Bloomberg News

Zimbabwe’s Economy Heads for Recession as Factories Shut

May 27, 2014

Zimbabwe President Robert Mugabe

Zimbabwe President Robert Mugabe speaks in Harare on April 18, 2014. Zimbabwe's economy is heading for recession less than a year after Mugabe, 90, was voted back into office to extend his 33 years of rule. Photographer: Jekesai Njikizana/AFP/Getty Images

Ephraim Takavarasha sits on the sidewalk outside Johannesburg’s central bus station, wondering how long it will take him to sell his four cases of electrical sockets, mobile-phone chargers and alarm clocks when he returns to Zimbabwe.

What was once a monthly 1,200 kilometer (746 mile) trip that Takavarasha, 25, took from Zimbabwe’s capital, Harare, to South Africa’s commercial hub, has become a visit every second month. Cash-strapped Zimbabweans aren’t spending, deflation has taken hold, factories are being shut and the economy is heading for recession less than a year after President Robert Mugabe, 90, was voted back into office to extend his 33 years of rule.

“I used to spend about $5,000 a month to make a profit of about $1,000 a month as a cross-border trader, but no one’s buying now,” Takavarasha said in an interview, as he hugged his knees against the cold night air. “It’ll take me two months to move this,” he said, pointing to his cases.

Five years after Zimbabwe emerged from recession, ended hyperinflation by abandoning its local currency and spurred farming production, the economy is at risk of contracting again. Foreign currency needed to pay wages and buy imports has dried up, Mugabe’s government has given investors mixed signals on plans to seize company stakes as part of its “indigenization” policy, and factories are operating at just 40 percent of capacity.

Voting Irregularities

“We’re already in recession and the economy will probably shrink by 1 percent this year,” John Robertson, an independent economist, said by phone from Harare. “Even if government does act on its promise to soften indigenization laws, it’ll take at least a year before foreign investors build factories or sink mines.”

Mugabe won a July election that his main rival, Morgan Tsvangirai, called a sham and local observers and the U.S. said were marred by voter irregularities. Mugabe’s Zimbabwe African National Union-Patriotic Front won two-thirds of the seats in Parliament, ending a four-year power-sharing government with Tsvangirai’s party.

Under that coalition, the economy had begun expanding following a 40 percent contraction in the previous eight years. Hyperinflation, estimated by the International Monetary Fund to have peaked at 500 billion percent in 2008, came to a halt when authorities dropped the Zimbabwean dollar, ending the central bank’s ability to print money to pay the government’s debt. Zimbabwe now uses a multi-currency system that includes the U.S. dollar and South African rand.

Tobacco Recovery

The recovery spurred investment from Pick n Pay Stores Ltd., South Africa’s second-biggest grocer, and Tiger Brands Ltd. (TBS), the Johannesburg-based maker of food products such as Jungle Oats.

It also fueled agriculture, with tobacco output surging more than three-fold to 167 million kilograms in the five years through 2013 and set to reach 180 million kilograms this year. Production had slumped following Mugabe’s 2000 land reform program that saw the government seizing commercial farms owned by white landowners to give to black Zimbabweans, many of who were subsistence farmers.

That progress is now at risk. Retail sales fell 30 percent in February from the previous month, while 15 factories in the metals and engineering industries closed in the period, the Finance Ministry said in a monthly report on its website. Consumer prices declined for a third consecutive month in April, reflecting depressed demand.

‘Pretty Bad’

“There’s no clear sign of a way out of the difficulties,” Thea Fourie, an analyst at IHS Inc. (IHS:US), a global business research company, said by phone from Johannesburg. “It’s pretty bad in Zimbabwe right now.”

Zimbabwe’s benchmark stock index has slumped 15 percent this year, the worst among 14 African stock markets tracked by Bloomberg.

Central bank Deputy Governor Kupikile Mlambo said on May 23 the economy will probably expand 3.1 percent in 2014 and “we might see it sliding into negative territory next year.

Finance Minister Patrick Chinamasa has said a law that forces foreign and white-owned companies to cede 51 percent stakes to black Zimbabweans will be eased. The government is working on a ‘‘sector by sector’’ plan and won’t compel all foreign-owned companies to sell, he said on April 23.

Platinum Reserves

‘‘Although some investors might see the apparent softening of rhetoric on indigenization as an opportunity, which would provide some relief to the liquidity crisis, the minister’s announcement underlines the uncertainty of the policy environment and the high level of state intervention,” Mike Davies, an analyst with Cape-Town-based Kigoda Consulting, said in an e-mailed response to questions.

Zimbabwe has the world’s second-biggest platinum and chrome reserves after South Africa and also produces gold, coal and iron ore.

The ruling ZANU-PF is now considering the return of the Zimbabwe dollar to help boost liquidity, three members of the party’s decision-making body said on April 23, declining to be identified because the discussions are private. The move will be unpopular and will only be implemented as a last resort, the people said.

For cross-border traders like Takavarasha, remaining in South Africa as an undocumented immigrant is becoming more promising than trying to sell goods in Zimbabwe. The Johannesburg-based University of Witwatersrand estimates that as many as 1.5 million Zimbabweans, or more than a 10th of Zimbabwe’s population, live in South Africa.

“The profit is less and less and there’s no work in Zimbabwe,” he said. “The economy is going down. Maybe it’s best to leave for a couple of years and wait and see.”

To contact the reporter on this story: Brian Latham in Harare at blatham@bloomberg.net

To contact the editors responsible for this story: Nasreen Seria at nseria@bloomberg.net Karl Maier


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