Zimbabwe economic recovery hangs in balance after Mugabe victory

Reuters News
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Posted: Aug 02, 2013 1:13 PM
Zimbabwe economic recovery hangs in balance after Mugabe victory

By MacDonald Dzirutwe

HARARE (Reuters) - A disputed election victory by Zimbabwean President Robert Mugabe's ZANU-PF this week threatens a fragile economic recovery as the party warned it would speed up a drive to seize majority stakes in foreign firms.

But the win also offers Mugabe's party an opportunity to mend ties with foreign donors that have suspended support over policy differences with the veteran leader, who appears to have secured a five-year extension to this 33 year rule.

In comments that may rattle foreign-owned banks and mining firms in the southern African state, ZANU-PF legal affairs deputy secretary Patrick Chinamasa said the party was ready to rebuild damaged relations with the West, but would press on with the transfer of control of foreign firms to locals.

"We will keep pushing for local ownership of companies. We will keep pushing for a Zimbabwean economy," Chinamasa told a news conference. "There has to be something to show for the fact that Zimbabwe has an abundance of natural resources."

The economy had started to stabilize after Mugabe formed a unity government in 2009 with rival Morgan Tsvangirai to end a stand-off over another contested election, halting a decade of recession marked by hyper-inflation and chronic shortages of food and foreign currency.

Those hardships are still fresh in the minds of Zimbabweans, who endured long queues for everything from bread to fuel and cash and are wary of ZANU-PF's poor track record on the economy.

Harare banks handled huge cash withdrawals in the run-up to this week's election as customers fretted over the outcome, and the outflows could continue for a while, a senior banker said.

"There is a lot of uncertainty. For the foreseeable future, people will continue to keep their money outside the banks because nobody really knows what will happen next," the banker, who declined to be named, said.

Outgoing Finance Minister Tendai Biti, a member of Tsvangirai's Movement for Democratic Change (MDC) cut his 2013 growth forecast to 3.4 percent from 5 percent last week, saying disputes over the election result would hurt the economy.

A final official result is still pending, but the MDC has already rejected the outcome as a "huge farce".

Mugabe campaigned on a platform of redistributing the country's wealth by taking at least 51 percent shares in foreign-owned firms to hand them over to black Zimbabweans.

Foreign-owned banks, including Standard Chartered and Barclays which have operations in the country, could be the next big targets after last year's seizures of majority stakes in mining firms for locals.

ZANU-PF is targeting majority shares in 1,100 foreign firms in the next five years, intensifying a program that has unnerved foreign investors.

But some of the plans could have been election rhetoric and a new ZANU-PF government might moderate its stance to lure back investment and foreign donor aid.

"I still do not see ZANU-PF pursuing disastrous policies. They still want to get elected after five years," said Earnmore Taruvinga, an analyst with a local commercial bank.

"But if they push the indigenization agenda to its fullest extent then we will have problems," he said, referring to the economic empowerment drive.

Investors will take comfort from the peaceful run-up to the polls, after the violence that accompanied the 2008 exercise, and the relative calm that has prevailed despite the MDC's outcry against its defeat.

"People are making the assumption that these issues will be dealt with through the courts rather than through violence on the ground. And that investors see as very positive," said Sven Richter, head of frontier markets at Renaissance Asset Managers in Johannesburg.

The world's two largest platinum producers, Anglo American Platinum and Impala Platinum Holdings, are likely to stay put despite being forced to sell majority shares in their local operations.

"There is no rush to do anything right now. The elections do not change the status quo for these companies," said Justin Froneman, platinum analyst at SBG Securities in Johannesburg.

ZANU-PF's win, while controversial, offers a chance to reach out to donors and continue engaging global lenders such as the IMF, which began a monitoring program for Zimbabwe in June.

"I expect ZANU-PF to be far more cautious and embracing of investors in future, including with regard to the indigenization program," said Cape Town based analyst Nic Borain.

(Additional reporting by Stella Mapenzauswa in Harare and Tosin Sulaiman and Sherilee Lakmidas in Johannesburg; editing by Ron Askew)