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Zimbabwe Business Forecast Report Q2 2009

Published by: Business Monitor International

Published: Mar. 4, 2009 - 56 Pages


Table of Contents


Executive Summary
Change In The Air?
Chapter 1: Political Outlook
SWOT Analysis
BMI Political Risk Ratings
Domestic Politics
Unity Government: Formidable Challenges Ahead
Following months of political stalemate and tough negotiations, the opposition Movement for Democratic Change
(MDC) and Robert Mugabe’s Zimbabwean African National Union-Patriotic Front (ZANU-PF) finally formed a new
coalition government in the middle of February.
Table: Zimbabwe Political Overview
Foreign Politics
Africa Unlikely To Be Top Of The Obama Agenda
We expect ties between the US and Africa to increase under Obama’s tenure, in recognition of the rising
importance of the continent.
Chapter 2: Economic Outlook
SWOT Analysis
BMI Economic Risk Ratings
Economic Activity
Contraction Hits Bottom
Last year was another desperate one for the real economy with all major sectors contracting once again.
Table: ECONOMIC ACTIVITY
Monetary Policy
Divided Cabinet Will Delay Economic Reforms
Economic reform will likely prove the most immediate challenge faced by the new power-sharing government, as Gideon
Gono, the Reserve Bank of Zimbabwe governor and architect of Zimbabwe’s disastrous economic policy, clashes with the
newly appointed opposition finance minister, who it is believed will push for more orthodox economic policy.
Table: Monetary POLICY
Exchange Rate Policy
Dollarisation: Poorly Implemented, But Long Overdue
The lifting of exchange controls last December was overdue, but inadequately planned for.
Table: EXCHANGE RATE POLICY
Fiscal Policy
Moot Budget Hints At Willingness To Reform
The 2009 budget revenue and spending proposals recently presented by the ZANU-PF headed government are unlikely ever
to be implemented as the finance cabinet portfolio is now in the hands of MDC-T.
Investment Climate
Stock Exchange Will Struggle To Thrive
After three months of inactivity, the Zimbabwe stock exchange could reopen soon.
Chapter 3: 10-Year Forecast
The Zimbabwean Economy To 2018
Political Outlook Calls The Shots
There is every prospect of a measured economic recovery over our ten year horizon, provided political stability is secured.
Table: ZIMBABWE Long -Term Macro economic Forecasts
Chapter 4: Special Report
China
A Seismic Upheaval In 2009?
One of the biggest - and least discussed - ‘wild cards’ that could rear its head in 2009 is dramatic political
upheaval in China.
United States
Europe
Big Trouble For European Banks In 2009
The deteriorating global macroeconomic outlook, high levels of leverage, and a broken business model will combine
to spell trouble for the financial services sector in 2009.
Table: Banks’ Leverage Ratios
Table: Assets As % of Home Country GDP
Table: Assets As % of Home Country GDP When Euro zone Is Considered ‘Home Country’ 32
Table: Exposure As % of Tot al Exposure To Region
Table: Banks’ Foreign Exposure (US$ mn)
TABLE: Exposure As % of National GDP
Chapter 5: Business Environment
SWOT Analysis
BMI Business Environment Risk Ratings
Business Environment Outlook
Institutions
TABLE: BMI BUSINESS AND OPERATIONAL RISK RATINGS
TABLE: BMI LEGAL FRAMEWORK RATINGS
Infrastructure
TABLE: LABOUR FORCE QUALITY
Table: Middle East & Africa Annual FDI Inflows
Market Orientation
TABLE: BMI TRADE RATINGS
Table: TOP EXPORT DESTINATIONS
Operational Risk
Chapter 6: BMI Global Assumptions
Global
Table: Global Assumptions
Table: GLOBAL AND REGIONAL REAL GDP GROWTH, % chg y-o-y
Economic Activity
Table: Developed States, Real GDP Growth Forecasts
Monetary Policy
Table: Emerging Markets, Real GDP Growth Forecasts
TABLE: DEVELOPED MARKET EXCHANGE RATES
Commodities
TABLE: EMERGING MARKET EXCHANGE RATES

Abstract

Change In The Air?

In addition to the new power-sharing government arrangement which took effect earlier this year,the ruling Zimbabwean African National Union-Patriotic Front (ZANU-PF) party is showing somesigns that it is ready to acknowledge some of its economic policies are not working. Most notably,the country has formally recognised the use of foreign currency as legal tender in Zimbabwe, andpresented its budgets in US, as well as Zimbawean, dollars for the first time since independencein 1980. This should help end the scourge of hyperinflation, at least in foreign currency terms.That said, any economic recovery will remain almost impossible in our view so long as ReserveBank of Zimbabwe governor Gideon Gono and President Robert Mugabe remain in power. Assuch, we see a return to economic growth only in 2010, in a best-case scenario.

Following months of political stalemate and tough negotiations, the opposition Movement for DemocraticChange (MDC) and Robert Mugabe’s ZANU-PF finally formed a new coalition governmentin the middle of February. While a positive development in itself, the list of challenges that thenew unity government faces is long, and a renewed breakdown can by no means be discountedover the coming months, with the most potent threat coming from the military. Manifold hurdles lieahead: the real and difficult work of agreeing, legislating, and implementing the policies neededto initiate national recovery has hardly begun.

Meanwhile, the economy has essentially hit bottom, with unemployment estimated at 90% andthe harvest forecast to be the worst in generations. As such, with almost no economic activity leftto shed, we see growth holding flat in 2009, rather than contracting. While the dollarisation of theeconomy will help end hyperinflation and implicitly recognises the unsustainable nature of seigniorage,the policy has been implemented with little planning, and we do not believe the country hasenough foreign currency to sustain its needs and grow. At this point, only international assistancecan get the economy back on track, and this remains dependent on an acceptable resolution tothe country’s political problems.

The business environment remains extremely inhospitable. Firms frequently find themselveswithout water or electricity, while the search for fuel for transport is constant. Lately, the fixed linetelephone network has been operating only intermittingly and hardly at all outside cities. Forexcan now be used legally throughout the economy, but dollarisation is no panacea and risks exacerbatingincome inequalities. Nonetheless, the domestic markets have reacted positively. Thenew finance minister, Tendai Biti, is highly respected, and has said that he is determined to wrestback effective control of the fiscal finances from the profligate central bank.

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