On 21 November 2017, Robert Mugabe, Zimbabwe’s political leader since 1980, resigned from office after a military coup. The background to all of this, Peta Thornycroft reports in the
Financial Mail, is the economy.
ATMs are cashless and the banks are queue-less; there are no US dollars or bond notes – known as ‘bollars’ – inside their vaults. As a result, a ‘phantom’ currency is being used. Previously, when a bank card was swiped the money was taken out in US dollars. Now, they are swiping nothing. Some hotels and shops are accepting foreign credit cards, but foreign debit cards cannot be used in most places.
The potential ‘saviour’ for this is Strive Masiyiwa, the creator of Zimbabwe’s largest mobile network, Econet. Over the past six months its swipe mechanism, EcoCash, has “improved dramatically”, Thornycroft writes. For example, users can now top up on their mobile instead of “scrambling for cash to buy a recharge card”.
EcoCash makes life bearable for the citizens of Zimbabwe. Thornycroft describes what would happen without it: “There would be collapse, as there was under the previous Zanu-PF administration which chose to print dollars and steal the real ones from the central bank.”
EcoCash is not a solution though. It too is phantom cash. “There is little to back it up. No-one is sure how long it can continue,” according to Thornycroft.
Financial Mail article
Military takeover sees stock exchange spike Despite the currency problems that have befallen the nation, investor sentiment on the Zimbabwe Stock Exchange (ZSE) has improved since the military takeover, Tawanda Karombo writes in
Business Report.
From 14 November to 21 November, the Old Mutual Implied Rate (OMIR) went from 475% to 375%. OMIR “measures the premium in Harare-listed shares over the London-listed ones”, an analyst, Hasnain Malik, is quoted as saying. The industrial index went down by 20%. Falling local share prices are, until OMIR reaches 0%, an indication of “increasing macroeconomic optimism”, says Malik, explaining: “If a foreign equity investor purchased the Old Mutual London line, converted to the Harare line, sold, and purchased one of these locally listed equities, these are the valuation multiples on entry (ignoring transaction costs which may be, of course, significant).”
"We have never said that if you bring your money we will have 51% of your money"There are worries for investors though. “Ultimate liquidation and repatriation at par remains, in practical if not regulatory terms, nearly impossible,” Malik explains. Fresh capital will only be allocated if there is an expectation of improved repatriation conditions.
But there are also positives arising from the political situation. Mugabe’s successor, Emmerson Mnangagwa, is seen as leaning “towards courting foreign capital,” according to Malik. Similarly, Patrick Chinamasa, the former finance minister who is an ally of Mnangagwa, will take a softer stance on indigenisation polices, which, says Karombo, “require foreign firms to give away majority shares into the hands of black Zimbabwean groups”.
A 2014 quote from Chinamasa is cited: “There’s no one-size-fits-all [to indigenisation]. We have never said that if you bring your money we will have 51% of your money.”
Business Report article
Chinese investment to increase long term
Mugabe has long been dubbed ‘China’s old friend’, a
Global Times article by Zhang Yu claims, but due to the low profitability and high political risk pre-takeover, trade and investment from China had been “dwindling”. Once the political change is over, there is an anticipation among Chinese investors for “new and even greater opportunities”.
In 2016, China and Zimbabwe’s trade volume was $1.12bn, a 14.77% drop from 2015. Chinese exports to Zimbabwe, “mostly machinery and technological products”, dropped by 28.99%. Zimbabwean imports to China, “mainly tobacco products”, dropped 4.59%.
Currently, there are “dozens” of ongoing Chinese infrastructure projects in Zimbabwe. The latest deal, the supply of engines to a thermal power plant, was signed on 10 November between Zimbabwe’s government-owned Dongfang Electric and the Power Construction Corporation of China.
However, “most of the multi-billion-dollar” China-Zimbabwe projects were “put on hold” last year, according to a 2016 article from Zimbabwean daily newspaper
NewsDay that is referenced by Yu.
A local economist, Vince Musewe, told
NewsDay: “I think that nobody is prepared to commit huge amounts to Zimbabwe until we sort ourselves out. We are a means to an end for China, and they will take their time to fully invest in Zimbabwe.”
In the short term there will be trade disruption between China and Zimbabwe, Shen Xiaolei, an assistant research fellow at the Institute of West-Asian and African Studies of the Chinese Academy of Social Sciences, is reported as saying. In the long term, “friendly relations with China will not change”.
Chinese businessmen in Zimbabwe consider the current political situation a temporary setback.
This is a sentiment echoed by Jerry Zuo, director of the NiHao China-Zimbabwe Business and Culture Exchange Center and decade-long Zimbabwe resident. He told the
Global Times: “Those who have been here long enough know that Mnangagwa has a good relationship with China, so there's nothing to worry about.”
A political upheaval rarely leads to short-term stability; but it does pose the possibility of long-term economic prosperity. Chinese investment is only one piece of the monetary puzzle that needs solving. Whether or not the other pieces will come together is still up in the air. It may stay that way for some time.
Global Times article
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