Potential for growth in Zimbabwe, Mozambique

MOST of South Africa’s neighbouring countries are struggling to keep an economic pulse beating, but analysts believe that Mozambique and Zimbabwe could revive in coming years if the stars align.

South Africa’s economy is five times bigger than those of its neighbours combined, and most of these economies are heavily dependent on what South Africa’s economy does or does not do, through structures such as the Southern African Customs Union (Sacu).

Sacu is the world’s oldest custom union. It was formed by the British colony of the Cape of Good Hope and the Boer republic of the Orange Free State in 1889 and extended in 1910 to Basutoland (now Lesotho), Bechuanaland (Botswana), Swaziland and South West Africa (Namibia).

Excluded from the agreement, Zimbabwe and Mozambique have historically been less dependent on what is happening in South Africa’s economy.

Barnaby Fletcher from Control Risks in London said the smaller and more heavily reliant economies, such as Swaziland with a GDP of only $3.4-billion (R46-billion) and Lesotho with a GDP of $2-billion, would not survive if the Sacu agreement fell away. The two countries get almost 20% of their GDP from the agreement. “But, while it could be renegotiated, I don’t think it would fall away completely,” he said.

Control Risks maintained that while Botswana and Namibia were generally the better-governed countries, Zimbabwe and Mozambique had the most po- tential to grow into stronger economies, if they managed risks and overcame certain challenges.

Zimbabwe has strong economic fundamentals, even though it has been one of the worst-run countries in recent history.

Despite general bad decisionmaking, its economy has managed to remain similar in size to that of Botswana and Namibia. Zimbabwe has a larger population than the other two, with about 14.6 million people, and more diversified natural resource wealth.

Similarly, there have been significant discoveries of coal and gas in Mozambique, which also has a much larger population than other neighbouring countries, with 26.5 million people.

Zimbabwe basically went through a “lost” decade after 2000 when it experienced hyperinflation and recession, resulting in widespread poverty. By 2008, unemployment had risen to 94%.

The country’s flourishing agricultural sector was almost totally wiped out after forcible land redistribution of commercial farms took place from 2000, and 98% of its economy is dependent on government spending. Its labour market is highly regulated and other state regulation in the country is making it costly for businesses to operate.

While it is still the secondworst economy in the world, it did show some recovery after it went over to the dollar system and, between 2009 and 2011, its GDP growth averaged 7.3%.

Since then, however, Zimbabwe’s economic growth again slowed, and is now 1.5%.

Fletcher said the country was caught in an ongoing liquidity crisis and was now experiencing deflation. It would take economic reforms to change its fate, further prompted by the fact that it needs to attract foreign currency inflows.

“Yet reform efforts have rarely gone beyond rhetoric. The ruling Zanu-PF has been weakened by infighting linked to the succession issue and this vulnerability has meant that populist considerations have often taken priority over necessary reforms,” said Fletcher.

Nevertheless, the belief is that it could grow into one of the strongest of South Africa’s neighbouring countries with the right leadership.

In Mozambique’s case, Fletcher said it was struggling with very high public debt and a slow roll-out of its gas projects. “The country will have a tough five years to try and pay its public debt while it waits for the first gas projects to come on-stream by 2020.”

It is also not helping the country that the price of coal — its biggest export — has fallen to a 12-year low. Nevertheless, Mozambique managed one of the highest growth rates in the world last year of 7.6%, albeit from a low base. Public debt in 2014 was at almost 57% of the country’s GDP.

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Zimbabwe has strong economic fundamentals