cash notes.jpgBy Christopher Takunda Mugaga


After years of economic sanctions by the international community and a decade-long war that resulted in more than 30 000 dead, the white minority government of Southern Rhodesia concluded a series of agreements with the black majority in 1979 that resulted in the establishment of the government of the Republic of Zimbabwe. Among the greatest challenges facing the new government was the demand by the majority for greater equity in land redistribution. At independence, the white minority who made up less than 5% of the population owned the vast majority of the arable land.

Many observers considered the country’s white-owned commercial farms crucial to the country’s economy, although there was a general recognition that land reform was necessary.

Zimbabwe is a country slightly bigger than the United Kingdom, with a population of 12.1 million. Its population growth rate is averaging 0.51%, according to our estimates, with the ethnic composition comprising 98% Africans [Shona- 82%, Ndebeele-14%, other – 2%], mixed and Asian -1%, whites less than 1%. The literacy rate is at 91%, a Gross National Income of US$280 and a host of other minerals.

In 2000, the government held a referendum to approve changes to the constitution that would allow land seizures without compensation, a responsibility that in its view lay with Britain. The referendum was rejected by 55% of voters and was seen as a victory for a new opposition party, the Movement for Democratic Change. Within days of the vote, war veterans and the then ruling party supporters moved onto an estimated 1 000 white-owned farms, and months later, President Mugabe invoked emergency powers to take land without compensation.

Since then, the country’s problems have deepened. Once touted as a potential “breadbasket of Africa”, Zimbabwe’s majority population is now dependant on food aid. More than 20% of adults in Zimbabwe are infected by the HIV/AIDS virus, and life expectancy fell from an estimated 56 years in 1990 to 37 in 2006.


Market Overview
The sluggish performance of the European economy had left more than 200 million people jobless, aggravated by the IMF forecasts for 2012 which leaves an indelible mark of goofs and bloopers by the western markets in failing to address the financial crisis which emanated in 2008. The third week of January opened with the 2 600 dignitaries attending the World Economic Summit in the mountainous site of Davos expected to tackle the European financial crisis as emerging markets alongside most African states had been doling out the bankrupt transatlantic economies with only the USA expected to survive the mild recession forecasted in 2012.

Zimbabwe faces a tough calendar year without a convincing policy paper on the table to drive the economy towards a desirable direction. It is a period when the roller coaster political machinery is becoming more and more unpredictable with any election event incapable of solving the political logjam of our generation. Elections are highly possible in the last quarter of this year with the constitution-making process and its draft not capable of bringing unanimity amongst the political rivalries within the country. The near scepticism and pessimism on the possibility of attracting foreign direct investment is literally realistic.

The Indigenisation and Economic Empowerment Bill continues to scare away investors. The economy is projected to grow by 7.2% in 2012 with mining, agriculture and manufacturing expected to contribute 27%, 19% and 17.5% respectively, while other sectors of the economy will contribute the reminder. Tourism will remain a potential sector with prospects to contribute significantly to both GDP and foreign currency generation but the imminent elections are to slacken the entire prospects for the sector.

The projected economic growth of 9.4% for 2012 may not be attainable given the state of some strategic economic pillars. At the same time, the outlined statistics for different sectors tends to conflict with the overall growth rate since they are depressed. Mining is expected to grow by 15.9%, tourism 13.7%, finance 23% and agriculture 11.6% according to the Ministry of Finance. Given such projected rates of growth, they should have envisaged a 6.5% GDP growth instead of the released 9.4%. Besides, given recent developments following the just announced monetary policy statement, the finance sector cannot grow by 23% in this fiscal year.

The Zimbabwe Stock Exchange continues posting unimpressive returns as the realities of indigenisation and a definitive national election are absorbed into the economic arteries of the nation. The ZSE is arguably the most undervalued bourse in Africa with its prospects for growth remaining high given the diversity of the listed counters. The failure by the local exchange to automate and demutualise timeously has continued to erode both investor confidence and appetite as the open out-cry system currently in use symbolises lack of urgency en-route to macro-policy convergence with modern day exchanges.

The outlook for the ZSE remains bearish in the year 2012 with market capitalisation expected to close the year at US$4.1 billion whilst the worst case scenario will see it slumping to US$3.75 billion. There are very low chances of recording an Initial Public Offer [IPO] in this calendar year as it will not be an easy way out to raise capital. The “knighted” blue chip counters are not expected to raise shareholder value; at one point they seemed to act as a proxy for the sectors they represent, while the sectoral growth had been much faster than the growth of individual stocks which by implication means the economy is growing faster than the equities market.

A bearish outlook will remain synonymous with 2012 as the controversial indigenisation policy serves to act as the most convenient political tool to gain votes by the former ruling party, while the trade union found MDC is expected to unequivocally differ on the implementation and intention around the law. In his address to the chiefs based in his home area of Zvimba, the Zimbabwean leader, President Robert Mugabe used the Shona term, “tsukukuviri” to describe his political opponent – a sign of failed relations by the political structures constituting the inclusive government. In the same week, the Premier Morgan Tsvangirai held a private brief with the Gabon emissary representing Ali Bongo. The strained relations between Zanu-PF and the Gabonese government can only heighten the speculative mistrust between the two towering political figures from Zimbabwe.

The recent utterances by Zimbabwe’s northern neighbour, Mr Michael Sata labelling the MDC leader a puppet is expected to spearhead the tempo on elections to come sooner than later as it will be viewed in diplomatic circles as a clear allegiance to Mr Mugabe and his party. The Medium Term Plan [2011- 2015] seems to be gathering dust with no sign of implementation as most policy intentions are incapacitated by the debt overhang which has to be honoured before any tangible progress is recorded. It is of no relevance to draft long term policies when the level of uncertainty in the business environment is at its all time high.

There are already policy reversals in as far as implementation of the 2012 budget is concerned, with the envisaged revenue expectations already compromised by the 25% surcharge tax which can be revised downwards any time soon.


. -GDP growth to grow by 7.2%
. -Inflation to close the year at 8.3%
. -Manufacturing sector’s capacity utilisation averaging at 61%.
. -The Banking Sector aggregate deposits to end the year at US$4.1 billion.
. -Bank Assets valued at US$5.1 billion by end of November.
. -External Debt to approach US$9.2 billion on December 31.
. -An average of US$500 000 million necessary for the recapitalisation of the Reserve bank of Zimbabwe.
. -Elections are definite by the third quarter of 2012.

Macro-Economic Outlook
Inflation, unemployment, capacity utilisation, investor confidence, trade balance and food supply will definitely be of interest to diverse stakeholders in Zimbabwe. Factoring in the unimpressive macro-economic trends in a standard model, we project inflation to close the year at 8.2%, capacity utilisation will be averaging 61%, disrupted farming output as the political ghost associated with elections always tend to impact on agricultural output and the possibility of widening current account deficit exacerbated by a strengthening rand, European debt crisis and crowding out of retail sector by the cheap Chinese imports. Tariff inflation as well as food inflation has potential effect of spiking up the general inflation levels for 2012 with the gap between poverty datum line and average wage levels continuously widening.

We project the aggregate deposits in the banking sector to rise from the current US$3.254 billion as to date to about US$4.1 billion by December 2012; this will be on the back of improved financial inclusion policies being spearheaded by new comers in the market, improving confidence in the market as most players are meeting the RBZ stipulated capital requirements and the reduced account opening balances with Zimbabwe’s financial institutions. Between June 2009 and June 2011, the sector has achieved annualised growth in deposit of 100% to US$2.8billion. Bank assets are to grow to about US$5.1 billion from the current US$4.3billion which is equivalent to 53% of nominal gross domestic product [GDP]. Loan deposit ratio increased from 61.9% in December 2010 to over 71.7% in December 2011.

Non-funded revenue continues dominating the income source and there is a relationship between positive economic growth and dominance of interest income ahead of non-funded revenue. The cost to income ratios will continue being stubborn hovering at about 75% from the average of 87% in 2011 if offshore lines of credit are included, as the operating environment remains harsh with the probability of diseconomies of scale crippling in continuing to threaten economic recovery.

After the embattled Renaissance Merchant Bank went under, there are still possibilities for bank failure which include ZABG which has a negative capital position of US$15 348 157 million, Royal Bank in the negative US$3 422 410 million and Genesis Investment Bank with a negative US$3 204 619 million. The envisaged trading paper [money market instrument] valued at about US$83 million to deal with outstanding amounts of statutory reserves balances is expected to bring relief to institutions which are owed by the Reserve Bank of Zimbabwe. Banks have to work on managing their interest spread, yield on advances and return on equity.


The proposed US$100 million recapitalisation funds expected to be disbursed by the end of February for the RBZ certainly falls short of what can bring confidence into the sector. This implies the lender of last resort function will remain suspended for the whole of 2012. This subsequently entails a liquidity crunch which will be with us and a raft of measures has to be expeditiously implemented to contain the ticking time bomb. We believe the RBZ requires not less than US$500 000 million for recapitalisation purposes, any discussion on currency reform without necessary reforms at the bank will be preposterous and fatalistic to economic progress.


The civil service industrial action with workers demanding a 56% wage increase is certainly unsustainable given the slim budget which was announced by Tendai Biti, Zimbabwe’s Finance Minister. To depend on diamond revenues to effect wage increments is economically suicidal since the proceeds from the special gem seems to be inconsistent in terms of inflows and transparency. It is unfortunately inflationary to see salaries in the public service being raised as productivity levels coupled with bureaucracy remains high.

The tug of war between the civil service and their paymasters is forecasted to last for the better part of 2012. However, it is also surprising to note that average US dollar wage levels in Zimbabwe are above those of most regional economies. This opens debate on what constitutes a realistic average consumer basket for a family of six. The recent strike by the civil servants has cost the Zimbabwean economy an estimated average of US$1.8 million so far this year only with a projected US$2.1 billion cost to the overall GDP by the end of 2012.


Zimbabweans are increasingly becoming less and less confident of the inclusive government’s capacity to solve both economic and political problems. For every 10 residents, only 1 believes having an election will extricate the nation out of the economic malaise it is currently mired in. The never-ending power shortages are expected to continue in 2012, which will have disruptive effects on both the agricultural and manufacturing sectors of the economy. Of the US$3.67 billion worth of exports for Zimbabwe in the year 2011, about 25% of that value came from Agriculture and 6% from the manufacturing industry. The capacity and possibility of power generation being significantly increased by at least an 8% margin is absolutely low with corresponding demand expected to peak by an average of 7.2% as rural to urban migration is on the sprawl in addition to recovering sectors which substantially demands more power energy to operate.


In addition to the government’s attempts to revive its flagging agriculture industry through the introduction of a command agriculture system, the administration has introduced long-term leases to provide security for farmers willing to cultivate land nationalised in the 2005 constitutional amendment. One of the unintended side-effects of President Mugabe’s 2000 land reform strategy, which resulted in the abolition of land tenure, was that farmers were unable to use their land as collateral to obtain bank loans to invest in their farms. As a result, few commercial farmers were able to find the capital to maintain productivity. The government began to distribute 99-year leases in November 2006, and among the initial recipients were 19 white farmers, which came as a shock to many after President Mugabe declared in July 2005 that his land reform programme would be complete only when there was “not a single white on the farms”. There are currently less than 600 white farmers left in Zimbabwe.

Some suggest financial institutions may be reluctant to accept the new leases as collateral, given that the government reserves the right to cancel the lease if it deems the farm unproductive. The demand for electricity continues restricting the productivity levels in Zimbabwe from rising to pre-2000 era.


The western sanctions or restrictions imposed on Zimbabwe are likely to be renewed as calls for an election gathers momentum. This will continue to raise the sovereign risk which will see external debt as at the 2012 year end sitting at an average of US$9.2 billion from the current US$7.1 billion. It is almost impossible to experience a reform in terms of mooting a debt management strategy as the debate on the route to follow will be premised on political preferences. This will be a sign of a lame duck in the form of the Treasury boss, Mr Biti as those who speculate on the real power he possesses will be proven that the office is bigger than the post. Governor Gideon Gono’s recent monetary policy statement reflects the top banker’s belief in the relevance of his office regardless of the obtaining currency regime. Whether the focus of the monetary policy to monetary matters following Dr Munyaradzi Kereke’s departure is a mere coincidence remains a mystery. Could there be a different hand in the crafting of the monetary policy after the departure of the controversial former Stanbic economist?
The assumption of chairmanship of Kimberley Process Certification Scheme by the United States of America can only add to the misery of Zimbabwe’s diamond industry.

This could imply a stressed sector as the US$600 000 million budget balancing figure is to come from diamond trading. The 2012 budget is to go down in history as one of the most compromised policy papers as what it is expected to solve demands more than an economic statement. The US Congress made clear its opposition to Mugabe’s policies in The Zimbabwe Democracy and Economic Recovery Act of 2001 [PL. 107-99] which criticised “economic mismanagement” and “undemocratic practices” in Zimbabwe.

The legislation called for consultations with allies on economic sanctions and a travel ban. In the 109th congress, the US House of Representatives passed H.Res 409 in December 2005, condemning operation Murambatsvina, which the resolution termed a “humanitarian disaster that has compounded the country’s humanitarian food and economic crisis”. The resolution also called on the UN and African regional bodies to investigate the impact of the demolitions and requested that the administration use its influence to advocate further action by the IMF against the Zimbabwean government.


In late 2006, the MDC factions agreed to work together, along with civil society and church groups, on the “Save Zimbabwe Campaign” to challenge the 2010 plan. The greatest problem for MDC rests on failure to find common ground, with the coming in of Welshman Ncube expected to further strain the already fragile relationship between the two factions. The ongoing clashes between the MDC-N top executive and its legislators can only help to arm Mr Tsvangirai as he is expected to enjoy the last laugh the day the GNU is to be dissolved. However, the MDC seems increasingly divided in its strategy to defeat Zanu-PF; they are yet to decide on whether to participate in elections if the date is set this year. On the other hand, fissures within the liberation party cannot be overlooked with the death of the most decorated Army General sending an air of uncertainty within the party.

The Vice President, Cde Joice Mujuru’s insistence on seeing foreign pathologists being roped in to expose the circumstances surrounding her husband’s death can be viewed in some circles as a direct fight against “local experts” whom she might have vetoed out as less professional in handling the matter. The chances of Simba Makoni mounting a second challenge in the forthcoming presidential elections is a true threat to Morgan Tsvangirai than President Mugabe as most of the former SADC secretary general’s votes will be from the enlightened section of the society who naturally happens to be urbanites hence eroding the MDC support-base.


While many western governments have moved to isolate President Mugabe’s administration, China and Iran have been improving ties and deepening involvement in the Zimbabwean economy. China which became active on the continent in the 1950s and 1960s to gain global influence now looks to Africa for natural resources to meet the needs of its growing population. A long-time ally of Zanu-PF, which it backed during the liberation struggle, China is Zimbabwe’s second largest trading partner after South Africa and its largest investor. We see Zimbabwe’s platinum concessions, diamond fields, relaxed labour laws and the London–Harare stand-off as a major draw for Beijing.


In the face of Western condemnation and isolation, Zimbabwe has also found an ally in Iran. The last visit by President Mugabe to Tehran saw him securing commitments from Iran for direct aid and Iranian assistance to its energy, agriculture and mining industries. Reports indicate that Iran may also provide technical assistance to Zimbabwe to revive the country’s only oil refinery built 45 years ago to process Iranian crude. Despite an agreement signed by the two countries in 2005, little financial assistance appears to have been provided. Whether it is China or Iran, investors are interested in returns in their investments and they are not confident of getting it in Zimbabwe.


Following the violent March 2007 assault by police on government critics who drew widespread international criticism, the then South African president, Thabo Mbeki initiated a mediation effort between the government of Zimbabwe and the opposition.

The main objective of the mediation, as described by Mbeki, was to create political conditions for free and fair elections, the results of which were to be accepted by all parties. Although the negotiations resulted in the amendment of some laws seen as restricting press freedom and political activity, the talks were abandoned after President Mugabe announced the elections would be held on March 29, 2008. It could be synonymous with the current scenario where allegations of an uneven playing ground might not deter the holding of elections. Rather, it is the failure to fulfil GPA commitments than the actual fulfilment which can spearhead the conducting of elections.


President Thabo Mbeki’s quiet diplomacy towards Zimbabwe has drawn criticism from some quarters for its slow pace and seeming lack of results. Through his policy of engagement, President Mbeki has attempted to bring the Zimbabwean government and the MDC together to discuss Zimbabwe’s future. In 2005, the IMF threatened to expel Zimbabwe from the Fund for debt payment arrears, the country requested a loan of up to US$1 billion from South Africa for fuel, food and electricity as well as to address the IMF payments. Amid rumours that the South African government would make any potential loan conditional on economic and political reforms, the loan negotiations stalled and Mugabe found another source from which to pay the IMF dues.


Mbeki’s Zimbabwe policies have drawn criticism from within his country. Former President Nelson Mandela, Nobel laureate Archbishop Desmond Tutu, former opposition leader Tony Leon, and even the ANC’s ally, the Congress of South Africa Trade Unions [COSATU] has been vocal detractors. The future of South Africa’s policy toward Zimbabwe may never be determined as the suspension of the youth league President, Julius Malema, will act as a springboard for factionalism if the ANC is to take a hard stance towards the country. This means quiet diplomacy will continue even with Zuma at the helm as there is much to lose by severing ties with Zimbabwe than for Pretoria to impress the West.

Zimbabwe will remain a “cash till” economy for the South Africa government for the next 18 months after which the propensity to import will decline significantly. This will be on the back of improved capacity utilisation, reduction in interest rates as a result of improved liquidity, a constitutionally elected government and the “bottoming out” argument as the economy will not be expected to continue spiralling downwards simply because of changing fortunes of the business cycle.

The new president of the ANC, Jacob Zuma, who defeated Mbeki in December 2007 for the party presidency, openly criticised the delayed announcement of the results, saying, ”There is a crisis in Zimbabwe. We ought to stand up and do something about it”. While not directly charging the Mugabe administration, he has distanced himself from Mbeki’s “quiet diplomacy” approach. In late April of 2008, he told reporters, “Definitely there is something with those elections…..I think the manner in which the electoral commission has acted has discredited itself, and therefore that is tantamount to sabotaging the elections”. While he has not called for Mbeki to step down as mediator, Zuma has said, “I imagine that the leaders in Africa should really move in to unlock this logjam,” and called for African leaders to “assist” Mbeki as mediator, “given the gravity of the situation”.


The then new speaker of the parliament and ANC national chairperson, Baleka Mbete, called the delayed release of results a “democratic process gone wrong”. In a gathering of the Inter-Parliamentary Union, she urged representatives of 147 countries not to remain silent on the Zimbabwe issue. South Africa is home to some three to five million illegal immigrants, mostly from Zimbabwe, and some South Africans blame them for the country’s high crime and unemployment rate and rising food prices. The 2008 events can act as a precursor to the forthcoming elections to the kind of behaviour to be expected from across Limpopo in case there is a bungled election.


Politics, Policy Inconsistence, and Global Economic Recession are the major drivers behind a gloomy outlook for Zimbabwe. Zimbabwean leaders are so consummated with power struggles that very little room is left to implement beneficial policies to their letter and spirit. The recent recant of position by the law-trained Treasury boss of Zimbabwe, Tendai Biti on surcharge tax of 25% clearly indicates how populism is to drive policies ahead of rationality.

Elections will remain a nemesis to the prospects of Zimbabwean recovery with the discovery of diamond in the Eastern Highlands triggering defiance by Zanu-PF stalwarts in the event of an election defeat whilst an MDC loss might mark a swan-swong for the premier in his flirtation with the highest post in his party which he might not be willing to relinquish before landing a top post in the land.

The probability of an election in 2012 is above 85% with the only threat being that of strained relations with South Africa not SADC following a possible unilateral declaration of an election date outside the agreed road-map to free and fair elections. It is yet to be realised who is yet to be “good luck” with numbers as a fair playing ground is absurdly unimaginable if not impossible. An election will not provide a solution but rather a resolution as Zanu-PF blames sanctions for the supposed uneven electoral playing field whilst MDC will squarely put the blame on violence and voter intimidation to disenfranchise its support base.