Country Report Zimbabwe Zimbabwe at a glance: 2008-09 OVERVIEW Although political and economic pressure will continue to build on the president, Robert Mugabe, he remains an extremely astute political operator who has proved adept at outmanoeuvring challengers from the opposition and civil society and!perhaps more pertinently!from within the ruling party, the Zimbabwe African National Union-Patriotic Front (ZANU-PF). It is almost certain, therefore, that he will stand in, and win, the March 2008 presidential election, while ZANU-PF will remain dominant in the legislature. There is little likelihood of any warming of relations with donors, who will restrict their activities to the provision of crucial humanitarian assistance. Economic policy will continue to be driven by political considerations, and the economy will continue to shrink, albeit at a somewhat slower rate. Key changes from last month Political outlook • Political instability is expected to remain high. A series of constitutional changes agreed with the opposition has been hailed as a first step towards solving the country"s long-running political crisis, but these measures are actually comparatively minor, and are unlikely to lead the way to a free-and- fair poll. Economic policy outlook • The government has finally devalued the Zimbabwe dollar, although the gap with the parallel-market rate remains wide and is increasing. It will ultimately have to raise nominal interest rates, but such increases are unlikely before the March 2008 election. Economic forecast • The forecast period has moved forward to cover 2008-09. Real GDP will continue to shrink, although the rate of contraction will moderate to 2% in 2008 and 1.6% in 2009 thanks, in part, to a moderate recovery in gold mining and base-metal production. A series of price controls and wage freezes has helped to reduce official inflation figures somewhat, but has actually exacerbated the underlying problem by cutting supplies of essential goods still further. With state spending likely to rise in the run-up to the March elections, inflation is set to remain at four-digit levels in 2008. The Zimbabwe dollar has been devalued; further such action is unlikely before the election. September 2007 The Economist Intelligence Unit 26 Red Lion Square London WC1R 4HQ United Kingdom The Economist Intelligence Unit The Economist Intelligence Unit is a specialist publisher serving companies establishing and managing operations across national borders. For 60 years it has been a source of information on business developments, economic and political trends, government regulations and corporate practice worldwide. The Economist Intelligence Unit delivers its information in four ways: through its digital portfolio, where the latest analysis is updated daily; through printed subscription products ranging from newsletters to annual reference works; through research reports; and by organising seminars and presentations. The firm is a member of The Economist Group. London New York Hong Kong The Economist Intelligence Unit The Economist Intelligence Unit The Economist Intelligence Unit 26 Red Lion Square The Economist Building 60/F, Central Plaza London 111 West 57th Street 18 Harbour Road WC1R 4HQ New York Wanchai United Kingdom NY 10019, US Hong Kong Tel: (44.20) 7576 8000 Tel: (1.212) 554 0600 Tel: (852) 2585 3888 Fax: (44.20) 7576 8500 Fax: (1.212) 586 0248 Fax: (852) 2802 7638 E-mail: [email protected] E-mail: [email protected] E-mail: [email protected] Website: www.eiu.com Electronic delivery This publication can be viewed by subscribing online at www.store.eiu.com Reports are also available in various other electronic formats, such as CD-ROM, Lotus Notes, online databases and as direct feeds to corporate intranets. For further information, please contact your nearest Economist Intelligence Unit office Copyright © 2007 The Economist Intelligence Unit Limited. All rights reserved. Neither this publication nor any part of it may be reproduced, stored in a retrieval system, or transmitted in any form or by any means, electronic, mechanical, photocopying, recording or otherwise, without the prior permission of The Economist Intelligence Unit Limited. All information in this report is verified to the best of the author's and the publisher's ability. However, the Economist Intelligence Unit does not accept responsibility for any loss arising from reliance on it. ISSN 1350-7095 Symbols for tables “n/a” means not available; “–” means not applicable Printed and distributed by Patersons Dartford, Questor Trade Park, 151 Avery Way, Dartford, Kent DA1 1JS, UK. Zimbabwe 1 Contents Zimbabwe 3 Summary 4 Political structure 5 Economic structure 5 Annual indicators 6 Quarterly indicators 7 Outlook for 2008-09 7 Political outlook 9 Economic policy outlook 11 Economic forecast 14 The political scene 19 Economic policy 22 The domestic economy 22 Economic trends 23 Agriculture 25 To u r i s m 25 Mining 28 Infrastructure 29 Industry 29 Foreign trade and payments List of tables 11 International assumptions summary 13 Forecast summary 23 Inflation, 2007 26 Gold production, Jan-Jun 27 Platinum production, Jan-Jun List of figures 14 Gross domestic product 14 Consumer price inflation Country Report September 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 Zimbabwe 3 Zimbabwe September 2007 Summary Outlook for 2008-09 Although political and economic pressure will continue to build on the president, Robert Mugabe, it is almost certain that he will stand in, and win, the March 2008 presidential election, while the ruling party, the Zimbabwe African National Union-Patriotic Front (ZANU-PF), will remain dominant in the legislature. Policy will continue to be driven by political considerations, and the economy will continue to shrink, albeit at a somewhat slower rate. The Zimbabwe dollar is unlikely to be devalued again before the March 2008 polls, but the parallel-market rate for the currency will continue to diverge from the official rate as individuals and institutional buyers seek to escape inflation- related losses on local-currency holdings. The political scene The government and opposition have agreed a series of constitutional changes that will in theory pave the way for free-and-fair elections. These have been hailed as a triumph for regional negotiators, led by South Africa, but in truth they cover comparatively minor issues, and seem designed to ensure that South Africa endorses the 2008 polls. The government has continued to attack critics, while shortages of staple foods and clean water have prompted a number of international agencies to warn of famine and/or humanitarian disasters. Economic policy Policy has continued to be driven almost entirely by political dictates. In June the government sought to tackle spiraling inflation by ordering sweeping price cuts of all goods including food and fuel; in fact, this chiefly served to worsen shortages of staple goods, and prompted a number of warnings from manufacturers that they faced ruin because official prices were well below the cost of production. However, introducing a supplementary budget in early September, the finance minister insisted that the measures had been a success, and announced a 99%-plus devaluation of the Zimbabwe dollar. The domestic economy Despite the introduction of price controls, inflation rose above 7,600% in July. The WFP has made an urgent appeal for funds for Zimbabwe, amid signs that the government is failing to pay for crucial maize imports. The Reserve Bank of Zimbabwe (the central bank) has raised the local price of gold nearly ten-fold in an attempt to bolster the sector. Zimbabwe"s largest mobile phone operator, Econet Wireless, is spending US$15m to expand its network, while H J Heinz has announced that it is divesting from the country. Foreign trade and payments Zimbabwe appears to have revived a deal to buy five Russian aircraft, notwithstanding concerns about the suitability and safety of the planes, and the potential difficulty of finding spare parts. Editors: Pratibha Thaker (editor); Jane Morley (consulting editor) Editorial closing date: September 16th 2007 All queries: Tel: (44.20) 7576 8000 E-mail: [email protected] Next report: Full schedule on www.eiu.com/schedule Country Report September 2007 www.eiu.com © The Economist Intelligence Unit Limited 2007 4 Zimbabwe Political structure Official name Republic of Zimbabwe Form of state Unitary republic Legal system Based on Roman-Dutch law and the 1979 constitution National legislature House of Assembly with 150 members, 120 of whom represent geographical constituencies and are elected by universal adult suffrage every five years; eight are provincial governors, ten are customary chiefs and 12 others are appointed by the president; a Senate of 66 members was established in November 2005 National elections March 2002 (presidential), March 2005 (legislative) and November 2005 (Senate); the next presidential and parliamentary elections are provisionally scheduled for March 2008 Head of state President, elected by universal suffrage for a six-year term National government The president and his appointed cabinet; last major reshuffle February 2004 Main political parties Zimbabwe African National Union-Patriotic Front (ZANU-PF), the ruling party since 1980, governed by a 138-member Central Committee and a 24-member Political Bureau (Politburo), holds 62 seats in parliament; the Movement for Democratic Change (MDC), formed by the trade union movement in September 1999, emerged as the main opposition party