One to watch in 2018 – Zimbabwe is on the long road back

Zimbabweans celebrate the fall of Mugabe, but there’s still the hangover of years of economic neglect to get through

Zimbabwe’s risk score has registered the most improvement to date in the preliminary results of Euromoney’s latest quarterly risk survey to be released in early January.

This follows the unexpected, but brief and bloodless, coup ending both Robert Mugabe’s stranglehold on power and any pretentions he might have had of securing another term either for himself or his wife Grace.

The country’s troubled past is well documented and the economy is on its knees, with a lack of access to international finance, stringent indigenization laws and unresolved payment arrears making it one of the highest investor risks worldwide.

No wonder that Zimbabwe – deeply entrenched in tier five, the lowest of Euromoney’s five risk categories, on less than one fifth of the 100 points available – has been long considered a basket-case than the bread-basket of Africa alluding to its former glory.

Euromoney’s experts are not becoming overly excited by the change of leadership, noting the fact the ruling party is still in control and the military is being well rewarded by new president Emmerson Mnangagwa, whose reputation it must be said is similarly formidable.

On top of that, there is the uncertainty of elections to be held by August 2018, with no guarantee the opposition will be fairly treated.

Rafiq Raji, ECR survey contributor and chief economist at Macroafricaintel, is cautiously optimistic.

“The Zimbabwean economy is likely to record a recovery going forward as hitherto estranged development partners lend a helping hand,” he says.

“There are worries president Mnangagwa might be more desirous of consolidating power than embarking on wholesome reforms. And while the recent budget speech was encouraging, Mr Mnangagwa’s cabinet picks were not similarly inspiring.”

He advises: “So, a clearer outlook will likely only emerge after the elections next year. Until then, it would be best for investors to proceed with caution.”

Other experts have noted that political reform seems unlikely with the new leadership focusing exclusively on improving the economy and relations with external creditors.

At least the early portents are favourable, even if Zimbabwe has an uphill battle to restore the country to health.

Offering to compensate white farmers for land expropriation will certainly appeal to the international community, including private investors seeking to secure contracts, even if questions remain about how this is financed.

Gaining the support of creditors and donors is also imperative for resolving $9 billion-worth of external debt arrears, closing the budget gap and paying for essential public services, such as education, healthcare and public security.

This week the African Export-Import Bank offered to provide an investment credit guarantee and support the industrialization programme, among other levels of assistance.

The government says it will curb public spending, tackle corruption and waste, and partially repeal the indigenization laws limiting foreign ownership to 49%. A three-month amnesty should see some stolen funds return and mass emigration will likely slowly reverse.

Consequently, although Zimbabwe ranks a lowly 171st out of 186 countries in Euromoney’s rankings, below Cuba, Venezuela and Yemen, it is widely expected to leave those countries behind as operating conditions steadily improve.

No one is expecting a cure-all, but for all his faults Mnangagwa recognises the urgent need to get Zimbabwe back on track and this can only generate interest among potential investors in 2018.

The question is whether he can avoid disappointing those expecting political change and improve economic prospects rapidly enough.

Before the coup, the IMF was expecting just 0.8% real GDP growth for 2018, down from 2.8% in 2017. The government’s new budget projects, surprisingly, 4.5%, based on agricultural and mining production increasing, but the reality might be somewhere in between – with high inflation, mass unemployment and a current-account deficit to be addressed.

Zimbabwe will remain high risk for some time, but investors will be watching developments closely, as it could represent a decent, high-returns prospect for 2018 if the political risks in particular are managed carefully.

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