Risky business deters investors in Zimbabwe

Foreign investors eager to pursue tempting opportunities in Zimbabwe still seem to think business under the regime of President Robert Mugabe is a bit too risky.

After Swiss food conglomerate Nestlé cancelled a contract with a company owned by Mugabe's wife a week ago, the government temporarily froze its bank account.

Last week, South African supermarket giant Shoprite cancelled a plan to invest in Zimbabwe.

Zimbabwe is only now pulling itself out of a 10-year economic decline that saw 80 per cent unemployment and 231 million per cent inflation.

Mugabe has only reluctantly allowed Morgan Tsvangirai to serve as his prime minister and as recently as December threatened a broad programme of nationalising banks, mines, and factories.

"The lack of investors, as seen by Shoprite, comes for a reason. They see that the government is going to continue its interference with business," John Robertson, an independent economic analyst based in Harare, says. "Businesses are not saying no to Zimbabwe, they are saying ‘not yet'."

Any delay in investment could have a powerful effect on the economy, and on the country's shaky power-sharing government as well, Robertson adds.

Not only does the lack of investment mean that mine owners can't secure loans to buy new equipment and take advantage of rising prices for minerals.

It also means businesses have less money to hire workers, banks have less money to lend, and consumers have less money to spend.

In the end, all of this may spell doom for the power-sharing government. "Unfortunately, it plays to [the ruling Zanu-PF party's] hands more than anyone else. It feed's Zanu-PF's sense that the power-sharing agreement with the [Tsvangirai's Movement for Democratic Change] hasn't worked, and it's [the] MDC who is to blame," Robertson says.

Investor reluctance

Zimbabwe is desperately seeking foreign investment. In mid-September, Mugabe told foreign investors at a mining-industry meeting in Harare that his country respected property rights and the rule of law. Finance Minister Tendai Biti, a member of the MDC, has also talked up the economy.

Speaking of investor reluctance, South African analyst Steven Friedman says, "Obviously ... investors don't believe that the conflict has been resolved. Now, Mugabe has been saying conciliatory things of late to foreign investors, but at the same time you have a situation where Nestlé has their accounts frozen. This is precisely the type of action that investors don't want to see."