting Political Settlement

The ruling ZANU-PF party of Robert Mugabe and the opposition Movement for Democratic Change (MDC) are engaged in negotiations, mediated by South African observers from the UN and Southern African Development Community. Following disputed elections held in March and June, Mugabe's position as head of state is viewed as untenable, and in the opinion of most of the international community, the talks should aim to find a way for an orderly transfer of power to a democratically chosen government. This would probably involve a transitional arrangement pending constitutional reforms followed by fresh elections. A new democratic government could expect strong support from the international donor community, which is poised to move quickly with financial and technical support. However, fundamental economic reconstruction will be a lengthy process as the country's productive infrastructure is in a state of disrepair and invaluable human skills have been lost to emigration.

Although ZANU-PF's bargaining position is weak, as evidenced by increasingly heavy international sanctions on its main protagonists, it seems determined at this stage to retain the lion's share of power. It is unlikely to succeed in that regard, and the most likely outcome is an eventual deal that would leave the MDC's Morgan Tsvangirai in charge of a transitional administration. That task will not be easy, however, as the dysfunctional polity of recent years has left ZANU-PF allies in charge of most key economic activities.

The economy is destined for another year of contraction in 2008, as all principal sectors are in decline, while demand is weighed down by the hyperinflation afflicting the country, which has produced an estimated inflation rate currently perhaps as high as high as 15,000,000%. The authorities have no answer to the price spiral, which is the product of massive fiscal indiscipline accommodated by irresponsible monetary emission by the central bank.

With a few exceptions, most key multinationals are choosing to ride out the storm in the belief that once political normality is established, the country will offer attractive business opportunities. Yet at the moment, shortages and politically-motivated interference have left most enterprises struggling to survive: for example, manufacturers say that they are operating at below 20% of installed capacity.