The Challenges of Attracting Capital to a Post-Mugabe Zimbabwe

A business delegation from Zimbabwe is visiting Belgium from January 26^th to the 31^st in an attempt to attract capital to the country and to assuage the concerns of European business leaders of how Harare’s policies would impact any potential investment in the country. In the short term these meeting are unlikely to result in any significant influxes of capital. This is due to Zimbabwe’s Indigenization Law (which gives Zimbabweans the right to take over and control many foreign owned companies), corruption, poor infrastructure, regulatory issues, policy uncertainty, a large external debt, and high employment. Despite these problems, the types of investments that are discussed during the visit and the relations that are established between Zimbabwe’s business elite and European investors should be monitored as Zimbabwe’s economy is damaged due to poor policy not geographic location. The country was once one of the most affluent African states. Though its governance has become worse its resource base is still strong. This reality combined with improved regional infrastructure and increased world demand for agricultural production could mean an improved standard of living for Zimbabweans in the coming years and investment opportunities as the country develops key sectors of its economy.

Historically, Zimbabwe was the "Breadbasket of Africa" however policy decisions from the late 90’s on dramatically impacted the country's agricultural output and economic performance. From 1998-2002 Zimbabwe involvement in the war in the Democratic Republic of the Congo cost the country hundreds of millions of dollars. In 2000 the Fast Track Process of Land Redistribution allowed the government to acquire commercial farms without offering compensation. The reforms essentially transferred land from white farmers to black ZANU-PF party loyalists. They were poorly implemented resulting in violence and they ultimately turned Zimbabwe into a net importer of food products. The sanctions from western countries that resulted from this are estimated to have cost Zimbabwe $42 billion. The county’s problems continued as the Reserve Bank of Zimbabwe printed so much money to fund its deficit that it caused hyperinflation. In 2009 the use of foreign currencies, such as the US Dollar and South African Rand, was implemented. This ended hyperinflation and reduced inflation to approximately 10% however structural issues still remain.

Despite these challenges there have been some potential improvements to the economy. On September 17^th, 2013 the European Union announced that the sanctions against the Zimbabwe Mining Development Corporation would be lifted. This was a result of many western observers agreeing that the 2013 Election in Zimbabwe was free and fair. Given the reports of voter intimidation it is unlikely that the elections were fair though they might have appeared this way because the real repression had taken effect before the population went to the polls. Whether the elections were really free though is not the question. Western powers recognize that if they want to have any form of influence in Mugabe’s inevitable succession they need to take a less confrontational approach to relations with Harare. This would account for statements saying that the election was free as well as the EU lifting the sanctions. Mugabe and high ranking members of Zanu-PF did profit from diamond sales while the sanctions were in place however the removal of these barriers will likely result in higher profits.

One of the key issues facing Zimbabwe right now is the question of who will succeed President Robert Mugabe. Mugabe has not officially chosen a successor as such an action could reduce some of his influence. As things stand now the most probable successors are Justice Minister Emmerson Mnangagwa, who headed the Defense Ministry until the elections last July, and Vice President Joyce Mujuru.

Due to his past and current posting Mnangagwa has a great deal of influence with both the military and the police/internal security services. He also will benefits economically from the lifting of diamond sanctions due to his influence in the Marange Diamond Fields. Mnangagwa is perceived as the more hard-line candidate who would likely carry on with Mugabe’s policy. Though he does not have the popular support that Mujuru has he does have strong ties with the security forces.

Mujuru, has strong political credentials as she participated in the struggle for independence against Ian Smith’s Rhodesian regime. She benefits politically as her late husband, Gen. Solomon Mujuru, was a popular freedom fighter, who commanded the Zimbabwean army after independence. Mujuru also faired better than Mnangagwa in 2013’s provincial elections. She is perceived as more business friendly and takes a less hard line stance than Mnangagwa which would make her the reformist candidate by default (reformist is relative here).

It is important to note that given the strength of both factions there will likely be tension in Zimbabwe no matter who is chosen as Mugabe’s successor. This does not mean that a comprise cannot be reached but it is still a cause for concern. As of now ZANU-PF will continue to receive regional support from parties like South Africa’s ANC as Southern African independence parties view opposition labor parties, such as Zimbabwe’s MDC, as a threat to their power.

Clearly, there are significant political and economic challenges for Zimbabwe to overcome and it is unlikely that they will be effectively addressed in the current political climate. That said, the country has significant room to develop as its poverty is a result of policy not geography. If and when the Zimbabwe has a less maligned government and more predictable politics its economy will see a resurgence due to the demand for its resources base and access to ports such as Durban (South Africa) and Beira (Mozambique).