Thursday, October 22, 2009

The Zimbabwe Economy

The Zimbabwe Economy
Business conditions, October 2009

Zimbabwe’s economy remains severely affected by liquidity shortages, weak domestic demand, reduced supplies of locally supplied inputs, the losses of skilled personnel and weak commodity prices for many of its exports. All of these problems are made more serious by the low levels of efficiency among the suppliers of electricity, water, telecommunications and municipal services and by the large numbers of people who have to depend on the earnings of the very few in steady employment.
In all sectors, the shortage of liquidity, which impacts upon consumers as well as on borrowers, and therefore upon lenders as well as producers, is a major constraint on the levels of economic activity. Very few businesses can offer extended credit terms to clients, mainly because they cannot easily borrow funds to meet operating costs or to pay suppliers for materials while waiting for payments.
Tight payment conditions at every stage in the production process mean that many companies cannot make payments until they have been paid. In the many cases in which the ultimate retail customers are too few, have limited buying power and can choose between several competing suppliers, the producers face acute challenges in their efforts to remain in business. These challenges relate to efficiency, productivity, prices, access to working capital, good labour relations and accurate assessments of effective market demand, or the population’s limited disposable income.
The origins of some of these specific difficulties go back to the destruction of the Zimbabwe dollar balances that formerly constituted the bulk of the country’s liquid assets. This process left Zimbabweans with only those foreign currency balances that had not fallen victim to the Reserve Bank’s powers of expropriation, but these amounted to sums that were too small to fund a revival.
For the country as a whole, the prospects of a recovery are now tied to the pace at which export earnings can be increased and the pace at which its policy-makers can persuade investors, development agencies and donor countries that Zimbabwe is worthy of support.
For individual businesses, the targets are no different: they too need increasing incomes that have to be earned by offering acceptable goods and services to difficult markets, but they often have need of capital that has yet to be earned. Whether they seek this in the form of loans or equity, they have to present a very strong case to win the needed support.
But while the prospects for individual companies might stand or fall on whether they keep their promises of quality, price and delivery, the prospects for any country will stand or fall on more philosophical issues, such as political involvement, rule of law, respect for civil rights and property rights, and whether the government chooses to respect international treaties, laws of contract and market forces.
Zimbabwean business people today are engaged in the unequal struggle of rebuilding a sound business base even though the country’s politicians have yet to persuade the world’s investment, development and banking community that their efforts to rebuild international credibility deserve support.
Although some companies have had some success in securing toll manufacturing contracts with South African companies and others have received backing from parent companies abroad, most are having to try on their own to make the best they can of a very limiting business environment.
Since the signing of the Government of National Unity agreement, official efforts to overcome severe Balance of Payments and national budgetary constraints appear to have become an inter-party contest that neither party is winning, but from which divisive influences are the main effect. Zanu PF seems keen to discredit and disparage the achievements of MDC by maintaining sufficient instability at home to prevent any outright MDC successes. At the same time, MDC has called into question the size and even the existence of huge flows of funding said by Zanu PF to be on their way from China.
To these must be added the continuing wrangles over trivia that have stopped Parliament from making any of the changes needed to improve Zimbabwe’s tarnished image abroad. The casualty from these energy-sapping exchanges has been the whole Zimbabwe economy. Humanitarian aid is still flowing into the country, but the politicians have still to make a useful start in rebuilding the confidence needed to attract investor support and development funding.
This funding is urgently needed to begin the restoration of bank liquidity and manufacturing production and to improve access to the working capital needed to carry our basic repairs to electricity supplies, transport and other infrastructural services. The lack of progress in these areas is setting the limits to the effectiveness of the many separate efforts being made by producers in every sector and it is therefore holding GDP growth prospects to very low levels.
As the current leadership has fallen so far short of acceptable standards of conduct called for by trading partners, donor countries, banking institutions and international funding agencies, major changes are now needed to restore Zimbabwe's credibility. If the changes needed lie outside the limits the leaders are prepared to accept, the challenge has to be to persuade the leaders to stand down in the interests of the welfare of the whole population.
By concentrating his entire policies on the one question of recapturing land from non-indigenous people and allocating it to black Zimbabweans, the President has fallen foul of international opinion by:
· Abrogating human rights
· Attacking the country's independent judiciary
· Attacking the freedom of the Press
· Denying citizens the rights of freedom of association
· Withdrawing the protection of the law from minority racial groups
· Denying opposition party candidates and supporters their civic rights
· Tolerating corrupt practices in government and parastatal activities
· Repudiating international investment protection agreements
· Promoting or condoning dishonest practices in the election process
· Defaulting on international debt service commitments
· Signing into law new statutes that deprive certain citizens of their rights
Much of the foreign resentment stems from the gross injustices involved in dispossessing white farmers of properties because other, unrelated, whites first settled these areas 100 years ago. As countries that try to promote development no longer consider such conduct acceptable or excusable, the leaders who hold to such ideas are being urged to win the respect of the world's community of nations by changing their policies.
Election timetable
On MDC insistence, the Constitution of Zimbabwe is to be redrafted in time for the next election. The re-drafting process has started and the intention is to have a draft ready for public debate by the end of 2009. After responding to observations in the preparation of a final document, the proposed timetable requires that a referendum be held by July 2010. If the electorate accepts the proposed constitution, it will then be approved by Parliament and signed into law by the President by September 2010. A general election date will then be set and this event should take place within the first months of 2011.

The mining sector continues to be affected by the highly restrictive controls and direct intervention in setting exchange rates that had a major impact on mining profitability in the past ten years. At the practical level of day-to-day mining activities, they so badly affected each individual company’s ability to meet the costs of regular maintenance programmes for machinery and equipment that most mining companies are still affected now by their impacts on efficiency profitability.
For most of the years, reduced levels of the investment spending needed to improve upon, or even match former output volumes held back development and they prevented the accumulation of reserves to pay for exploration for new ore-bodies. ZimPlats is almost the only company that was able to remain committed to its development programme.
From the mining finance perspective, the controls often forced companies to borrow heavily to close the gap between recurrent expenditure and the revenue received at the controlled exchange rates. Their increasing debt damaged each company’s prospects of paying dividends or carrying out maintenance, which affected share prices and their prospects of raising equity finance from the market.
Companies were also affected by the proportions of foreign earnings that they could retain to meet the cost of essential imports, but if the retained funds were not used a matter of weeks, they had to be relinquished to the authorities. By being prevented from accumulating foreign funds, most companies were unable to finance any form of capacity expansion.

Until recently, local manufacturers supplied a high proportion of the consumer goods required by Zimbabwe’s rapidly growing population. With the growing success of commercial agriculture, increasingly dependable supplies of inputs for food processing companies led to investments in import-substitution manufacturing companies, many of which became successful enough to capture export markets.
Improving supplies of non-food agricultural products also helped bring into existence manufacturers of tobacco products, textiles, furniture, construction materials and paper. However, business confidence was badly shaken by the nationalisation of commercial farming businesses and by the consequential damage done to business volumes in every sector and to Zimbabwe's foreign earnings.
Reactions from the authorities to the falling Zimbabwe dollar exchange rate, shrinking tax revenues, job losses and rising inflation placed ever-increasing restrictions on business activity as government tried to capture the resources needed to bolster and subsidise the crippled farming sector and to sustain political popularity.
One of the reasons given for falling levels of domestic investment in these years was that the level of national savings was not adequate for sustainable investment. With deeply negative interest rates in place since 2001 and frequent raids on reserves through increases in Statutory Reserve Ratios, the savings base was effectively eroded out of existence.
Looking to the future, these factors make it clear that virtually all the needed investment funding will have to be sourced from outside the country for the foreseeable future. But with competition for foreign investment rapidly getting tougher among developing countries, and more impressive economic and political developments taking place in a number of countries in the region, Zimbabwe will needs to become much more imaginative about its efforts to attract the attention of investors.
Because government is continuing to reject all proposals for revisions to the Land Reform Policy, the many food-processing manufacturing businesses seem likely to remain at a disadvantage because very low production volumes from the farms will limit their recovery prospects. Those still in operation have become more dependent on imports, but the funding and power shortages as well as the skills shortages are also serious problems for those wishing to restore former production volumes at competitive prices.
Capacity utilisation has started to improve in some areas of manufacturing, but the evidence strongly suggests that the severe power cuts alone will continue to make significant increases in output impossible for most factories.
Although the extent of the recovery that does prove possible might look impressive because it will be off a very low base, the constraints presently affecting output are certain to continue imposing severe limitations for as long as they remain in place. These will be reinforced by the reluctance of buyers on the domestic as well as export markets to place too much reliance on Zimbabwe’s suppliers at this stage.
The Government of National Unity’s acceptance of the need to make far-reaching changes has not so far generated the practical changes needed to overcome the lingering effects of years of losses that eroded each company’s skills, physical capacity, standing with customers and suppliers and financial stamina.
A few undoubted successes have been recorded, led by companies like Delta Corporation, which is recapturing the local market from suppliers of imported beer and is about to commission a significant increase in bottling capacity. Some of the clothing factories are also making some headway, having recaptured the support of buyers from the importers of poor quality Chinese goods. However, the needed increases in buying power await the private sector investment decisions that will lead to a demand resurgence and help create employment.
Even then, the full recovery of industry will have to await the completion of the extensive repairs and maintenance required by the infrastructure in general and by Hwange and Kariba power stations in particular. Separate, but equally essential work has to be done to restore coal production and the coal deliveries by rail needed to re-commission the thermal power stations in Harare and Bulawayo. In the medium term, the completion of at least one new power station is considered necessary for the achievement of energy self-sufficiency.
While the signs of improvement in levels of output have been encouraging, investor confidence is unlikely to be fully restored before government has issued unequivocal statements assuring potential and existing investors that property rights will be fully restored and investors in all sectors will be protected against any possibility of threats to property rights in future.

Zimbabwe’s hyperinflationary experience came close to breaking all world records because the authorities had persuaded themselves that “illegal international sanctions” had caused the economic decline, not the forced closure of the country’s biggest productive sector. Therefore, they claimed, the printing of money was entirely justified, as was the adoption of widely differing exchange rates that provided the authorities with the advantage of low-cost imports. However, as they could fund these imports only by claiming the right to remove foreign currency from company and NGO bank accounts, the authorities became directly responsible for further downturns in local output and the development of worsening shortages.
As the exercise of this advantage depended upon their ability to confiscate foreign earnings, government’s policies soon began to also affect what was left of the country’s exporters. Foreign exchange scarcities became very much more serious and were soon a principal source of the inflationary pressures.
On this track, the total collapse of the Zimbabwe dollar was inevitable and it soon followed upon the hyperinflation registered in the final months of 2008.
For lack of options, Zimbabwe then adopted the use of US dollars and rand for all transactions and the inflation came to an abrupt end. Initially, goods priced in US dollars in the shops went down in price as stocks of imports improved and competition between retailers became more pronounced.
In the monthly inflation indicators for the second half of 2009, despite the use of relatively stable currencies, prices started rising again and expectations of further increases, based partly on the effects of exchange rate movements between the US dollar and the rand and partly on wage demands, seem likely to keep prices rising. However, the official September Consumer Price Index reported a month-on-month fall of half of one percent.
Although Zimbabwe is earning most of its export proceeds in US dollars and receiving a high percentage of its remittances in the same currency, it is placing its orders for most consumer goods and industrial materials with South African suppliers, so the strengthening rand and weakening US dollar have added to Zimbabwe’s procurement costs.
Demands for higher wages are also posing a threat, not just to the prices of the goods that can still be produced in Zimbabwe, but also the prospects of survival for many of these companies.
Many wage negotiation processes have broken down and the arbitration proceedings that followed have granted the trades unions most of their demands. Some employers have responded with efforts to appeal against the arbitration decisions in their efforts to avoid bankruptcy.
During 2009, agriculture attracted the most exaggerated forecasts of recovery, but as the sizes of the year’s crop deliveries were set by events and conditions during the 2008 economic melt-down, most of the forecasts have not been realised.
For the hoped-for recovery in 2010, the disappearance of government’s capacity to offer subsidies has brought harsh financial realities home to previously generously subsidised resettlement farmers. For example, even though the quantities of locally produced fertiliser are far from adequate, unsold stocks are accumulating for lack of buying power. The evidence suggests that next year’s harvests are already threatened.
All the intricately balanced linkages and business relationships that used to help deliver success and food security to Zimbabwe’s population were damaged or broken by the land reform programme. Today, Zimbabwe’s agricultural sector consists largely of small farms that have no market value and no collateral value, and most have been allocated to people who lack the resources and experience needed to cultivate the areas put in their charge.
Despite subsidies and state funding, very few farmers have been able to move away from peasant farming methods and since land reform, every harvest has been extremely disappointing. Every year since land acquisitions started in earnest, Zimbabwe has had to import food.
Now, in any efforts that are made to restore productive capacity, government and all those international bodies that wish to assist the country will have to acknowledge that the country has adopted policies that do not meet the requirements of a larger, better educated, more urbanised and much more demanding population.
Zimbabweans are fully capable of dealing with the challenges of commerce and a wide range manufacturing and service industries, but the country has need of efficient and dependable agricultural production. The population therefore has good reason to hope that large-scale capital-intensive cultivation methods will be reinstated, and that the need to rely on the small-scale subsistence methods brought back by Land Reform will fall away.

This table illustrates the extent of the decline in physical output since the Land Reform Programme was started. Maize, soybeans, beef, dairy and cut- flowers output have fallen to figures close to one quarter of their levels in 2000 and tobacco, wheat, coffee, groundnuts and paprika volumes are now at much smaller fractions of former levels. Cotton, sugar and tea production volumes have fallen by less severe percentages and barley has recovered to former levels, but most of these are now being threatened by renewed land acquisition activities that are targeted at formerly advantaged plantations.
While small-scale subsistence farming might remain an important income source for the large communities that still follow traditional life-styles, this system cannot be relied upon to meet the needs of Zimbabwe’s large urban population. The subsistence methods are far too unreliable in Zimbabwe’s uncertain tropical climate and today the overall population is far too big.
The policies introduced to initiate the Land Reform Programme, which amounted to the nationalisation of land, are also considered incapable of attracting the investment needed for development in agriculture and every other economic sector. Critics argue that important requirements for all forms of investment are secure and marketable individual property rights.
In trying to bring about the needed changes, commentators are arguing that Zimbabwe should not be looking for funding that will help to make its badly chosen policies work a little better. Donor countries and development agencies should therefore be persuaded not to offer support until the country agrees to the adoption of acceptable policies with a proven track record.
In essence, the disbursal of assistance in any form should be made conditional upon Zimbabwe showing the needed willingness to make radical changes and to adopt acceptable policies. In its 2008 election manifesto, the MDC argued that the primary conditions for these included the empowerment of ordinary citizens through the acceptance and promotion of individual property rights, and it argued that these rights should be given absolute protection in the proposed new Constitution.
Unfortunately, this position appears to have been eroded since the formation of the Government of National Unity. By way of explanation, commentators have explained that because property rights empower individuals and improve their prospects of economic success, they are opposed by the ruling elites because this success can dilute the powers of the people who are trying to retain absolute authority. Many African governments seeking aid therefore also demand the right to decide who will benefit.
This unacceptable approach is thought to be best countered by requiring the acceptance of ownership rights for the assets essential to effective investment. The concept of property rights has to be accepted so that the very specific needs of local as well as foreign investors will not be frustrated by issues of no relevance to their being able to meet business challenges.
As these challenges are already more than sufficiently exacting, demanding and unforgiving, and as the people who can meet them have to be highly experienced in many aspects of business, the authorities should accept the need to encourage them by offering a supportive policy environment.
After very few years of the levels of development that would be made possible by accepting these basic requirements, very nearly all the countries that are now claiming dependence on aid would become self-sufficient and their people would become considerably more prosperous.
In describing what they have done, the architects of Zimbabwe’s current chaos have chosen to focus only on the relatively small number of farmers they have displaced. They dismiss as irrelevant the wider social issues, but the destruction of about four thousand large-scale farming businesses has impacted directly upon employees, suppliers and customers and indirectly upon every other member of Zimbabwe’s population.
In essence:
o In the process of reclaiming land, about 4 500 farming companies have been closed, causing the direct loss of 350 000 full time farm jobs and sharply cutting production of crops for local consumption and for export.
o The loss of property also meant the loss of accommodation, many elementary schools, many clinics and high schools, as well as incomes that supported the workers’ families, a total of several million people.
o Almost all of these people are now destitute and assessments suggest that up to 30% of them have died since 2002.
o Inexperienced small-scale farmers or peasant farmers now make up almost the entire farming sector
o Because Zimbabwe's agricultural land now has no collateral value, the new farmers cannot use their holdings as security for bank loans
o Government has been forced to support the new small-scale farms with massive subsidies that were not needed by the former large-scale farms.
o As the subsidies are beyond Zimbabwe’s financial means, the payments contributed to the very high rates of inflation that reached world record levels before making the Zimbabwe currency valueless. Having now adopted the use of the US dollar,
o The loss of foreign earnings from the export of crops and other products drastically reduced the country's ability to import essential goods.
o The need to import food that Zimbabwe used to export has further reduced the foreign currency available for other industrial and commercial imports
o The closure of large-scale farms has severely damaged the viability of thousands of other companies that depended on large-scale farms
o In the hands of less experienced farmers, the land and farm assets captured have only a fraction of the value and earning capacity that they had in the hands of the highly skilled, but now dispossessed farmers
o The rapidly deteriorating services infrastructure and frequent fuel shortages have generated severely critical Press reports that have accelerated the decline of Zimbabwe's tourist industry
o The state-sponsored attack on property rights has arrested productive investment, job creation and export growth and now prevents access to international credit lines and project finance, and
o Far from being a success, the land reform programme has been an unmitigated disaster.

The on-going consequences of the policy measures responsible for these effects have been so profound that any claims that Zimbabwe’s economic recovery is possible before they are appropriately dealt with have to be challenged.
Although few donor countries have spelled out such reservations in any detail, they have indicated in various ways that funding to help Zimbabwe’s reconstruction will not be made available while the authorities continue defending the policy decisions that led to the collapse of the country’s economic capacity and social services. Many have continued to offer humanitarian aid, but most have done so on condition that they do not have to work through any division of government.

Business recovery is being held back by, among other things, the inability of the banks to offer the overdraft facilities or the longer-term loans needed to rebuild stocks of materials, carry out long overdue maintenance and repairs or attract back skilled personnel to run factories or staff production lines.
Zimbabwe’s use of foreign currency since the collapse of the Zimbabwe dollar has marginalized the Reserve Bank of Zimbabwe and nullified its ability to regulate the country’s use of the available foreign exchange.
With no foreign reserves of its own, but foreign currency debts to local creditors amounting to about US$1 billion, the Reserve Bank has not been able to function as Lender of Last Resort. In turn, this has made the country’s commercial and merchant banks very unwilling to lend to each other.
A change of some significance is possible now that the IMF has chosen to allocate funds to all member countries in an effort to ease the worldwide liquidity crisis. Zimbabwe’s share is US$517 million, of which a little more than US$400 million will be released to the authorities. The balance is to be held in an escrow account until arrears of US$139 million have been settled. As the amount being sent is supposed to be used to support the country’s foreign reserves position, technically it should come under the control of the Reserve Bank, but details are being withheld until the publication of the national Budget towards the end of November.
How the funds will be put to use is therefore still unclear, but the settlement of the outstanding debts to the IMF would seem to deserve high priority. Funds are needed also by Zesa, NRZ, Air Zimbabwe and most municipalities, among others, but if some could be retained by the Reserve Bank to permit it to function as lender of last resort, that too would be extremely helpful.
A solution to Zimbabwe’s liquidity problem awaits the return of balance in the unbalanced banking sector, which currently has 29 banking institutions. Many have struggled to meet capital adequacy requirements and some of these are expected to seek mergers with other banks in due course.
Prospects for an improvement in the financial strength of the banks that survive will improve when their numbers have been cut by about half. Direct intervention by the Reserve Bank is less likely under current conditions, but the pace of developments might be forced up if the more seriously undercapitalised banks are put at further risk by company closures, such as the tentative decision by David Whitehead Textiles to wind up their Zimbabwe operations if the unions cannot reconsider their wage demands.

International developments
Hesitant, but mainly improving share and commodity prices are supporting beliefs that the recessions in Europe, North America and the Far East have bottomed out. However, the strengthening gold price and the continued weakness in the recovery of retail spending suggest that the recovery is fragile and useful export volume and employment growth figures might take some time to materialise.
An area of particular uncertainty is the oil market, on which price increases to around $80 a barrel ahead of the northern hemisphere winter is suggesting the possibility of further increases and consequential impacts on production and transport costs. While consumer demand remains weak and suppliers are forced to compete aggressively for market share, their efforts to hold prices to the lowest they can afford are impacting directly on profit levels.
Low and uncertain returns are already affecting investor confidence as well as the ability of producers to fund research, development or expansion plans, but if production cost inflation further erodes profit margins and employment recovery, this could slow the already sluggish recovery period.
Unfortunately for the governments of most western countries, these pressures will impose limits to tax collections and make more difficult the effects of their having had to incur heavy domestic debt in their efforts to assist their banking sectors through the financial crisis.
Budget deficits as percentages of Gross Domestic Product have reached extraordinarily high figures for Western countries. These are forcing governments to call for expenditure cuts that are coinciding with increasing demands for unemployment benefits and other welfare payments.
Low interest rates under these circumstances appear to be the most appropriate response from the various central bank authorities, but they threaten to seriously erode the value of the already depleted savings as producer price inflation rates rise above the rates of interest.
Retired people and others who were previously able to live on interest earnings are now having to withdraw capital to meet ongoing living expenses, or move capital to countries that are still offering acceptable rates of interest.
South Africa is currently offering interest rates of seven to ten percent and attracting enough of the affected funds to cause a strengthening of the rand, but Zimbabwe, with equally attractive interest rates, has been almost completely unsuccessful due to continuing concerns about the safety of balances sent into the country’s banking system.
Assurances that past experiences of having funds appropriated by the authorities will not recur have not been enough to satisfy most fund managers. The evidence that the authorities have become increasingly desperate to get their hands on funds, particularly as the inflows expected from donor countries and development agencies have not materialised, has worsened this mistrust.
Financial difficulties abroad have sustained Zimbabwe’s concerns over the likelihood of mergers or bank closures if market conditions force an unsatisfactory resolution to the excessive number of inadequately capitalised banks.
More confidence, and perhaps even some willingness to participate in a consolidation process, might be forthcoming from external banks if Zimbabwe’s banking sector could start making more deliberate plans for a managed rationalisation towards a more appropriate structure and size.
Mounting friction has developed between employers and employees as trades union leaders have tried to force employers to more than double wages and to back-date these to April this year.
As everyone concerned, from the smallest workers’ committee to the Ministry of Labour, is aware that employers have neither the turnover nor the profit margins needed to meet such wage demands, beliefs are being expressed that the trades unions have very short-term political motives. These tie in with mounting evidence that political progress is being held down to a negligible pace by Zanu PF’s fear that MDC will benefit the most from any progress achieved.
Many employers are known to be responding to the unions with blunt statements that they would be forced out of business if they tried to meet such demands and that their employees, not the union officials, would be the losers. David Whitehead Textiles’ threat to close is the most significant response so far.
Others are arguing their case by pointing out how many of the processes carried out in their businesses can now be performed by machines, all of which call for far fewer people. As all of the people then needed would require specialised skills, current staff members’ jobs would again be put at risk.
As most employees have some knowledge of the political dimensions hidden in every argument, it is probable that, with the benefit of carefully articulated advice, most will be readily persuaded not to allow themselves to become expendable pawns in a political game.
However, even if the country moves onto a more encouraging track, many companies will have to be able to provide for higher labour costs. To cope with these while also having to contend with strong competition that might prohibit price increases, high and increasing levels of efficiency in every single department will be essential and every producer will be acutely aware of the need to match the quality standards of their competitors’ products.
Unless workers can be persuaded that their own and their employers’ interests are identical, producers will incur increasing losses through poor quality control, wastage of materials, wastage of fuel, power and water, machine down-time, failures to deliver on time, and theft, all of which add to effective production costs. These are already threatening the survival of a large number of companies.
Investment prospects:
Considerable interest has been shown in Zimbabwe’s prospects in recent months. Conferences on mining, financial services and equity investment have been well supported, and numerous visits have been recorded from property developers and companies hoping to tender for large public works and infrastructural restoration contracts as well as interest groups from various countries.
However, apart from purchases of a few reasonable blocks of shares, most of the visits have ended with expressions of “cautious optimism” and little else. Almost no invitations have been offered to tender for properly defined projects and potential investors have been able to make very few decisions beyond their decisions to await further developments. The few commitments to invest have come mainly from the external parent companies of local businesses, such as Delta Corporation and Triangle Sugar Estates.
Immediate prospects of the hoped-for domestically-driven recovery remain affected by the still limited inflows of foreign earnings and the continuing inability of the banks to offer loan finance, either for short-term working capital needs or for medium-term capital investment needs. Much lower than expected levels of financial support from donor countries, international banks and development agencies. These have held in place very severe liquidity shortages throughout the economy. Lines of credit have been offered to several of the banks that have external partners, but the conditions set for the disbursal of these funds have kept them beyond the reach of most borrowers.
The needed inflows of investment capital are being impeded by the very slow recovery of investor confidence. This appears to be mainly because of political intransigence, which reflects the fears of Zanu PF leaders that if they lose further control, they will increase the risk of their being brought to account for Human Rights charges by the International Criminal Court.
The many countries and organisations that stand ready to assist have very quickly noted each reversal of this nature, and each of them has put Zimbabwe back onto square one. Our marker on this board will make no progress before the weight of evidence clearly shows the assistance will be used to put the country onto a sound recovery path, and not used to more deeply entrench the powers of a government that is seen to be responsible for, and is still defending, policies that have caused extensive damage throughout the economy.
Given the facts that Zimbabwe’s economy has been disabled, that its production and export revenues have fallen sharply, that its infrastructure is highly inefficient, that its debt are already large and its debt arrears are more than the country’s Gross Domestic Product, Zimbabwe is seen by all to amount to an extremely serious credit risk.
This fact makes Zimbabwe of the least appetising investment destinations in the world, but these terrible handicaps could be quickly countered by a commitment to adopt policies that would restore confidence. The requirements of such policies are well known and entirely within the country’s reach. For this reason, Zimbabwe’s longer-term prospects might best be conditionally described as sound, the condition being that political change is allowed to considerably reduce the uncertainties that presently confront investors.

John Robertson
October 21 2009