QUESTION # 2
How did the July elections impact Zimbabwe`s economy?
1.Overview
In the run up to the elections there was a surge of optimism across Zimbabwe generated by a number of developments among which were the following: –
- Ushering in of a new national leadership after the resignation of President Robert Mugabe – in power for 37 years.
- A very peaceful and relatively open election campaign period.
- Expressions of support for Zimbabwe from broad sectors of the international community.
- Post- Election Violence
The optimism that swept across Zimbabwe was shattered by the discord around the announcement of election results and the post-election violence on August 1, 2018. Confidence was severely undermined and country risk escalated. The expected FDI inflows did not materialize as expected although there are significant numbers of potential foreign investors visiting Zimbabwe to make inquiries. A few key investors have now made commitments.
- Post -Election Political Polarization
The legal challenges against the election results at the Constitutional Court and the refusal ty the main opposition to accept the legitimacy of President-elect Emmerson Mnangagwa has resulted in deep political polarization which has severely dented business confidence for both foreign and domestic investors. While the polarization is a reality it is also a fact that the ruling party emerged from the election with a two thirds majority in Parliament thus giving it a strong mandate to carry out the required legislative reforms particularly those needed to align existing laws to the 2013 constitution.
- Impact on Value of Local Currency
In the period following the resignation of President Mugabe and the July 2018 elections the depreciation of the local Zimbabwe currency (the RTGS or “Real Time Gross Settlement” balance and the “Bond Note”) was around 30-40%. The local currency has significantly lost value in the post-election period – at one point in October 2018 reaching a low of around 500% devaluation before stabilizing at around 340% devaluation in the parallel (or unofficial) market. This is despite an official position putting the local currency at parity with the United States Dollar.
- Deepening Foreign Currency Situation
The post-election period has seen a deepening of the foreign currency shortage as United States Dollars continue to disappear from the formal markets. The consequence of these shortages have had severe adverse impact on the availability of imported raw materials, fuel and medical drugs. The most severe impact has been felt in the area of medical care as hospitals and pharmacies have run out of imported medical drugs thus putting the lives of many ordinary Zimbabweans at risk
- Tightening Liquidity and Cash Shortages
Zimbabwe has been experiencing cash shortages in the banking sector since the introduction of a local currency (bond notes) in November 2016. These cash shortages remain in place four months after the July 2018 elections.
- Significant Increase in Tourist Arrivals
Following the July 2018 elections there has been a surge in the number of tourist arrivals in Zimbabwe. Tour operators and resort hotels are reporting increases of around 25-30% compared to the same period last year. Hotel operators in the Victoria Falls resort area are reporting occupancy levels last seen in the 1997-98 period for the forthcoming festive season with average occupancies around 65%.
- New Mining Investments
Some long term investors have come on board including two Australian mining companies who have projects in oil and gas exploration in Northern Zimbabwe and a Lithium mining operation near Harare, respectively. A Chinese investor is considering setting up a major steel plant in the Midlands area while another company is planning opening a major platinum mine.
- Financial Commitments By UK Financial Institutions
Of note has been the financial commitment made by The CDC ( The UK Government`s Commonwealth Development Corporation) to make lines of credit available to the private sector in Zimbabwe. Although of limited amount given Zimbabwe`s significant requirements for financial support , this commitment is symbolic as it represents the first such financial commitment by the CDC in almost two decades.
- Delegations from EU Governments in the Post-Election Period
The post -election period has also witnessed the visit to Zimbabwe by high powered delegations (combining political and business leaders) from China, Germany and Belgium among others.
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