On The Ground: Cautious Optimism Despite Policy And Banking Sector Risks

BMI View: Although many people we met with in Harare in September share some of our concerns about the direction of policy following President Robert Mugabe's victory at the recent election, the majority were also cautiously optimistic about Zimbabwe's economic outlook given recent developments. Many contacts expressed concerns about the health of the banking sector.

BMI spent a week in Harare inlate September meeting with clients, business people, and other stakeholders in a bid to gauge sentiment on the ground following the comprehensive victory of President Robert Mugabe's and his ZANU-PF party in the much anticipated July 31 general election. Overall, the mood was more optimistic than we had expected, although most of our contacts acknowledged that there were considerable downside risks and that only time would tell if their optimism was warranted. Indeed, most of the people that we spoke to were waiting for the new ZANU-PF regime to begin governing before backing up their optimism with action.

Cabinet: In With Old

BMI View: Although many people we met with in Harare in September share some of our concerns about the direction of policy following President Robert Mugabe's victory at the recent election, the majority were also cautiously optimistic about Zimbabwe's economic outlook given recent developments. Many contacts expressed concerns about the health of the banking sector.

BMI spent a week in Harare inlate September meeting with clients, business people, and other stakeholders in a bid to gauge sentiment on the ground following the comprehensive victory of President Robert Mugabe's and his ZANU-PF party in the much anticipated July 31 general election. Overall, the mood was more optimistic than we had expected, although most of our contacts acknowledged that there were considerable downside risks and that only time would tell if their optimism was warranted. Indeed, most of the people that we spoke to were waiting for the new ZANU-PF regime to begin governing before backing up their optimism with action.

Cabinet: In With Old

Following the election, we noted that the first indication of where the priorities of Mugabe's government lie would come from the makeup of his cabinet (see 'Elections All But Over, Governance To Begin' from August 14). We noted that if Mugabe were to appoint a cabinet predominantly made up of the same faces who have dominated previous governments, this would be a signal that the party was unlikely to moderate the fiercely nationalistic tone that characterised its election campaign, and that this would be negative for the economy. Mugabe announced the new cabinet on September 10, and the body featured very few new faces compared to the cabinet in 2008 when ZANU-PF was last in control of both the presidency and parliament. This suggests to us that a moderation in tone is unlikely.

Some Signs Of Moderation

Rather than dwell on the fact that policy will be dictated by a similar team to the one that oversaw a period of economic turmoil, however, the majority of people we spoke to focussed on some of the positives that emerged from the cabinet appointments. The fact that many deputy ministerial posts were given to younger members of ZANU-PF is viewed as a sign that the party is looking to give new members experience as it sets about refreshing itself. The fact that most of these deputy ministers are better technically trained than their predecessors reassured some observers. Additionally, Mugabe's decision to remove Saviour Kaskuwere, a fiery character who has aggressively pushed forward the country's controversial indigenisation drive, from the Ministry of Youth Development, Empowerment and Indigenisation and replace him with the purportedly more moderate Francis Nhema is being viewed by some as sign that the party is willing to temper its drive to indigenise the economy.

Walking The Anti-Corruption Talk?

At a dinner following the opening of parliament on September 17, Mugabe took the unusual step of directly accusing members of his party of corruption, demanding that action be taken. Mugabe accused the chairman of the Zimbabwe Mining Development Corporation (ZMDC), Godwills Masimirembwa who unsuccessfully ran for parliament on a ZANU-PF ticket, of accepting a US$6mn bribe from Ghanaian investors. Mugabe spoke out strongly against corruption at the ZANU-PF conference in December 2012 and there is hope that the singling out of ZMDC officials is the start of a concerted effort to address the rampant corruption that pervades all levels of government. Mugabe has likely been driven to act against corruption out of both concern for his own legacy and a desire to free up much-needed fiscal resources for the cash-strapped government.

Rapprochement With The West?

Although no direct link has been made, it perhaps not a coincidence that the European Union recently decided to drop commercial sanctions against the ZMDC. The move came as a relative surprise given that Western governments were critical of the July general election. The EU's decision came after pressure from Belgium, which is keen to have access to Zimbabwe's vast diamond reserves. So while the decision was primarily the result of economic realities rather than a signal that relations are improving, the fact that the EU was willing to make the decision shows that the bloc, and other Western governments, will adopt a more flexible policy than post-elections pronouncements may have suggested.

Further progress in the removal of economic sanctions imposed on Zimbabwe would have several implications. For one, it would take away one of ZANU-PF's main justifications for the country's poor economic performance and would put pressure on the party to enact more market-friendly policies to ensure that the economy performs strongly. Furthermore, a moderation of ZANU-PF's nationalistic policies is far more likely if the West moves first.

Dollarisation And Banking Sector Woes

The general consensus among our contacts in Harare was that the new government will continue the multicurrency regime and that the reintroduction of a local currency is unlikely in the foreseeable future. This view has been supported by comments made by the new Finance Minister Patrick Chinamasa and by outgoing Reserve Bank of Zimbabwe governor Gideon Gono. The latter's second and final term expires in November and there is some concern among the business community that a replacement has not yet been appointed. Although data have not been published since the election, there are rumours that the banking sector is coming under pressure due to deposit flight (caused by policy uncertainty) and a growing number of non-performing loans. Indeed, a widely-held concern about the health of the banking sector was one of the major caveats to the cautious optimism which characterised the majority of our meetings.

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This article is tagged to:
Sector: Country Risk
Geography: Zimbabwe
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