11 January 2019

Zimbabwe: Geopolitical Events Likely to Impact Zimbabwe's Economy

analysis

One pillar of the 'new dispensation' in Zimbabwe's approach to the economy is re-engagement with the wider world following years of isolation under former president Robert Mugabe's rule.

Re-engagement however, relies on events that take place in the countries that Zimbabwe is trying to connect with. The beginning of a new year often provides an opportunity for analysts and punters to predict how things are likely to pan out in the coming 12 months and 2019 is no different.

Zimbabwe has gone through a lot of changes in the last 15 months and most of the changes have been within the country itself. Some of these changes include revamping of the executive team and loosening of some restrictive laws around indigenisation and the need for foreign investors to cede 51% of their businesses to local owners.

Whilst some of the changes have been positive, a lot of geopolitical relations depend on events that happen elsewhere. We look at some of the events that might shape Zimbabwe's long re-engagement process in 2019.

Close to home there are elections in neighbouring South Africa. The expectation (as has been the case since the end of apartheid) is that the ANC will win comfortably. Whilst it's tempting to assume that South Africa's 2019 election will be like any other from the past, the reality is that 'land redistribution' from white landholders to mostly landless black South Africans is likely to be key election issue.

Experience tells us that land redistribution affects investor sentiment. It is likely that some investors may reconsider investing in South Africa favouring Zimbabwe, Eswatini and Namibia as possible options.

The UK's political and economic outlook is dominated by Brexit. The type of exit deal that the UK will secure from the EU may determine its approach to trade and political relationships with other countries like Zimbabwe.

We have already seen overtures from the UK that they are open to re-engaging with Zimbabwe. The long absence of Zimbabwe's foreign minister (due to reported illness) will have negatively affected the re-engagement process but there are clear signs that the UK is scaling up its presence in the Zimbabwe.

There is an increase of Zimbabwe products in UK supermarkets which indicates that links are being woven together at different levels. The pace of re-engagement is likely to shift from the beginning of 2019 as the UK prepares for a no deal Brexit.

Dynamics in the USA can be tricky to predict because they depend, to a large extent, on Donald Trump's seemingly erratic decisions. It's sad that such a huge economy can be dependent on the whims of an individual.

2019 is likely to witness an increase in pressure of Donald Trump depending on the findings of the investigations into payment of 'hush money' to prostitutes and links between Trump's team and Russia during the 2016 election campaign. Experience has shown that Trump is prone to lashing out when he is under pressure. The world is likely to see a more erratic Trump, but the fortunes of Zimbabwe may depend on who is the recipient of Trump's wrath.

The last 2 years of the Trump administration have shown that he sees Africa as insignificant; however, the building of a larger embassy in Zimbabwe suggests the USA has long term designs for Zimbabwe. Our prediction is that there will be no changes to ZIDERA (Zimbabwe Democracy and Economic Recovery Act) in 2019. Again, the gap left by the long absence of Foreign Minister Moyo has impacted Zimbabwe's diplomatic offensive and efforts to engage with the USA.

We do not expect many changes in 2019 regarding China which has been described by Zimbabwean politicians as 'all-weather friends' although we have noted a degree of cooling down of China's enthusiasm for relations with the African region. The fallout with Chinese investors which resulted from the consolidation of Chiadzwa diamonds fields continues to linger and feelings of suspicion remain.

China's economic growth has been on a downward trajectory for the past few years and forecast suggest a continued downward trend. Reports suggests that China is currently focusing on restructuring its economy with emphasis being on encouraging services and domestic consumption.

Trade hostilities with Trump's America will occupy Chinese global ambitions in 2019. Zimbabwe's relationship with China is likely to remain cordial with occasional announcements of mega deals that never materialise. For China, Zimbabwe will remain an option not a best friend.

The African Union and United Nations are likely to continue the trend of being less and less relevant as vehicles for global relations and commerce in the face of emerging nationalism.

We end with more outrageous predictions;

Zimbabwe to join the Rand monetary union and either adopt the South African Rand as currency or create a Zimbabwean currency that is pegged to the Rand. This prediction is based on the theory that Zimbabwe's chaotic currency situation suggests that something must give.

An airline (probably British Airways) to introduce a direct flight from London to Harare. Though this is wishful thinking given this airlines' current strategy of using regional hubs like Nairobi and Johannesburg, it makes sense to resume the Harare route.

Donald Trump to be impeached and replaced by a less radical president who values reconnecting with countries like Zimbabwe leading to suspension of ZIDERA. While the removal of Trump is a possibility, the suspension of ZIDERA is less likely because the conditions that led to its creation have not been satisfied.

South Africa's planned land reform exercise to be chaotic and affecting the economy leading to countries like Zimbabwe becoming better investment destinations resulting in Zimbabwe's economy booming as a result.

My verdict: Zimbabwe is likely to be shaped by domestic than geopolitical events in 2019. Fiscal and currency frailties will continue to haunt the economy and business at least for the first 6 months of the year. Happy 2019 Zimbabwe!

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