Zimbabwe: Policy uncertainty remains under Mnangagwa

02 May 2018

Emmerson Mnangagwa replaced Robert Mugabe as president of Zimbabwe in November 2017 and is due to run in elections in July 2018. Mnangagwa has announced business-friendly measures, but concerns remain around his dedication to meaningful reform and the influence of the military on government policy.

Security Environment

Emmerson Mnangagwa took power in November 2017 after military intervention sparked by a succession struggle led to the resignation of Robert Mugabe. Mnangagwa will serve the remainder of
Mugabe’s term and will be the leading candidate in general elections due to be held in July 2018, but which may be postponed until August 2018. Security risks will remain high in the one-year outlook, as supporters of ZANU-PF and the opposition Movement for Democratic Change (MDC-T) may clash during political rallies. Violent confrontations are most likely to occur in Harare and Bulawayo, posing collateral property damage and death and injury risks.

Protest risks will remain elevated throughout 2018, particularly as Mnangagwa may fail to meet the expectations of many Zimbabweans for meaningful political and economic change. Labour unrest is also on the rise, and in April 2018, the Zimbabwean government sacked 16,000 nurses who went on strike over pay and staffing issues. Border crossings may be affected by protests. In July 2016, the Beitbridge border post between Zimbabwe and South Africa was temporarily shut due to a violent demonstration against newly announced import restrictions.

Trading Environment

The prospect of better relations with the international community has improved Zimbabwe’s economic outlook, as year-on-year real GDP growth is forecasted to rise from an estimated 0.9% in 2017 to 1.9% in 2018. However, Zimbabwe’s 2018 budget deficit is forecasted at USD 1.4 billion or 7.9% of GDP. Major fiscal reforms are unlikely to take place until after the elections as they would require unpopular spending cuts, particularly to public sector wages, which account for 90% of government revenues.

Zimbabwean officials have pledged to clear arrears of around USD 1.8 billion with the World Bank and African Development Bank by September 2018. Although Zimbabwe is unlikely to meet this target without debt relief, the country’s commitment to repaying its obligations may be a precursor to a financial programme with the International Monetary Fund (IMF), which would support investor confidence.

Hard currency shortages have persisted since the economy was dollarised in 2009 to control hyperinflation, and will continue to constrain business operations in Zimbabwe. While supply will increase as inward investment rises, it is likely to be offset by increased expenditure on imports. In the medium-term, Zimbabwe may re-introduce its own currency. While this would increase competitiveness, it would place significant pressure on foreign reserves.

Investment Environment

Mnangagwa has maintained that Zimbabwe is “open for business”, and has implemented a number of measures to attract international investment. In March 2018, Mnangagwa scrapped indigenisation laws for almost all activities except diamond and platinum mining, thereby removing local ownership requirements for most firms. Mnangagwa has courted investment in the mining industry, and his government announced in March 2018 that Karo Mining Holdings would invest over USD 4 billion in a platinum mine and refinery. Additional plans to support growth include an Investment and Business Facilitation Bill, which would reduce the time it takes for investors to start a business in Zimbabwe, and plans to partially privatise up to 35 state owned firms.

However, considerable policy uncertainty remains. Mnangagwa served as a close aide of Mugabe for decades and it remains to be seen how far he is genuinely committed to reform. State intervention is unlikely to subside from all sectors, as Mnangagwa has spoken out in its favour in the agricultural sector. The army’s role in removing Mugabe and the appointment of military figures in Mnangagwa’s cabinet raises concerns about how much influence it will wield. The threat of expropriation will be mitigated by Mnangagwa’s desire to attract international investment, but significant contractual risks remain. Firms perceived to be linked to “Generation 40”, a ZANU-PF faction allied to Mugabe’s wife, Grace, face an elevated threat of contract alteration.

Zimbabwe: Pricing Outlook

* A number of markets are currently closed in Zimbabwe in light of the current political situation

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Tunisia, Ghana, Belarus and Finland all of which have been the subject of recent enquiries from JLT's client base.

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For further information, please contact Eleanor Smith, Political Risk Analyst on +44 (0)121 626 7837 or email eleanor_smith@jltgroup.com

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