Zimbabwe Business Forecast Report Q3 2007

Repression, Hunger, And Hyperinflation

President Robert Mugabe's control over his divided ZANU-PF party and the security forces is tenuous, but so far has held enough for him to impose his candidacy for the March 2008 presidential election. Parliamentary elections will be held at the same time, and in an apparent bid to drum up support, the constitution is being doctored and constituency boundaries gerrymandered. Any possible threat that might arise from the opposition is being dealt with by brutal and violent repression of its leadership and followers, with similar treatment being meted out to the independent media, human rights lawyers and pro-democracy advocates. Moreover, as an insurance policy, Mugabe has created a paramilitary force consisting largely of destitute youths, who carry out much of the dirty work.

External pressure on Mugabe remains anaemic. Western countries have little leverage, and while African countries know that the situation is detrimental to outside perceptions of the continent as a whole, most leaders have remained acquiescent. South Africa President Thabo Mbeki has been tasked to mediate between Mugabe and the opposition, but neither side trusts him. The immediate prognosis is one of further political violence and instability. Barring an unlikely successful party or military coup, the earliest hope for an end to the crisis is the holding of a free and fair election next March, but the odds are firmly against that happening.

Production shows no sign of recovery. Retail, manufacturing, financial and consumer services remain moribund and the natural resource sector is in crisis. Crucially, food and tobacco output will hover around historic lows this year: at best, local grain output will only be able to satisfy one-third of the country's minimum needs on current forecasts. Some neighbours are offering to help, and an international food appeal is expected, but as in the past aid has been diverted by the regime for political advantage, the response is uncertain. Unemployment remains at about 80%, and a similar percentage of Zimbabweans now find themselves below the basic poverty line.

Economic policy is in disarray and the central bank has recently been described in a semi-official IMF assessment as broke and discredited, with estimated annual quasi-fiscal losses running to a staggering 70% of GDP. The latest inflation rate came in at around 3,700% (year-on-year [y-oy]), which breaches the accepted definition of hyperinflation: BMI now expects the figure for end 2007 to be 6,500%, at best. In April, the authorities announced a pseudo-devaluation by way of adjustments to the confusing multiple exchange rate regime, but nowhere near enough to bridge the gap with the parallel market rate, which is about ZWD35,000/US$.