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Political risk looms large

Zimbabwe’s quicksand politics never stop moving — sometimes at a dramatic pace.

Editor’s Memo with Dumisani Muleya

The situation is becoming increasingly fluid and explosive, particularly because of the old age, health problems and attendant complications of President Robert Mugabe, the country’s sole ruler for 35 years now.

Mugabe remains a big factor in the country’s political and economic life, more than what perhaps he seems to realise beyond his personality cult mentality and obsession with the politics of survival. For his idiosyncrasies, among other variables, influence the country’s political risk and thus investment.

Foibles of leaders, political events or policy decisions — in short all the factors that might politically stabilise or destabilise a country, matter a lot when it comes to political risk assessment and investment. The significance of any given risk, of course, depends on the context of the investment decision and destination.
Zimbabwe is currently haemorrhaging mainly due to liquidity problems, company closures and job losses. Informalisation of the economy, hence armies of vendors in the streets, is widening as formal activities shrink or collapse.
The issue of vendors is also now proving to be a political risk issue. But instead of addressing the root causes of why vendors are mushrooming, government is more concerned about driving them out of town into the backyards where they can’t be easily seen by the elite and important visitors for aesthetic, not economic reasons.
Zimbabwe is also reeling from serious economic and country risk factors. The Zimbabwe Stock Exchange market capitalisation plunged to US$3,8 billion in the first half of 2015 after losing over US$1 billion in share value, reflecting an economy hurtling towards recession following successive quarters of negative growth.
Although Zimbabwe’s stock market plunge resembles nothing like the turmoil and meltdown currently gripping the Chinese markets which have lost US$3,3 trillion since June 12 (compare that with Greece’s US$237 billion GDP), wiping out US$1 billion in six months is a huge loss for a small economy with a budget of US$3,5 billion and a US$14 billion GDP.
Zimbabwe’s total debt overhang is about US$10 billion. The country is struggling to repay its obligations, hence a heightened economic risk and low credit rating. It owes UDS$1,4 billion to the World Bank, US$639 million to the AfDB and US$120 million to the IMF. Government has, however, been making token payments on a monthly basis to the institutions.
Its re-engagement process with Western countries to restore normal diplomatic relations and encourage investment, as well as get financial aid and debt relief is stalling as foreign governments and investors remain concerned about the country’s volatile politics and economic tailspin.
Mugabe’s succession crisis, intense political climate, policy inconsistencies and hostile business environment, besides general uncertainty, remain some of the biggest problems keeping investors at bay.
Political and business delegations from the United States, Britain and other EU states like France, Scandinavian countries, Russia and China have expressed similar concerns about these issues.
Yet political risk, decisions made by politicians that might result in unanticipated losses to investors, looms large. While economic risk is often referred to as a country’s ability to pay back its debts, political risk is sometimes identified as the willingness of a country to pay its arrears or maintain a hospitable climate for investment.
Even if a country’s economy is strong and the political climate is unfriendly, the nation may not be a good investment destination. A country with stable finances and a stronger economy usually attracts investment better than one with a struggling economy, worse still buffeted by financial dire straits.
Country risk, economic, political and business threats unique to a specific nation that might result in unexpected investment losses, is also high in Zimbabwe. However, it is the political risk that currently scares the living daylights out of investors.

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