Zimbabwe now needs large Investment

Zimbabwe needed a massive and immediate injection of funds from abroad to revive its economy, but how soon investment would begin flowing in would depend on whether investors saw the settlement brokered last week by President Thabo Mbeki as credible, analysts said on Friday.

John Robertson, an independent Zimbabwean economist, estimated that about US$15 billion (R120 billion) was needed to restore the country’s devastated industries as well as its economic infrastructure.

Possible grant donors or providers of concessionary loans are multilateral lending agencies as well as the Southern African Development Community, the EU and the US. But private investment capital will also be essential.

Dianna Games, the chief executive of Africa@Work, estimated that Zimbabwe’s manufacturing sector was operating at between 25 percent and 30 percent of its capacity. She said the country urgently needed to be recapitalised and predicted it could be a target for emerging market funds.

If a credible government were installed, the economy, which had been shrinking for seven years, could start to turn around within a few months and go on to stage a broadbased economic recovery, “led by manufacturing and infrastructural spend”, according to Goolam Ballim, the chief economist at Standard Bank.

However, the damage to the country’s agricultural sector, particularly the beef industry, could take up to 15 years to repair, according to Robertson.

“It takes time to restock herds and reintroduce skills,” he said.

The new government will have to take emergency action to halt inflation. Despite draconian efforts to curb prices, inflation was 52 million percent, Robertson said. The Reserve Bank of Zimbabwe put June inflation at 11.26 million percent.

Sean Gammon, an analyst at Imara Asset Management, said: “The depoliticisation of the Reserve Bank of Zimbabwe is vital.” He said the government would have to stop printing money to meet its needs.

While a halt to printing money was the first move towards eliminating hyperinflation, analysts said the government would have to move quickly to restore the country’s productive capacity.

Ballim said the key to a full recovery was a constitution that honoured private property rights, in the broadest sense of the word – “the right to a fair return on capital”.

Zimbabwe’s latest bout of economic troubles was triggered by land invasions that started in February 2000 and displaced commercial farmers, cutting the domestic food supply and depriving the country of its main source of foreign exchange earnings.

The economic decline has accelerated over the past two years, as price controls drove food from the shelves. So the new constitution, which has still to be written, is critical, as are the terms of the agreement to be signed today by Robert Mugabe, who has been president for 28 years, and Morgan Tsvangirai, whose Movement for Democratic
Change won the election.

Ballim said the country still had “robust institutions”, such as the ability to collect revenue to fund expenditure.

Stephen Gelb, the executive director of the Edge Institute, said: “A lot of South African companies have warehoused or written off investments and would be prepared to resuscitate them if the economic climate were to improve.”

The benefits to neighbouring countries of a Zimbabwean settlement would be enormous.

Games said: “The problems in that country have had a serious effect on regional trade.”

However, the problems relating to Zimbabwe’s disintegration go further, as refugees flooded over its borders to seek work elsewhere.

In the run-up to the news of an agreement, the Zimbabwean dollar, trading on the parallel (black) market, collapsed to Z$30 000 to $1 on Friday, from Z$7 500 a week earlier, according to Ballim.

Published on September 15,2008 by Ethel Hazelhurst Business Report.

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