Africa, Economy & Trade, Headlines

ZIMBABWE: Economy Crippled By Political Uncertainty

HARARE, Jan 6 2010 (IPS) - The Zimbabwean government has been working hard to attract international investors to revive the country’s failing economy. Success on this front in 2010 may hinge on the coalition government convincing investors their capital will be secure.

Investor interest in recent years has been in portfolio investment (the passive holdings of securities such as foreign stocks, bonds and other financial assets) on the Zimbabwe Stock Exchange and in mining.

Currently most businesses are in need of recapitalisation to boost production and restore viability. The proposed privatisation of potentially profitable parastatals such as Air Zimbabwe, the National Railways of Zimbabwe, Cold Storage Company and Tel One offers significant investment opportunities.

Many investors are making limited investments and waiting to see if the coalition government remains in place to implement a sustainable economic recovery.

Reforms in the financial sector such as the removal of cash movements controls; price controls; and the introduction of multiple currencies such as the U.S. dollar and the South African rand have seen a number of big international companies committing themselves to doing business in Zimbabwe.

Investors returning

Companies from South Africa, the European Union, the United States, and Australia are already looking at projects in mining, agriculture and the manufacturing of primary products.

Canadian corporation Caledonia Mining announced that it would double gold production from its Zimbabwe mines, while steel maker ArcelorMittal’s South African unit is reportedly interested in taking over state-owned Zimbabwe Iron and Steel Company.

Agro-processing firm Tongaat Hulett plans to inject 20 million dollars in its sugar mills in Zimbabwe. Anglo American, the London-based mining giant with the largest foreign investment portfolio in Zimbabwe, is investing $400 million to build a platinum mine.

“We are in it, and in it for the long run. The secret is timing and being the first to move and get the best opportunity,” said Geoff Goss, Country manager for London Stock Exchange-listed conglomerate Lonrho.

In 2008 and 2009, Lonrho invested $60 million in telecommunications, pharmaceuticals and drug manufacturing interests over the past two years.

“If investors are waiting for the resolution of political issues then they might miss real business opportunities,” Goss said.

He is, however, worried about the continued existence of laws that hamper affect business operations such as strict requirements controlling work permits for expatriates.

He said the country’s new government now “needs to finish what they started”. Munyeza was referring to outstanding political issues affecting the government, including the long-delayed appointments of a central bank governor and an attorney general.

“If the politics is sorted then investors will flock to this country in two years time,” said Tsuyoshi Thomas Ueda, manager of Metals and Minerals at Sumitomo Corporation of Japan.

Prominent businesswoman and chair of the government’s Zimbabwe Investment Authority, Marah Hativagone agrees that political stability is the only thing standing between investment and disinvestment in Zimbabwe.

“It’s important to have an ongoing political and economic stability coupled with a highly de-regulated economy where investors are the masters of their own destination,” Hativagone told IPS.

Gilberto Rodrigues, an executive with Portuguese firm Motaengil, shares Hativagone’s view. “There are more complicated countries, like the DRC, which are still experiencing political problems. But people go and invest there,” Rodrigues said.

“The government of Zimbabwe is aware that the foundation for any investment is a commitment by government to guaranteeing that the rule of law is applied and adhered to without fear or favour. If business is the engine of economic growth, then the rule of law is the fuel that drives that engine,” Zimbabwe Prime Minister Morgan Tsvangirai told IPS at an investment conference held in Harare in July 2009.

A Bilateral Investment Promotion and Protection Agreement signed with South Africa in November is expected to boost confidence amongst investors. But so far, the agreement has offered little protection to South African farmers who have been displaced from farms by squatters, with the tacit support of the police.

A recent incident involved one of the 79 farmers who last year won a case heard by the Southern African Development Community Tribunal, which ruled that the Zimbabwean government for illegally seizing their land; squatters gave South African citizen Ray Finaughty was given just hours to leave his farm, and police refused to intervene, telling Finaughty that the matter was “political”.

“Investors are very mindful of the security of their investment. If we don’t stop continuing farm invasions no investors will come into the country,” said Henrick Olivier, chief executive officer of Zimbabwe’s Commercial Farmers Union, a grouping dominated by mostly white farmers with significant land holdings.

Control of Zimbabwe’s security forces, and direction of its legal services are among the vital, but unresolved aspects of the Global Political Agreement that created the present government, which unites the Zimbabwe African National Union-Patriotic Front of President Robert Mugabe, with its bitter rival, the Movement for Democratic Change led by Prime Minister Tsvangirai and a smaller MDC faction under Arthur Mutambara.

The appointment of an attorney-general and a central bank governor, as well as the reform of the police, army and intelligence services are at the top of the agenda when negotiators from the three parties resume discussions on Jan. 16. The government is yet to appoint provincial governors and new ambassadors; or to set up new media, human rights, electoral and anti-corruption commissions.

Should these issues remain unresolved, South African president Jacob Zuma would be called upon to intervene in his capacity as SADC facilitator for Zimbabwe’s political crisis. If investors are to feel secure enough to put money directly into Zimbabwean businesses, the new year will need to be marked by new momentum in power-sharing talks that have dragged on since September 2008.

*Terna Gyuse in Cape Town contributed to this report.

Republish | | Print |