Zimbabwe Food and Drink Report 2008

The situation in Zimbabwe continues to deteriorate, both for the food and drink industry and for the country as a whole. In what could be a major turning point for the industry, in September 2007 American food company HJ Heinz sold its 49% stake in leading cooking oil producer Olivine to Cotton Company of Zimbabwe (Cottco) for US$6.8mn. Cottco was a state enterprise until its privatisation in 1997, with the government still holding the largest single stake in the company. The deal was facilitated by a government-owned investment group, leading to speculation that this could be the first major move by President Robert Mugabe to take over foreign-owned firms in the country.

Heinz was one of the first foreign investors in Zimbabwe following the country's independence in 1980.

Olivine first ran into problems with the state in 2006 over charges that it had stopped producing cooking oil after the US government barred it from buying from formerly white-owned farms that had been seized by the Mugabe government and redistributed to black farmers. The Heinz deal is the first major takeover of a foreign firm since Mugabe vowed to gain majority control of foreign assets, returning them to the Zimbabwean people. Mugabe has blamed the country's financial woes on Western sanctions, with a price freeze on basic goods ordered in June 2007 actually worsening the food shortages.

While Mugabe's official line is still that some businesses are halting production in an effort to undermine the economy, the situation is now so dire that even the government's chief statistician admitted that he can no longer calculate the country's level of hyper-inflation because there are not enough consumer goods left in shops to count. When the last official rate was given, in October 2007, it was recorded at almost 8,000%, by far the highest in the world. However, according to unofficial estimates, real inflation based on the government's basket of goods is around 15,000%, and if a broader range of goods is taken into account, this figure rises to an unbelievable 40,000% for November 2007.

As Heinz's withdrawal illustrates, regardless of the size of the enterprise, no business can survive in the country today without a political connection. Zimbabwe continues to be plagued by chronic unemployment, a breakdown in infrastructure and acute shortages across the board. This has had a crippling effect on the food and drink industry, with no relief in sight, and has had an equally devastating impact on the MGR sector. Looking forward, we expect another year of negative real GDP growth in 2008, as well as continued hyperinflation, and a hand-to-mouth foreign exchange position. Domestic investment will remain non-existent, shortages of basic goods will persist, and the public services will further deteriorate to levels that make normal life and commerce almost impossible. In order to sustain itself, the regime will likely attempt more 'asset grabs' with foreign-owned businesses a probable target - more bad news for the food and drink sector.