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Zimbabwe Country Risk Report Q3 2016

  • May 2016
  • -
  • Business Monitor International
  • -
  • 45 pages

Core Views Real GDP growth will improve slightly in 2016, as gold production increases on the back of stronger prices. That being said, poor weather will continue to weigh on economic activity and crop production and electricity generation, keeping growth low at 1.1%. Further progress in Zimbabwe's efforts to re-establish itself with international lenders will be largely dependent on political considerations, as the expected increase in political instability associated with President Robert Mugabe's succession will encourage populist measures. However, a slow recovery in commodity prices will offer a strong incentive for the government to rein in spending. Inflationary pressures will return to the Zimbabwean economy before year-end 2016, on the back of an increase in the money supply as a result of the government's policy to begin printing its own version of US dollars and the reestablishment of relations with multilateral lenders.

The effects will be compounded by the ongoing drought across Southern Africa, driving up food prices, but the persistence of low fuel prices will help limit the extent to which inflation returns. Severe drought across much of Southern Africa following the onset of El Nino will ensure Zimbabwe's current account deficit remains deep despite a severe shortage of dollars in the first half of the 2016. Although commodity prices are expected to stabilise over 2016, this will be insufficient to offer any buoy to exports, which will see another year of negative growth thanks to poor production. While Robert Mugabe will see out the rest of his life in office, the emergence of a new political party, People First (PF), will add further pressure to the issue of his succession and improve the chances of a more contested transfer of power. Fears that they will further fragment the opposition are unwarranted. Major Forecast Changes We have revised our expectations for inflation on the back of a planned increase in the money supply via the printing of money and reestablishment of relations with multilateral lenders. We now expect inflation to reach 1.0% after two years of deflationary conditions.

Table Of Contents

Zimbabwe Country Risk Report Q3 2016
Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks5
Chapter 1: Economic Outlook 7
SWOT Analysis 7
BMI Economic Risk Index 7
Economic Growth Outlook 8
Growth Will Remain Weak On Adverse Weather Conditions8
Real GDP growth will improve slightly in 2016, as gold production increases on the back of stronger prices That being said, poor
weather will continue to weigh on economic activity and crop production and electricity generation, keeping growth low at 11%
GDP By Expenditure Outlook 9
TABLE: GDP FORECASTS9
TABLE: PRIVATE CONSUMPTION FORECASTS9
TABLE: GOVERNMENT CONSUMPTION FORECASTS9
TABLE: GROSS FIXED CAPITAL FORMATION FORECASTS10
TABLE: NET EXPORTS FORECASTS10
Fiscal Policy And Public Debt Outlook 10
Fiscal Progress Clouded By Tense Political Climate10
Further progress in Zimbabwe's efforts to re-establish itself with international lenders will be largely dependent on political
considerations, as the expected increase in political instability associated with President Robert Mugabe's succession will encourage
populist measures However, a slow recovery in commodity prices will offer a strong incentive for the government to rein in
spending
Structural Fiscal Position 11
TABLE: MAIN REVENUE and EXPENDITURE CATEGORIES12
External Trade And Investment Outlook 12
Current Account Deficit Remains Deep On Weak Export Production12
Severe drought across much of Southern Africa following the onset of El Nino will ensure Zimbabwe's current account deficit remains
deep despite a severe shortage of dollars in the first half of the 2016 Although commodity prices are expected to stabilise over 2016,
this will be insufficient to offer any buoy to exports, which will see another year of negative growth thanks to poor production
Monetary Policy 13
Inflation To Return On Increasing Money Supply And Food Shortages13
Inflationary pressures will return to the Zimbabwean economy before year-end 2016, on the back of an increase in the money supply as
a result of the government's policy to begin printing its own version of US dollars and the reestablishment of relations with multilateral
lenders The effects will be compounded by the ongoing drought across Southern Africa, driving up food prices, but the persistence of
low fuel prices will help limit the extent to which inflation returns
Monetary Policy Framework 15
Chapter 2: 10-Year Forecast 17
The Zimbabwean Economy To 2025 17
Policy Risks To Constrain Long-Term GDP Growth17
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
TABLE: LONG-TERM MACROECONOMIC FORECASTS17
Chapter 3: Political Outlook 19
SWOT Analysis 19
BMI Political Risk Index 19
Domestic Politics 20
New Political Party Adds Another Challenge To Succession20
While Robert Mugabe will see out the rest of his life in office, the emergence of a new political party, People First (PF), will add further
pressure to the issue of his succession and improve the chances of a more contested transfer of power Fears that they will further
fragment the opposition are unwarranted
TABLE: POLITICAL OVERVIEW20
Long-Term Political Outlook 21
Succession Question Prompts Heightened Instability21
Political instability in Zimbabwe will increase in the next two years, ahead of the 2018 general election The ruling ZANU-PF party looks
set to retain dominance though succession questions will intensify as ailing president Robert Mugabe's rule approaches its end
Chapter 4: Operational Risk 23
SWOT Analysis 23
Operational Risk Index 23
Operational Risk 24
TABLE: OPERATIONAL RISK24
Economic Openness 25
TABLE: FREE-TRADE AGREEMENTS29
TABLE: FREE TRADE ZONES AND INVESTMENT INCENTIVES31
Availability Of Labour 32
TABLE: SUB-SAHARAN AFRICA - AVAILABILITY OF LABOUR RISK33
TABLE: TOP 10 MIGRANT SOURCE COUNTRIES37
TABLE: EMPLOYMENT BY SECTOR, '00038
Chapter 5: BMI Global Macro Outlook 41
Global Macro Outlook 41
Tentative Stability, But New Risks Emerging41
TABLE: GLOBAL ASSUMPTIONS41
TABLE: DEVELOPED STATES, REAL GDP GROWTH, %42
TABLE: EMERGING MARKETS, REAL GDP GROWTH, %43
TABLE: MACROECONOMIC DATA and FORECASTS45

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