Previous Quarterly Editions
Expropriation Risk: 85 85 82 79 Political Violence Risk: 64 65 62 62 Terrorism Risk: 25 25 25 25 Exchange Transfer and Trade Sanction Risk: 90 90 91 92 Sovereign Default Risk: 89 90 90 90
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The leadership of the ruling Zanu-PF (ZPF) party is increasingly concerned about the possibility of a popular uprising that draws on the deep public dissatisfaction with the state of the economy. In August, it banned several planned demonstrations by the opposition Movement for Democratic Change (MDC-T), with the hundreds of people who still turned out in Harare for the first rally being brutally dispersed. Fearful of a Sudan-style uprising, President Mnangagwa's government is clamping down further on its opponents while simultaneously 'coup-proofing' the country's military. In August, he promised the military salary increases and other benefits to cushion them against rising inflation. This follows reshuffles within the military leadership earlier in the year and a spending spree in June that saw the army reportedly purchase water cannons, teargas and thousands of new guns. In addition, a large number of police officers have been undergoing paramilitary-style training in preparation for confronting unrest. The government’s unease stems from the desperate state of the economy. At the end of 2018, Finance Minister Mthuli Ncube unveiled a package of measures called ‘Austerity for Prosperity’ that included an end to printing money, a reduction in fuel subsidies, and higher electricity prices. The aim was to pave the way for renewed access to credit from international financial institutions. However, the economy has continued to suffer, with the IMF now expecting a contraction of 5% this year. Official figures showed that annual inflation reached 175% in June, since when no more data has been published, but independent projections put the rate at over 500%, second only to Venezuela. Unsurprisingly, wages have not kept pace and many of the country's 400,000 public employees now have incomes that are below the World Bank’s poverty line. There are shortages of key medicines, food, water and fuels, and what is being sold in stores is largely unaffordable. The situation is being made worse by a devastating drought that looks likely to leave 5.5 million people, some 60% of the rural population, without sufficient food by early 2020. Electricity is also in short supply as South Africa’s Eskom cuts supplies in response to Zimbabwe’s unpaid bills, and the country owes even more to Mozambique for its other main source of supply from the Cahora Bassa hydro-electric scheme. Supplies have recently been switched off for up to 16 hours a day, hitting the important mining sector particularly hard. Ncube has said that austerity measures will remain in place until at least January 2020, when Harare plans to begin re-engaging with international lenders. However, the IMF has recently made clear that the necessary conditions are not yet in place for the Fund to provide financial support. While the US and EU have both condemned the government’s latest crackdown on the opposition, Harare has received tacit support from its neighbours. At the Southern African Development Community (SADC) summit in August, Tanzania’s President Magufuli, its new Chair, called for international sanctions against Zimbabwe to be dropped. At the same meeting, Mnangagwa was elected chairperson of SADC's regional body for politics, defence and security. Given the enhanced importance of Mnangagwa and Magufuli within SADC, the organisation will almost certainly refrain from any overt criticism of Harare's actions over the short term and the state funeral for Robert Mugabe provided another opportunity to display regional solidarity.
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Although the government is now pulling back from the requirement that foreign-owned firms transfer a 51% stake to Zimbabwean nationals, the negative impact of its indigenisation policy continues. Moreover, in the absence of specific guarantees backed up by legislation, the threat of expropriation in one form or another will remain a discouragement to further investment. Yet giving such guarantees will remain politically difficult in the face of support for indigenisation among ZPF elites. The current power shortages are the latest setback for the country’s business sector, which is grappling with inflation and currency shortages.
The government’s moves against opposition demonstrations in August followed a low-profile crackdown that has been underway since early 2019. Many activists have been abducted and beaten, with the government unsuccessfully trying to deflect blame onto an unidentified 'third force'. Aided by the inability of a fragmented and internally feuding opposition to provide convincing leadership, the government has managed to forestall the development of a serious and unified alternative to ZPF. With the government preparing the military to protect the party’s hold on power, even the current economic conditions are unlikely to enable a major protest movement to gather nationwide strength in the coming months.
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There is no evidence of any Zimbabwean links to international terrorist groups, and the risk of a terrorist attack by external or internal groups remains low given the strength of the security services.
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In June, after ten years of operating a multi-currency system, the government unexpectedly reintroduced the Zimbabwe dollar as the country’s sole legal tender. At the same time, the central bank pushed up its overnight lending rate from 15% to 50%. However, Zimbabwe’s macroeconomic fundamentals appear too unstable to support the value of a new national currency. In February, the acute shortage of dollars had forced the introduction of a new nominal currency called Real Time Gross Settlement (RTGS) dollars. Effectively, the new Zimbabwe dollar consists of bond notes printed by the central bank and RTGS dollars. The switch to the new dollar was largely triggered by the widening gap between the official and market rates for the RTGS and the latest demand from public employees, notably the military, for substantial pay rises in dollars to cope with rising prices. The government was forced to act because it simply did not have the foreign currency to satisfy these demands.
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Zimbabwe has been accumulating substantial debts to Mozambique and South Africa for electricity supplies. It has begun making partial repayments in an effort to secure a resumption of supplies, but this is just one of the major pressures on the government’s finances. It began this year with debt of more than 18 billion dollars, and it is clear that austerity efforts will need to be more effective before help can be sought from international financial institutions.
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