Fears for damaged Zim economy

CHEGUTU, Zimbabwe: Across Zimbabwe, dozens of factories lie idle with peeling paint, rusting machines and broken roofs in once bustling industrial districts, symbols of the huge economic problems facing President Robert Mugabe and his Zanu-PF party.

On the surface, things look rosy: growth forecasts are more positive as agriculture recovers, inflation has been tamed and the stock market is starting to buzz again after a lull.

But the nation’s manufacturing heartlands, which accounted for a quarter of the economy a generation ago, are now wastelands – and some fear the decay is permanent.

From Harare to the second city of Bulawayo, companies are working at a third of capac- ity, reveals the Confederation of Zimbabwe Industries (CZI).

“Businesses are collapsing, and the economy will need a real big push-start to get going again,” said an accountant winding down tube- making firm BMA Fasteners and Tube and Pipe in Harare.

“At this rate, it’s frightening to think what the future holds. I don’t think it is an exaggeration to say it might just be hell.”

Although they are careful not to blame politics, industry bosses say business confidence has fallen since Mugabe was declared the overwhelming victor in the July 31 election, which the opposition MDC rejected as rigged.

New finance minister Patrick Chinamasa expects the economy to grow 6.1 percent in 2014 from 3.4 percent this year but that will make no dent in the 80 percent unemployment.

The economy shrank by 45 percent during a decade-long crisis blamed on Zanu-PF, but bounced back in 2009 after Mugabe was forced to share power with arch rival Morgan Tsvangirai.

The July election put paid to that coalition, and with it what some critics saw as the MDC’s moderating influence on ZanuPF nationalism.

That nationalism was manifest in Mugabe’s “indigenisation” push, under which foreign-owned firms have been forced to sell majority stakes to local blacks.

However, with the economy so desperate for capital – some estimates put domestic credit demand at $12 billion (122.6bn), more than double total bank deposits – Mugabe may be forced to soften his anti-foreigner stance.

“We are likely to see a more pragmatic approach by the politicians,” said Grant Flanagan of Amigo Partners, which manages an investment fund.

In his new cabinet, Mugabe swopped combative indigenisation minister Saviour Kasukuwere for a mild-mannered technocrat who has already suggested reopening discussion about the extent and timing of black ownership.

Without a decent period of clarity and consistency, investors are unlikely to be writing any cheques.

“Zanu-PF must realise they are in trouble over the economy,” independent economic commentator John Robertson said. “Investors, particularly in mining, where they have an opportunity, will want to see whether there really is any softening. If there is, then definitely the economy stands some chance.”

Even then, turning the ship around will be difficult.

The African Development Bank estimates that fixing the infrastructure needs $ 14 billion, a sum that in reality can only be met by the World Bank and IMF, which stopped lending to Harare in 1999 because of unpaid debts.

Private investors will then have to address a manufacturing vacuum filled by cheap imports, mostly from China.

In 1986 manufacturing contributed 26 percent of GDP. Today it is just over 2 percent.

Chegutu’s industrial graveyard includes Ziscosteel, once the largest integrated steel works in the region, which was forced to shut in 2008. – Reuters