Political risk continues to remain elevated in Zimbabwe. The introduction of a government of national unity (GNU) saw a decrease in violence and human rights abuses but little else. Differences between Zimbabwe African National Union (ZANU-PF) and the two factions of the Movement for Democratic Change (MDC) are glaring and threaten the future of the government.
A key source of political risk arises from the upcoming election. Southern African Development Community (SADC) member states have reaffirmed their position that no election can take place until all conditions of the 2008 Global Political Agreement (GPA) are fulfilled.
A key condition of the GPA is the formulation of a new constitution. A draft constitution has now been completed and submitted to the GNU for comment and suggestions for amendment. The two factions of MDC have supported the draft constitution and are ready to put it to a referendum.
President Robert Mugabe, who has ruled Zimbabwe for 32 years, is adamant there should be an election this year, but reality is that it may not be before 2013. It is likely the next election will be close. ZANU-PF will be reluctant to relinquish power to the MDC, which it accuses of being sponsored by the West. The voters themselves are eager for change following years of economic stagnation.
The European Union (EU) said it was considering easing decade-long sanctions if the country implements a new constitution; a move that could encourage a free and fair poll.
Politics will undoubtedly trump any economic policy considerations. As such, Zimbabwe is unlikely to see any significant economic reforms to revive the economy of what was once Africa’s bread basket. The indigenization drive will take center stage economically especially as the election draws closer. The indigenization legislation aims to ensure that 51% of foreign-owned companies are owned by indigenous, black Zimbabweans.
The indigenization program, which is in full swing is led by indigenization minister, Saviour Kasukuwere, who is seen as a die-hard ZANU-PF loyalist. One of the thorny issues for the program is the fate of the lucrative mining industry. The government is locked in a dispute with the country’s largest foreign investor, South Africa’s Impala Platinum (Implats). The miner has complied with the law by divesting the required share of the company to indigenous, black Zimbabweans. The government is to get 31% of Implats. The miner has requested that the government pay market prices for the stake. The cash-strapped government has refused to pay. The dispute still rumbles on.
From the resources sector the zealous Kasukuwere has turned his attention to the financial sector. The target is the four foreign-owned banks. Indicative of a rift within ZANU-PF, Zimbabwe Reserve Bank governor, Gideon Gono, has warned of the implications of indigenizing the banking sector, the backbone of any modern economy. The minister of finance, Tendai Biti, also added his voice of concern to such a move. ZANU-PF is likely to disregard these voices of reason and power ahead with the indigenization campaign until the elections. Indigenization is likely to be a vote winner for ZANU-PF. Therefore, investors will remain wary of the country’s investment climate.
Zimbabwe’s political environment will weigh heavily on an already injured economy. The minister of finance in July downwardly revised growth for 2012 from 9.4% to 5.6%. The revision is on the back of a poor harvest, inadequate donor funding and incoherent policies. Zimbabwe grew 9.3% in 2011.
Political uncertainty will surely remain in place until elections are held. Until then, the economic policy will remain incoherent, which will in turn be detrimental to the economy. Zimbabwe’s economy will only show signs of sustained recovery with a democratically elected government.