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Zimbabwe Business Forecast Report Q3 2014

  • May 2014
  • -
  • Business Monitor International
  • -
  • 32 pages

Core Views

A month spent on the ground in Harare confirmed our view that the Zimbabwean economy is facing significant challenges mainly arising out of a severe shortage of liquidity. Although senior government figures have suggested that the foreign investment-deterring indigenisation drive might be moderated, we believe that international investors will need to see a track record of business friendly policy before engaging with the country. With this in mind, we think that challenges will continue and we are forecasting tepid economic growth of 3.1% in 2014. We predict that Zimbabwe will experience deflation over the coming months, with a possible return to inflation in the second half of
the year as the South African rand strengthens. Even so, we stress that deflation poses a relatively minimal threat to the Zimbabwean economy given that reduced consumer demand would mostly weigh on imports.

Zimbabwe’s external accounts remain under pressure due to a massive import bill, lower remittance inflows and insufficient foreign direct investment. The trade account will remain firmly in the red for the foreseeable future. A return to health for the external accounts will therefore depend on the country’s ability to attract foreign investment.
Although there have been some signs of foreign investor-friendly reform over recent weeks, we believe that it will require a decent track record of reform before investors’ concerns are assuaged.

Major Forecast Changes

No major forecast changes.

Table Of Contents

Zimbabwe Business Forecast Report Q3 2014
Executive Summary . 5
Core Views 5
Major Forecast Changes ..5
Key Risks To Outlook 5
Chapter 1: Political Outlook 7
SWOT Analysis .. 7
BMI Political Risk Ratings .. 7
Domestic Politics 8
MDC Split To Have Little Short-Term Impact ..8
Factionalism in Zimbabwe's main opposition party, the Movement for Democratic Change, will lead to a split of the movement. This
is unlikely to have a meaningful impact on Zimbabwe's political trajectory in the short term given the MDC's limited representation in
parliament. Focus will instead remain firmly on the internal politics of ruling ZANU-PF. Over the longer term, the MDC's troubles will
pose a threat to the little competition that existed in Zimbabwean politics.
TABLE: POLITICAL OVERVIEW 8
Long-Term Political Outlook . 9
Mugabe's New Term's Key Challenges ..9
Zimbabwe faces an uncertain political future following the resounding victory of President Robert Mugabe and his ZANU-PF party in
the 2013. The main policy issues are likely to be the party's drive to indigenise the economy; questions about the independence of the
judiciary and security services; and the Zimbabwean government's turbulent relationship with the West. The race to succeed the 89-year
old Mugabe will also feature prominently in the years ahead.
Chapter 2: Economic Outlook . 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
On The Ground: Liquidity Challenges Worse Than Ever .14
A month spent on the ground in Harare confirmed our view that the Zimbabwean economy is facing significant challenges mainly
arising out of a severe shortage of liquidity. Although senior government figures have suggested that the foreign investment-deterring
indigenisation drive might be moderated, we believe that international investors will need to see a track record of business friendly policy
before engaging with the country. With this in mind, we think that challenges will continue and we are forecasting tepid economic growth
of 3.1% in 2014.
Table: GDP By Expenditure .14
Balance Of Payments . 16
External Account Pressures To Remain .16
Zimbabwe's external accounts remain under pressure due to a massive import bill, lower remittance inflows and insufficient foreign
direct investment. The trade account will remain firmly in the red for the foreseeable future. A return to health for the external accounts
will therefore depend on the country's ability to attract foreign investment. Although there have been some signs of foreign investorfriendly
reform over recent weeks, we believe that it will require a decent track record of reform before investors' concerns are
assuaged.
Table: Current Account ..16
Monetary Policy . 17
Deflation To Persist But Economic Damage Will Be Limited .17
We predict that Zimbabwe will experience deflation over the coming months, with a possible return to inflation in the second half of
the year as the South African rand strengthens. Even so, we stress that deflation poses a relatively minimal threat to the Zimbabwean
economy given that reduced consumer demand would mostly weigh on imports.
Table: Monetary Policy 18
Banking Sector .. 19
Banking Sector Woes Continue 19
Rising non-performing loans, high loan -to -deposit ratios and tepid deposit growth suggest that Zimbabwe's banking sector is in
distress at a time when neither the central bank nor the government have the resources to come to the rescue. Banks' exposure to each
other is limited by a non-functioning interbank market and we think this could help to prevent a systematic crisis. However, we note
that banks without an international parent or wealthy owners are at risk of collapsing if confidence and economic growth continue to
deteriorate.
Chapter 3: 10-Year Forecast . 21
The Zimbabwean Economy To 2023 .. 21
Policy Risks To Constrain Long-Term GDP Growth 21
The performance of the Zimbabwean economy will remain inextricably linked to the policy and political climate over the coming years.
Although the trajectory of this is difficult to predict, at this juncture we believe that the economy will expand but only at a very subdued
rate as much -needed foreign investment will remain at bay owing to nationalistic policies of the ZANU-PF dominated government.
Tab le: ZIMBABWE Long -Term Forecasts 21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings .. 23
Business Environment Outlook 24
Institutions . 24
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS 24
Table: BMI LEGAL FRAMEWORK RATING .25
Infrastructure 26
Table: LABOUR FORCE QUALITY ..26
TABLE: AFRICA - ANNUAL FDI INFLOWS 27
Market Orientation . 28
Table: TRADE AND INVESTMENT RATINGS 29
Operational Risk . 30
TABLE: TOP EXPORT DESTINATIONS (USDmn) .30
Chapter 5: BMI Global Assumptions .. 31
Global Outlook . 31
Growth Increasingly Polarised ..31
Table: Global Assumptions ..31
Tab le: Developed States , Rea l GDP Growt H, % 32
Tab le: BMI VERSUS BLOOMBERG CONSENSUS REAL GDP GROWTH FORECASTS, % .. 32
Tab le: Emerging Mar kets , Rea l GDP Growth , % ..33

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