Zimbabwe Operational Risk Report : FitchSolutions


Zimbabwe Operational Risk Report : FitchSolutions

Portia Zimbizi

Staff Reporter

HARARE, The amalgamation of pervasive corruption, weak rule of law and policy uncertainty underscored by shifting positions on the country’s local ownership and foreign participation regulations have made Zimbabwe an unattractive investment environment for the past two decades .

Corruption and high levels of political interference in the business environment, pose major obstacles to foreign investment and private sector growth.

Property rights are also poorly enforced and in 2017 investors faced risk of financial losses due to land acquisition and risk of bias in the resolution of contractual disputes particularly in cases involving the state or ZANU-PF – backed entities.

These factors have had a negative effect on credit availability, trade openness and the development of infrastructure. Consequently , in the absence of significant structural and legal reforms, industry growth will remain muted across virtually all sectors over the short- to- medium term, while exports will benefit from modest gains .

In the near term, a prolonged period of onerous FX liquidity constraints will exacerbate political risk s and continue to set the country back as an uncompetitive investment environment in Southern Africa within our Trade and Investment Risk category .

Taking these factors into consideration, BMI awards Zimbabwe a score of 25. 4 out of 100 for overall Trade and Investment Risk, placing the country 4 3rd out of 48 st ates in Sub-Saharan Africa and 19 1st out of 201 countries worldwide

Legal (17.6/100): The significant burden of red tape, legal costs and risk of political interference in areas such as business registration, property ownership and construction permits stifle foreign investment in Zimbabwe.

This creates considerable inefficiencies in the business environment, incentivises rent-seeking in bureaucratic structures and is a powerful barrier to investment. Policy inconsistency, weak property rights protection and poor contract enforceability considerably raise investment risks in long-term ventures.

Politically-connected business people are often given preferential treatment in the country’s bureaucratic and legal domains, while corruption is pervasive, which essentially erodes the appeal of Zimbabwe to foreign investors, as seen in the country’s ailing mining sector.

These factors have negative effects on the business environment and will remain key impediments to economic recovery over the medium term, particularly while the political climate remains volatile.

Government Intervention (28.6/100): The ease of doing business in Zimbabwe is markedly reduced by wide-ranging financial barriers, underscored by acute liquidity challenges and a highly inefficient tax administration system. Over the short-to-medium term, persistent economic underperformance and political instability will have a negative effect on the banking sector, which will experience tepid growth over 2017-2018 amid acute cash shortages, while structurally high-risk premiums and weak credit availability continue to impede industrial growth. Nevertheless, Zimbabwe boasts a relatively high density of bank branches, with increasing penetration of mobile financial services, through various local operators.

Economic Openness (30.0/100): Since Robert Mugabe’s resignation, the new government in Zimbabwe has shown signs of progress towards investor-friendly structural reforms, which will encourage FDI and buttress economic growth over the long term. Zimbabwe is endowed with a wealth of natural resources and vast human capital compared to regional peers. However, due to its tumultuous political history, years of populist policy shifts and maladministration, Zimbabwe faces numerous structural risks that will stifle its appeal to investors in the near term. External and internal trade and investment restrictions will continue to barricade opportunities until foreign and local participation policies are amended, clarified and propped up by multilateral financial support. In addition, comparative US dollar strength against weaker regional currencies and high tariff barriers have reduced the competitiveness of Zimbabwean exports and imports, while severe cash shortages in the economy will strain growth and further dent consumer confidence and trade.