The Zimbabwe crisis- the deeper underlying problems

Third, Zimbabwe could improve its woeful Ease Of Doing Business score. At 155th out of 189 countries, this is a particularly unfriendly country for businesses. It is 182nd out of 189 when we look at the sub-component of starting a new business. These are not the sort of ranks which tend to attract in FDI or encourage domestic entrepreneurs.

Zimbabwe fell two places in the rankings in the latest survey. However, the actual score rose by one point (out of 100). Zimbabwe did get slightly easier to do business in during 2015, but other countries did more than Zimbabwe. There is an assurance to do more in the future. If Zimbabwe deters FDI because of its laws and its poor EODB score, another option is to look for portfolio flows.

Many countries prefer sticky FDI to portfolio money, but portfolio money can at least buy companies that already survive within the difficult business environment. But this would require not just the prospect of GDP growth, credit rating upgrades (or at least a credit rating), bank lending growth, but perhaps also improvements on corruption.

Fourth though, Zimbabwe’s corruption perceptions index rank is a problematic 150th out of 167 countries. This hurts equity investors, not because they are necessarily the most moral of all capitalists (although of course we think our clients are highly moral). Rather, it is because equity investors can end up relying on a local court system, and corrupt countries rarely have a good judicial system.

The World Justice Project shows that among the DM, EM, FM, and beyond frontier countries we cover, only Venezuela has a worse ranked judicial system. Meanwhile only Myanmar and Bangladesh have a more unfriendly rank in the EODB judicial sub-component scores.

Fifth, we might see political change. Foreign investors often welcome a change of leader. The biggest overweight for global emerging market (GEM) investors is India, since a positively received change of leader in 2014, while Argentina has seen a 50% rally in MSCI Argentina since markets began pricing in the new president’s victory in late 2015 elections.

Zimbabwe has not had a change of leader since most of the population was born. Former finance minister Tendai Biti said on 5 July that planning for the succession in Zimbabwe is now the only game in town.

Some believe the next president is likely to be vice-president Emmerson Mnangagwa, who is said to be pro-business. Opposition figures might come to the fore if there is a more unplanned transition; in any year, there is a 2-5% chance of falling incomes triggering a dramatic political change as we explained in our report, Revolutionary nature of growth, published on 22 June 2011.

Continued next page

(318 VIEWS)