A LEADING local stockbroking firm Imara Edwards Securities says Zimbabwe is facing heightened political risk due to the upcoming general elections which are likely to be hotly contested as President Emmerson Mnangagwa desperately fights for re-election.
Political risk is a threat faced by investors, business and governments due to policy decisions, events, or conditions which may cause instability or change.
In its latest report, Zimbabwe 2022 Review and 2023 Outlook: The Conundrum of Consistently Applying the Right Policies, Imara says elections will intensify political risk faced by business.
“We expect political risk to increase as we head to the general elections. Whilst the outcomes of successive elections during the period from 2000 to 2018 were highly contested, as noted by local and international election observers, the run-up to the 2018 elections was characterised by a largely peaceful environment,” it says.
“They further indicated the opening of democratic space and the ability of the opposition to campaign freely, including in areas it previously could not access. The fact that the EU was invited to send an Election Observation Mission (EOM) for the first time in 16 years further testified to this change.
“However, despite some positive developments, most international EOMs concluded the elections were not in accordance with international standards. Unfortunately, some of the shortfalls have not yet been addressed.”
Imara says the elections might be characterised by a fierce dispute as has always happened in the past when the opposition complained of electoral fraud and theft.
“Thus, we believe some areas of contestation could emerge, particularly around vote counting and verification of results. However the environment is likely to be generally peaceful, with limited pockets of violence, in our view,” it adds.
“In addition, once the election process has been concluded, the country should have a clear direction with regards to policy and future outlook. It is worthy to note that, in election years, responding quickly to new shocks or pursuing long-needed reform may be more difficult. Populist polices are likely to be prevalent. Moreover, if security risks persist or worsen, the economic outlook could deteriorate significantly.”
In the outlook, Imara says catalysts that would spur stronger economic fundamentals relate to increased exchange rate flexibility, tighter monetary policy, ceasing quasi-fiscal operations, reducing capital account restrictions, fighting corruption and improving transparency.
“Spending towards social and capital outlays, for example, health and education, could also be increased,” Imara states.
“As previously discussed, the year 2022 faced a number of headwinds which derailed progress in reforming and turning around the economy. Data points to a fiscal deficit of 0.6% of GDP, an improvement over the -1.7% achieved in 2021. Revenues increased by 266.2% y-o-y largely driven by despite a shrinking revenue base. Meeting these goals has never been easy and often involves a difficult balancing act because efforts to address one element will inevitably come at the expense of the other two. For example, higher spending will require more debt, mobilisation of higher tax revenue and/ or printing of money.
“Whilst raising more tax revenue seems logical as recommended by the (International Monetary Fund), it is both politically and socially challenging. This is also exacerbated by Zimbabwe’s poor history of tax administration, compounded by corruption and inadequate compliance systems.”
However, Imara adds some progress has been made in improving expenditure controls.
“The authorities have identified large payments to suppliers, the result of over-invoicing, as a source of pressures on the parallel market for foreign currency and in response have launched value-for-money audits and introduced measures to strengthen procurement regulations. The automated financial management information system has been rolled out to all ministries, departments and agencies, though processing of payments outside the system still continue.”
The government forecasts Gross Domestic Product for 2023 to increase 3.8% (World Bank +3.0%) underpinned by above-average international commodity prices, normal to above-normal rainfall, anticipated improved power supply, tight monetary and fiscal policies and continued use of the multi-currency system. Agricultural production is projected to return to growth as rain levels normalise and fertiliser prices recede.
Even so, the country’s agricultural production remains susceptible to the vagaries of the weather as no significant investment has been made in irrigation systems post the land reform exercise.
Although it is too early to make a call on the 2022/23 crop outturn, some areas have experienced a dry spell in January to early February 2023, while some areas witnessed excessive rains increasing the risk of a reduced output.
“The uncertain global economic outlook further presents risks to the domestic outlook. Global risks relate to the effects of commodity price shocks on the external markets and inflation on domestic prices,” it says.-STAFF WRITER