Indigenisation laws and drought damage economic outlook in Zimbabwe

  • 11 Apr 2016 10:17
Following published on 9th April by senior risk analyst, Dominic MacIver.
Child drinking water

The combination of drought as a result of the El Nino weather phenomenon and enduring political mismanagement are combining to damage the economic outlook for Zimbabwe as the nation awaits a contest to succeed the 92-year-old president, Robert Mugabe. 

Cash shortages are becoming a severe problem as the central bank restricts dollar exports. With the government enforcing indigenisation laws that require foreign companies to cede 51 percent of ownership to black Zimbabweans or face the revocation of their operating licenses, economic confidence has taken a hit. There are fears that the closure of companies and the withdrawal of foreign direct investment will add to the already-high unemployment rate. The chances of unrest are rising.

Across southern Africa, severe droughts are occurring more often as a result of climate change, with the new norm seeing droughts once every three-to-five years. The result is worsening water insecurity for already-vulnerable populations in southern Angola, Lesotho, southern Malawi, Swaziland and north-eastern Zimbabwe. In rural Zimbabwe, most households are currently facing food shortages after crop failures, government maize stocks are dangerously low and food prices are rising, which will drive population displacement. Although some rains in March have helped, most of the crop damage is irreversible by this point of the agricultural cycle. Substantial support from international aid agencies will be critical to prevent deaths and malnutrition.

The economic impact will contribute to the already-dire outlook. Low water levels at hydroelectric dams mean state power company ZESA has been rationing electricity to six hours a day at most since last year. A comprehensive breakdown of the power generation sector is possible. Tightened finances have forced the government to restrict salaries for the public sector payroll, including pensions, and many are going unpaid at the same time as food prices rise. Cash shortages are becoming a major problem, with banks forced to limit ATM withdrawals and many businesspeople preferring to keep their earnings at home, reducing liquidity in the financial system. As a result, many families are relying on remittances sent from family members abroad, particularly from South Africa, but the fall in the value of the rand against the US dollar has made retailers less willing to accept the currency.

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