Previous Quarterly Editions
Expropriation Risk: 94 94 88 85 Political Violence Risk: 60 60 62 64 Terrorism Risk: 25 25 25 25 Exchange Transfer and Trade Sanction Risk: 88 90 90 90 Sovereign Default Risk: 87 88 89 89
TREND ► OUTLOOK ▲
After running a lacklustre campaign, the ruling ZANU-PF (ZPF) party won both the parliamentary and presidential elections that were held simultaneously on July 30. Thanks largely to its support in rural areas, it has a two-thirds majority in the legislature, allowing it to make changes to the constitution. According to the Zimbabwe Election Commission (ZEC), Emmerson Mnangagwa, who replaced Robert Mugabe as president in November 2017, won the presidency with 50.8% of the vote to 44.3% for Nelson Chamisa, leader of the Movement for Democratic Change (MDC). This allowed him to avoid the runoff that would have been necessary if no candidate reached 50%. Chamisa, a talented orator almost half the president’s age whose campaign was heavily outspent by ZPF, challenged the ZEC tally in the Constitutional Court, which ruled that the MDC had not proved its case and so upheld Mnangagwa’s victory. In the immediate aftermath of the results, six MDC demonstrators were shot dead by police and scores more arrested as security forces blamed the MDC for the violence. These events were a blow to Mnangagwa’s aim of distancing himself from Mugabe’s repressive regime and his hopes of projecting an image of change, stability and greater openness as part of efforts to attract international investment. However international financial institutions and potential investors will be less concerned with initial post-election events and more worried about Mnangagwa’s ability to convince his own party, which has been riven to the point of fragmentation by the succession wars which preceded Mugabe’s fall, of the need to put the country through the pain of radical economic reform. Mnangagwa’s victory does not represent a mandate to dismantle the ZPF system of patronage and corruption which has seen the military and ZPF itself become heavily embedded in commerce. To have any positive impact, he will have to confront the grossly bloated public service, one of the main sources of votes for ZPF. However, in what was clearly an electioneering tactic, Mnangagwa pledged a 15% increase for 350,00 public sector workers in June. State employment already accounts for most formal jobs and 90% of government expenditure. In recent years the government has frequently been unable to pay public employees on time.
TREND ▼ OUTLOOK ▼
Before the election campaign began, the government promised new legislation to make it easier and faster for investors to engage with the economy through a ‘one stop shop’ rather than dealing with multiple layers of poorly-aligned bureaucracy. A more important step, however, and one which is also still awaited, is a comprehensive and unambiguous assurance, backed up by legislation, that property rights will be respected by the post-election ZPF government. The influence of wider populist expectations raised by Mugabe’s indigenisation legislation will be hard for the Mnangagwa administration to unravel, particularly in the platinum and diamond sector where mining companies remain under restrictions that are being lifted elsewhere.
TREND ▲ OUTLOOK ▲
The disproportionately violent response of the security forces to post-election protests suggests that state repression will be as integral to Mnangagwa’s presidency as it was to the Mugabe regime. However, as the MDC has shown neither the appetite nor the capacity for a sustained confrontation with the security forces, there is unlikely to be prolonged and high-profile clashes with demonstrators against the ZPF government. Sporadic incidents will not be seriously destabilising for the government or the economy. However, if Mnangagwa takes serious steps towards the radical economic reforms that will be essential for economic recovery, including job cuts, then protests are likely by public sector workers and could trigger a violent state response.
TREND ► OUTLOOK ►
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.
The country continues to suffer from a shortage of dollars. In June, South African Airways announced that 60 million dollars it is due for ticket sales transacted in Zimbabwe had been blocked to the foreign currency crisis. Zimbabwe’s bond notes, surrogate dollars that were created to cope with the lack of currency, have nominal parity with the US dollar but trade at a substantial discount. This has the effect of pushing up prices for goods and services and raises the possibility of an official devaluation of the bond notes. President Mnangagwa remains committed to the previous ZPF position that the country should reintroduce its own currency but only when the budget deficit has been reduced and currency reserves built up.
By mid-2018, Zimbabwe’s public debt was over 13 billion dollars, equivalent to almost 80% of GDP, and appears likely to be closer to 14.5 billion by the end of the year. Approximately two-thirds is external debt, of which 70% is in arrears including 645 million dollars to the African Development Bank and two billion dollars to the World Bank. Reducing the debt burden will require a degree of sustained fiscal consolidation that will be very hard for a party whose support has come largely from spending 90% of government revenue on public sector wages. Finance minister Patrick Chinamasa has indicated planned cuts in the 2018 budget, including eliminating a handful of ministries, schemes to encourage civil servants to take voluntary retirement, and ending some of Mugabe’s most brazen patronage schemes. However, there was little sign of progress on these before the election and the result is unlikely to provide the government with the political courage needed for radical reform. In these circumstances, a large measure of debt forgiveness is probably a prerequisite for Zimbabwe’s economic recovery. However, the terms of this usually include a track record of good performance in economic adjustment programmes, and it will be difficult for Zimbabwe to comply with this.
Return to contents