Previous Quarterly Editions
Expropriation Risk: 88 85 85 82 Political Violence Risk: 62 64 65 62 Terrorism Risk: 25 25 25 25 Exchange Transfer and Trade Sanction Risk: 90 90 90 91 Sovereign Default Risk: 89 89 90 90
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The protests that were harshly repressed by the government in January have not been repeated. However, the worsening conditions of daily life and an intensifying economic crisis that President Mnangagwa’s government seems unable to manage mean that political instability looks set to escalate during the second half of 2019. The population is having to contend with the impact of inflation on food and fuel prices that have already risen sharply because of government policies. The price of bread nearly doubled in one day in mid-April. Food shortages, in particular, have worsened as the government lacks the resources to maintain the initially successful initiatives to support the agricultural sector. The food shortages have also been exacerbated by drought and by Cyclone Idai, which in mid-March devastated parts of eastern Zimbabwe, affecting 250,000 people and causing hundreds of deaths. The inability of farmers to access foreign currency with which to purchase imported seeds and fertiliser has also contributed to food price inflation. After two decades during which the ruling ZPF party maintained its support through overmanning and unsustainable wage increases in the public service, Mnangagwa does not have the resources to cushion the effects of the essential austerity measures and other economic reforms that must take place before the country can gain access to foreign loans and investment. But serious economic reform will increase public disaffection, especially as those adversely affected by austerity will be aware that corruption continues to be ubiquitous and deeply embedded. Speaking in April, President Mnangagwa openly admitted that corruption runs so deep in the police, the prosecution service, and the courts that little has been done to curb it. The government is abandoning the ZPF’s indigenisation programme on a piecemeal basis by declaring exceptions to the original policy. However, it is continuing to avoid making a landmark statement on respecting property rights. A key meeting between Mnangagwa and South African President Cyril Ramaphosa in March ended without Harare securing a much-needed bailout package. South Africa is Zimbabwe's largest trading partner and its reluctance to provide aid, increasingly rooted in its inability to do so, constitutes a significant setback for Harare.
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The process of indigenisation, under which foreign-owned firms needed to transfer a 51% stake to indigenous Zimbabweans, has become central to both the ZPF’s populist message and its system of patronage and corruption. In the absence of specific guarantees backed up by legislation, the threat of expropriation in one form or another will remain. Although individual exceptions are becoming more commonplace as the government appears to prioritise increased investment over rent seeking, and some government ministers have talked about introducing legislation that would roll back aspects of indigenisation, any real change in the investment situation will require legally enforceable guarantees that the initiative has ended. The budget for the fiscal year 2019-20 contains 17.5 million dollars to compensate 500 white farmers who were forcibly removed from their land during the ‘fast track’ land reform programme that began in 2001. However, 4,500 white farmers were forcibly removed under the programme and independent estimates of the true compensation bill are around ten billion dollars.
As many as twenty civil society and opposition activists were killed during January and February as security forces responded to protests over the doubling of fuel prices, although the government blamed the deaths on violence perpetrated by ‘rough NGOs’. The protests have since died down but there are ample grounds for the resumption of both civil unrest and government repression at any time. However, given the inability of a fragmented and internally feuding opposition to provide leadership, protests and demonstrations are likely to be sporadic and quickly ended by the security services. If policy and political stagnation continue, renewed intervention by Zimbabwe’s highly politicised armed forces cannot be ruled out.
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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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Year-on-year inflation increased from 24% in January to 66.8% in March, according to the government statistics agency. In February, the acute shortage of US dollars, together with a clear lack of confidence in the bonds printed by the central bank to compensate for it, forced the introduction of a new nominal currency without physical notes or coins called Real Time Gross Settlement (RTGS) dollars. This is intended to equalise the values of the various forms of currency that have replaced the Zimbabwe dollar since the disastrous bout of hyperinflation in 2009. Learning from the experience of the bond notes that swiftly lost value, the central bank has abandoned the fiction of parity with the US dollar and introduced RTGS dollars at 2.5 to the dollar. However, by mid-April, RTGS dollars were trading on the black market at 5 to the dollar, fuelling renewed fears of hyperinflation. In March, it was revealed that the government has signed a two-year contract worth a million dollars with a Washington lobbying firm that promised to facilitate the eventual removal of US sanctions against Zimbabwean officials. The contract aroused strong criticism within Zimbabwe and in March the Trump administration renewed sanctions against 140 government officials and other figures for another year, with the violent crackdown on protests at the start of 2019 giving it little option.
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In April, figures from the World Bank showed Zimbabwe’s debt rising from 13.5 billion dollars at the end of 2017 to 18.1 billion dollars in early 2019, an increase of 33%. Debt is split evenly between domestic and foreign creditors, but an increasing share is owed to private creditors and denominated in foreign currency, threatening its sustainability. The finance minister, Mthuli Ncube, is struggling to deliver the austerity measures he outlined in the budget for 2019-20 that are regarded as a mandatory condition for debt restructuring by the country’s creditors. An emerging political issue is the legitimacy of historic debts emanating from the white minority regime, and from corruption and general economic mismanagement during the years of Robert Mugabe’s presidency.
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