Previous Quarterly Editions
Expropriation Risk: 85 85 79 75 Political Violence Risk: 65 62 62 59 Terrorism Risk: 25 25 25 25 Exchange Transfer and Trade Sanction Risk: 90 91 92 93 Sovereign Default Risk: 90 90 90 90
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Zimbabwe’s economic deterioration continued to accelerate into 2020, with inflation doubling between June and October to 300% and a year-on-year rate of around 500% by at the end of 2019. In July, the central bank suspended release of year-on-year inflation data until at least February 2020. The effects of inflation on workers and consumers have led to a stand-off between public sector employees and the government. A strike by doctors dragged on because they argued that a pay rise of 100% was insufficient in present conditions, leading them to defy a judicial ruling that their work stoppage was illegal. In November, the government dismissed 200 doctors and threatened 500 more. By then, unions had announced that teachers would only work two days a week as their salaries have not kept pace with inflation, carefully avoiding the word ‘strike’ for legal reasons. Power cuts of up to 18 hours a day have become more common, even though usage has declined since electricity prices were raised by 320% in October. The price rise was partly in response to the revelation that the state-run electricity distributor was owed 77 million dollars in unpaid bills and threatening to cut off supplies to consumers, including farms and mines, that did not pay their arrears quickly. The effects of prolonged drought and the shortage of foreign currency, which makes it difficult to buy imported chemicals, has led to a severe water crisis that has already produced intermittent outbreaks of typhoid and cholera. The Harare city council took the drastic step of closing the main waterworks in the capital in order to make central government provide it with funds in dollars before reopening. The UN estimates that half the population is food insecure in 2019-20 and the World Bank calculates that over a third of the population now lives in extreme poverty. In the face of widespread discontent driven by this level of economic hardship, President Mnangagwa’s reaction has been limited to appeals for patience and promises that the economic reform package introduced by his finance minister, Mthuli Ncube, will eventually have an effect. The supplementary budget of August 2019 meant more spending to mitigate the effects of both prolonged drought and the extensive flash flooding caused by tropical cyclone Idai, and the government used the opportunity to include inflation-related wage increases to public sector workers. Despite extra spending on imports, extensive grain shortages are expected in early 2020. In presenting the budget for 2020 in November, Ncube predicted growth of 3.5% on the basis of better rains and improved electricity supplies, but the contraction of 7% during 2019 has pushed the economy into an extremely difficult position.
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The Mugabe-era policy of indigenisation has been abandoned and replaced by President Mnangagwa’s ‘open for business’ approach. However, the idea of Zimbabwean ownership of businesses has become so central to the ruling ZPF party’s populist message, as well as its system of patronage, that it is proving difficult for the government to move away from it. ZPF has not yet given specific guarantees against a resumption of indigenisation that are backed up by legislation. As a result, the threat of expropriation is likely to continue to weigh on investor confidence, especially under conditions of severe economic distress and political unpredictability that could encourage a return to populist policies.
The clear determination of Mnangagwa and the security forces to respond to civil unrest with draconian action, together with the lack of focused leadership in a still fragmented and internally feuding opposition, make it likely that protests and demonstrations remain sporadic and quickly ended. The decision by teachers to avoid an all-out strike suggests that the union movement is not yet ready to precipitate serious confrontation. As a result, political violence is likely to come from the state rather than the opposition, with the continuing use of deadly force against demonstrators intended to deter further protests. The arrest and ill-treatment of civil society leaders will continue in an effort to keep the opposition leaderless. If political stagnation, progressive economic collapse and collateral hardship continue, renewed political intervention by Zimbabwe’s highly politicised armed forces, whose soldiers are increasingly hungry, should not be ruled out.
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Zimbabwe has had no experience of international terrorist activity, 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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Rising inflation has been accompanied by a steep fall in the value of the Zimbabwe dollar (ZWD), which is now a composite of bond coins and notes, Real Time Gross Settlement (RTGS) dollars, and electronic balances. The ZWD was introduced in mid-2019 at parity with the dollar but quickly slumped to 1:20 at the official rate and much lower on parallel markets. In response to inflation and foreign exchange turbulence, the central bank made a surprise announcement at the end of October that it would introduce a new currency within two weeks. The new banknotes have a face value of only five ZWD, or 25 US cents, and they are intended to address the severe liquidity shortages experienced by individuals. The hasty introduction of yet another new currency adds to the impression of improvisation in managing mediums of exchange and monetary supply. The government’s use of punitive policies to enforce the use of the ZWD is reminiscent of the measures adopted during the hyperinflation of 2007-08, and this type of prescriptive legislation could end up being a precursor to re-dollarisation. The government has so far resisted calls to reinstate foreign currency as a means of exchange, but this remains a key demand of dissatisfied public servants and striking doctors.
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Zimbabwe’s extensive debt, not just to international financial institutions but also to crucial providers such as South African electricity company Eskom, continues to prevent access to external funding. Weak progress in delivering fundamental economic reforms, and particularly in shrinking the public sector wage bill, together with evident corruption and the impact of drought and the flooding caused by tropical cyclone Idai, means that any improvement in Zimbabwe’s debt situation is highly unlikely in the short term.
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