From bread-basket to basket-case: Zimbabwe still high-risk

Wednesday, August 29, 2012

EUROMONEY

by Jeremy Weltman

http://www.euromoney.com/Article/3081505/Category/10402/ChannelPage/0/From-bread-basket-to-basket-case-Zimbabwe-still-high-risk.html

Despite dollarization, Zimbabwe’s economy and political system are in funk. Zimbabwe, on a score of just 16.3 out of 100 and ranked 162 out of 186 countries worldwide, remains one of the most high-risk countries in ECR’s survey, firmly entrenched within the fifth (bottom) tier of the risk groups and below the African average.

Although constantly monitored for signs of improvement, no other country has fallen by more since the survey was inaugurated almost 20 years ago, before the controversial land-reform programme was introduced. Even in 2012, the borrower has slipped 15 places and lost 5.9 points. This is in spite of the improvement that dollarization has brought in terms of preventing a return to the hyperinflation that destroyed the economy and reached a peak in 2008. That the country requires substantial improvement has been evident for some time (Zimbabwe: Limits of recovery) and is underlined by a range of poor scores across ECR’s 15 surveyed indicators. None of Zimbabwe’s political risk factors score more than 2.5 out of 10, which includes an institutional-risk score as low as 1.6. Economic risks are similarly high, with reasonable growth and inflation rates outweighed by a current-account deficit, estimated to be as high as 25% of GDP, and an enormous debt problem. Local press reports suggest the country’s outstanding debts might soon be resolved (IMF ponders Zim debt write-off), but there is no official confirmation that is the case. Moreover, the country’s structural problems remain onerous (Zimbabwe: Infrastructure key for development). The latest African Economic Outlook produced jointly by the African Development Bank and the Organization for Economic Cooperation and Development sums up the risks by noting Zimbabwe’s “limited capital sources and its high cost; uncertainties arising from policy inconsistencies, especially with respect to economic empowerment and indigenization regulations; dilapidated infrastructure; obsolete technologies and machinery; frequent breakdown of the existing machinery; and power and water shortages. “These challenges are further compounded by contestations among the Inclusive Government of Zimbabwe partners around issues of the new constitution, the national referendum to adopt it, as well as pending national elections.”

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