Institute for War and Peace Reporting | Giving Voice, Driving Change

Political Crisis Puts Off Investors

Industry representatives say political deadlock is resulting in massive financial losses.
By Jabu Shoko
The continuing dispute between Zimbabwe’s political leaders over the allocation of government ministries is losing the country millions of dollars in investment, say analysts.

While President Robert Mugabe and opposition leader Morgan Tsvangirai have agreed to share power, a unity government cannot be formed until the rivals overcome their differences on the distribution of cabinet posts.

According to analysts and business representatives, the resulting uncertainty in the country – which has been without a government since March – is prompting investors to halt major projects.

The financial loss to Zimbabwe in terms of investments is colossal, said Zimbabwean commentator Eric Bloch.

“A number of huge projects are on hold. No one wants to invest in a country where there is no government,” said Bloch. “Why should they pour money in a banana republic?”

Industry representatives warn that if the stalemate is allowed to remain, it will inflict more damage on an economy already staggering under the weight of a near decade-long recession.

According to official figures from July, inflation in Zimbabwe has soared to a staggering 231 million per cent. However, independent economists estimate the true figure to be around the eight billion mark.

Companies are already struggling as a result of the political and economic turmoil engulfing the country, with the mining sector particularly badly hit.

On November 5, reports emerged that major gold-producing firm Metallon Gold Zimbabwe – which has five mines in the country and employs 4,000 people – closed shop the week before citing viability problems. Mugabe has allegedly confiscated some 20 million US dollars which were owed to Metallon, to fund his cash-strapped government.

Other mines are also on the verge of collapse, saying they have not been paid for their gold by the country’s central bank, which is notorious for printing money to fund state expenditure.

The ongoing political turmoil is making Zimbabwe an unattractive prospect for new investors.

At the beginning of October, Zimbabwe was ranked 133 of 134 countries in the latest Global Competitiveness Report, beating only Chad. It had slipped four places from last year, when it was ranked 129 on the list compiled annually by the World Economic Forum, WEF.

“[Zimbabwe’s] institutional environment is ranked among the worst of all countries, with a complete absence of property rights, high levels of corruption, and a lack of even-handedness of the government in its dealings with the public, as well as basic government inefficiency,” said the report.

The continued absence of a government is now compounding the problem, say investors.

A major project to create a private airline to compete with the cash-strapped, state-owned Air Zimbabwe has been put on hold until a government is formed.

“We have to wait for the cabinet [to be selected]. We are hoping that the disputes will be dealt with and the investment climate will improve,” a business executive behind the project told IWPR.

The president of an Indian conglomerate which has substantial interests in Zimbabwe’s agricultural and manufacturing sectors said that at least five million dollars in investments had been postponed, pending a resolution of the political problems.

“We wanted to import more equipment for expansion projects. The potential for profit is there in Zimbabwe, but the uncertainties emanating from the delayed appointment of the cabinet has been a source of worry,” said a senior company official.

“We will not take risks – we do not know who will be appointed to which ministries and what policy changes those new ministers will bring.”

Economists note that the battered economy is clearly feeling the pain of a decade of subdued foreign investment.

“The main issues affecting Zimbabwe are the political squabbles,” said Callisto Jokonya, president of the Confederation of Zimbabwe Industries.

“For [the politicians] to delay signing the agreement boggles the mind. It is totally unacceptable when industry is at a standstill and people are suffering.”

Economic analyst John Robertson said that while foreign investors sought reassurance, Mugabe was exacerbating the economic crisis by delaying the appointment of a new cabinet.

It takes time for investments to yield a profit, said Robertson, and investors are deterred by doubts as to whether they would get any return on their money.

“We are offering nothing but uncertainty,” he said.

Many hope the impasse will be broken at a Southern African Development Community, SADC, extraordinary summit taking place in South Africa on November 9.

At the meeting, regional leaders will attempt to salvage Zimbabwe’s precarious power-sharing agreement, putting an end to the country’s eight-year political and economic crisis, which has adversely affected most of the group’s 15 members.

Nelson Chamisa, spokesman for Tsvangirai’s faction of the opposition Movement for Democratic Change, MDC, said his party hoped SADC leaders would persuade Mugabe of the importance of allowing the country to move forward.

“[The] SADC must use its leverage, especially on Mugabe, to make him see sense and to be aware that people are suffering,” he said.

In the state-owned newspaper the Herald, ZANU-PF justice minister Patrick Chinamasa confirmed that Mugabe would attend the SADC summit.

"It is true that the meeting has been called and we have received communication for the summit and President Mugabe would join his colleagues at the organ summit,” said Chinamasa.

The report noted that implementation of the political settlement had stalled over the allocation of the home affairs ministry. It also noted that “there was a convergence between the parties with regard to cooperative management of the ministry”.

Jabu Shoko is the pseudonym of an IWPR journalist in Zimbabwe.

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