HARARE (Zimbabwe Investor) - It is now to a year since the inclusive government was formed and inevitably a couple of changes have occurred on the economic front.

The introduction and use of the multiple currency system has had both positive and debilitative effects on the country’s businesses and more importantly the direction that the economic policies are taking have been showing a more pronounced proclivity for policy consistency; an imperative that serious investors consider. With due consideration for such nominal trends emanating out of a more stable operating environment for businesses, the wider arena of politics is and will continue to influence the long term sustainability of investing in Zimbabwe.

The ‘Outstanding Issues’ Debacle

Quite clearly investors have not been too keen on pouring their capital into Zimbabwe’s painstakingly slowly economic recovery efforts because of the highly volatile political atmosphere. Presently, the international community, particularly from the West has strongly recommended the removal from office of RBZ Governor Dr Gideon Gono because of his supposed links with corruption and pursuance of financial policies that were detrimental to the macro-economy and meddling in the political sphere. The principals to the GPA have been at loggerheads over this contentious issue with Gono subsequently retaining his position as governor albeit under a restricted environment.

Most crucial, soon after the multiple currency system was introduced in February last year, the country was running under a negative Balance of Payments position, highly skewed interest rates across the financial sector, gross misalignment of fiscal and monetary policies and critical underproduction throughout most sectors of the economy. This scenario has had ripple effects through the entire economy to date and investor apathy has only served to exacerbate the situation.

Attorney General Johannes Tomana’s position is representative of an important legal framework as state prosecutor. Investors appear not sure of his inclinations, at least as far as protecting their investment is concerned. The government has, in the past, pursued programmes of nationalization although there are no indications that it will in the near future. This aspect, coupled with the proposed constitutionality of expropriation that is espoused through economic empowerment legislation serves to heighten the degree of risk even further. South Africa is having her own problems presently with such legislation in place.

The ‘land audit’ was recently dismissed as a non-event by some members of the Zanu PF party yet Minister Biti had ruled it out as an outstanding issue.

Land is the economy and the economy is land

Agricultural output accounts for about 63% of manufacturing inputs. This is a cause and effect relationship that has not received due consideration since last year’s new political arrangement. The Minister, in his 2010 budget was not too keen to commit financial resources to A2 farmers citing the impending land audit and issues pertaining to security of tenure. A2 farmers will have to finance themselves through credit facilities provided by the financial sector. This aspect is a major blow to Zimbabwe’s agro-based recovery efforts.

The political players need to sit down and come up with policies that put agricultural revival at the centre of the general economic recovery. Agriculture requires much less investment compared to sectors such as mining to be fully functional. A recognition of the role that agriculture can play and a considered policy formulation above politics will be a step in the right direction.

The Balancing Rope Act

The primary budget has been showing a deficit of US$238.2 million, a glaring reflection of an economy that was living beyond its means. The Ministry of Finance intends to finance a total deficit of US$810 million which constitutes 36% of the budget through donor support. Yet, this kind of support strongly rests on the full implementation of the GPA and as far as the latter aspect is concerned there seems to be a very long way to go. This glaring oversight places questions on the cash budgeting policy and medium term ramifications to the economy.

What Investors Want

An ideal scenario would be one where the government manages the country’s resources prudently and keeps its recurrent expenditure within its revenue base which allows for investment in human and physical capital. There is need for the absence of strict screening mechanisms, overprotection of domestic firms, provision of equal access to general incentive schemes and a stable operating environment. This will inevitably have spin-offs as investment in infrastructure will provide an enabling operating environment for business to prosper so that the tax base and revenue rise