Zimbabwe Business Forecast Report Q1 2009

Political Uncertainty Sustains Economic Collapse

Zimbabwe has been in political limbo since the inconclusive general election held in March and the flawed June presidential runoff contest that followed. A powersharing deal signed in September between Robert Mugabe's ZANUPF party and the two wings of the opposition MDC has proved impossible to implement so far, and is in danger of collapse. Regime hardliners remain unwilling to cede any real power to the MDC, particularly in regard to authority over the security forces. Talks are continuing under the auspices of the Southern African Development Community, but there is little hope of an early end to the deadlock. Meanwhile, the humanitarian situation is grave and deteriorating further. About half the population are at risk of starvation, the crop that should be harvested next March looks a disaster, diseases such as cholera are spreading, and an estimated 80% of Zimbabweans now find themselves jobless and living in penury. International food and medical aid continues, but is continually hampered or commandeered by the regime.

Political violence and corruption continue unabated. Pressure from the region, wider Africa, and the broader international community has so far failed to induce Mugabe to accept change. The MDC lacks any decisive leverage on the regime, and while popular support for it remains strong, its inability to deliver on promises of democratisation puts its credibility at risk. Mass civil and labour unrest are about its only alternative to remaining in the probably fruitless negotiating process, but the MDC leadership realises that such a call to action would likely lead to widespread violence.

Fiscal irresponsibility, financed by the printing of paper money, continues to drive hyperinflation. By any accepted accounting criteria, the Reserve Bank of Zimbabwe is technically insolvent with no capital or reserves. It has no means to support the official exchange rate, currently about ZWD620/US$, which has become irrelevant compared to a parallel valuation of some ZWD4,000,000/US$, depreciating daily. In this report we have reviewed the MDC's economic recovery plan and generally find it credible, but not implementable without political power. Resuscitating agriculture is the key, while mining and tourism also have potential to underpin a return to positive economic growth.

The business environment remains dire. The real economy is at a standstill. Virtually all activity is now carried out in the informal economy, where the local dollar is shunned in favour of greenback or rands. The official inflation rate is 231,000,000%, but in reality it is probably in the billions. The payments system has effectively collapsed, and enterprises remain subject to official interference and extortion. Investment is currently at a standstill, but when and if a political solution is found, there is ample evidence that multilateral institutions and FDI players are poised to take positions in the Zimbabwean economy.