Zimbabwe: End of Mugabe era may bring reform

01 December 2017

President Robert Mugabe resigned on 21 November 2017, following a two week political crisis. Former Vice-president Emmerson Mnangagwa has replaced Mugabe, and will serve the remainder of Mugabe’s term until elections are due in 2018. Mnangagwa is part of Zimbabwe’s political elite, and it is unclear how wide-ranging any political or economic reforms will be. A number of his previous policy positions will be of concern to investors, although some monetary reforms may occur.

Security Environment

On 21 November 2017, President Robert Mugabe resigned, ending his 37-year rule of Zimbabwe. The announcement followed 2 weeks of political crisis that began when Mugabe sacked Vice-president Emmerson Mnangagwa on 6 November 2017. Widely seen as a move towards establishing his wife, Grace Mugabe, as successor, the sacking prompted an army intervention on 14-15 November 2017, in which Mugabe was placed under house arrest. Mnangagwa has now replaced Mugabe, and has stated his intention to serve as president until elections are due in September 2018.

The ruling party, ZANU-PF, expelled both Grace Mugabe and her leading supporters from its ranks on 19 November 2017, reducing the likelihood of inter-factional violence. Known as ‘Generation-40’, her expelled supporters include higher education minister Jonathan Moyo and local government minister Saviour Kasukuwere. Some support will remain for Grace Mugabe in ZANU-PF, however, Mnangagwa’s position is likely to be relatively secure and factional fighting should be avoided.

Mugabe’s resignation will moderate the risk of strikes, riots and civil commotion in Zimbabwe. Concerns had emerged that anti-Mugabe protests could escalate into violence as citizens became frustrated with his refusal to step down. Whilst protest risks have temporarily receded, in the one-year outlook there is the potential for more sustained civil unrest.

The current political crisis has sparked calls for a meaningful democratic transition. However, the ousting of Mugabe was largely a result of factionalism within ZANU-PF and the political status quo may continue under Mnangagwa. Protests for democratic change will be concentrated in urban areas and are likely to be peaceful. However, it is not yet clear if the incoming government would be willing to deploy security forces in response, which would elevate death and injury risks for expatriates and bystanders.

Trading Environment

Zimbabwe’s economy will benefit from stronger harvests in 2017, as corn harvests are forecasted to increase by 250%. As a result, real GDP growth is forecasted at 0.2% in 2017, up from a 1.8% contraction in 2016. However, weak investment levels continue to undermine the economy and monetary instability poses significant downside risks.

Whilst part of ZANU-PF’s ruling elite, Mnangagwa is more likely to implement economic reforms than Mugabe. As a result, he is likely to be viewed more positively by the international community, potentially paving the way for re-engagement with organisations such as the International Monetary Fund (IMF). An IMF lending facility could support the new government in ending dollarization, which has become increasingly unsustainable, as weak foreign investment has seen a net flow of dollars outside of Zimbabwe.

However, it is too early to assess whether Mnangagwa will prioritise monetary reform, and strained conditions are likely to continue throughout 2018. This will mean that weak dollar liquidity continues, whilst shortages of imported basic goods will ensure that inflation remains elevated, despite official figures. As a result, investors are unlikely to experience immediate improvements to the economic outlook as a result of Mugabe’s removal.

Investment Environment

Whilst Mnangagwa would be expected to implement economic reforms as president, a number of his previous policy positions will be of concern to potential investors. Mnangagwa has supported indigenisation policies, which force foreign companies to transfer shares in Zimbabwean firms to Zimbabwean nationals. Any future implementation of indigenisation is likely to occur on a case-by-case basis and, compensation may be offered by drawing upon future dividend payments. However, any agreements offering compensation would be subject to alteration, reducing certainty for investors.

Moreover, in June 2017, Mnangagwa presented a bill to parliament which proposed amending the constitution to give the president enhanced authority over the appointment of the Chief Justice and president of the High Court. This underscores his willingness to allow executive interference in judicial affairs, undermining the ability of businesses to have contracts effectively enforced.

December Risk Outlook 2017 risk table Zimbabwe

In this month's Risk Outlook, we also provide a detailed forward looking assessment of developments within the security, trading and investment environments for Chile, Saudi Arabia, South Africa and Cameroon, all of which have been the subject of recent enquiries from JLT's client base.

December Risk Outlook 2017 spider chart

The monthly Risk Outlook is supported by JLT’s proprietary country risk rating tool, World Risk Review (WRR) which provides risk ratings across nine insurable perils for 197 countries. The country risk ratings are generated by a proprietary, algorithm-based modelling system incorporating over 200 international sources of data. 

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For further information, please contact Ruth Lux, Senior Consultant on +44 (0)20 7886 5409 or email ruth_lux@jltgroup.com

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