Zim's credit rating improves

HARARE - Respected South Africa-based economic research firm NKC African Economics (NKC) yesterday upgraded Zimbabwe’s sovereign credit rating or ability to borrow money for the first time in nearly 20 years, saying continued progress on economic and institutional reforms would boost the country’s growth potential.

NKC is a Cape Town- based research firm that investigates and interprets the sovereign risk and political and macroeconomic conditions of African countries to caution against pitfalls and guide investors towards opportunities.

NKC African Economics revised the outlook on Zimbabwe’s “C” sovereign risk rating to stable, from negative citing reduced risks of loose fiscal policy and a lack of material deterioration in the investment climate under the country’s new President Emmerson Mnangagwa’s government, which came to power through a soft coup in November.

Sovereign risk is a possibility that a government could default on its debt or other obligations and is also generally associated with investing in a particular country, or providing funds to its government.

The decision by NKC is a plaudit for Mnangagwa’s government and the economic reforms it has pushed through, and comes just weeks after it said it was in talks  for a $1,5 billion guarantee with the Cairo-based  African Export and Import Bank  (Afreximbank) to ensure foreign investors’ funds are protected, according to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya, who also announced a $400 million facility to bankroll critical imports and allow investors to repatriate funds.

“Such guarantees and liquidity support are necessary to protect investors’ funds from country risk, and in doing so, enhancing investor confidence,” Mangudya said in his latest monetary policy statement.

The removal from power last November of former president Robert Mugabe that brought an abrupt end to his regime fundamentally and, overnight, changed the destiny of Zimbabwe and injected long-lost optimism and hope even though the new leadership installed by the military had its own history of misdeeds and failings.

Mnangagwa has been trying to woo foreign investors under his mantra “Zimbabwe is Open for Business”.

This comes as leading international executives and investors from across the mining sphere attended the 2018 Zimbabwe Mining Investments Conference, which was hosted in Harare from February 27 to 28.

The conference was held as the new government aims to secure new foreign direct investment (FDI) by showcasing the country’s vast mineral endowments, by promoting investment opportunities in Zimbabwe’s growing mining sector and by reassuring investors that they can expect government support and protection.

Speakers who attended the conference agreed that Zimbabwe is rich in mineral resources, but that it is important for the country to create laws which will ensure that mining ventures are lucrative for domestic and foreign investors alike.

Two themes that stood out at the conference were: Zimbabwe’s efforts to attract investment by promoting itself as one of Africa’s top lithium producers and the announcement of an export penalty that platinum producers will face if they do not comply with imposed regulations.

“What all this means for Zimbabwe in the short-to- medium-term will depend critically on the conduct and outcome of elections scheduled to take place in the next few months,” NKC analysts Gary van Staden and Jee-A van der Linde said in a commentary yesterday.

“We maintain our overall political risk rating unchanged at moderate, but with the trend now neutral, from negative previously, and do not expect to upgrade the rating until after the elections.

“As things stand, and given the state of the opposition, we believe Zanu PF are the frontrunners to win a majority in the polls.”

Over the short-term, NKC said the economy remains under severe pressure.

“It is worth noting that Zimbabwe is set to grow from a relatively low base thus requiring rational judgment when interpreting its performance.”

It said positive agricultural production in 2017, combined with the bond note export incentive, could potentially boost Zimbabwe’s exports and foreign exchange reserves during 2018-19.

“Foreign currency reserves remain low while the government has opted to pump additional bond notes into the economy to incentivise continued exporting,” the analysts said.

This comes as consumer prices have started to increase as retailers acquire foreign currency in the parallel market at substantially higher prices.

Even though the RBZ consumer price index inflation level suggests heightened inflationary pressures, several other sources suggest that the RBZ still significantly underestimates the level of inflation.

On the fiscal front, NKC said the country’s large public wage bill remains a hindrance to reducing the fiscal deficit.

In January, the European Union indicated to the new Zimbabwean government that it is ready to review its ties with the country and support its re-engagement with international financial institutions on the basis that there is a clear plan for political and economic reform. Elections are considered an important first step in mending relations.

Foreign ministers have also seized the opportunity to visit Harare and establish diplomatic ties with the Mnangagwa administration. But some economists said it was imperative that the figures being thrown around by Mnangagwa be put to perspective.

Mnangagwa has claimed that Zimbabwe has earned FDI commitments totalling $3 billion over the past 100 days. But leading Zimbabwean financial research firm Equity Axis said in terms of actual numbers, Zimbabwe received FDI of just half a billion dollars in 2017 which was an improvement on the 2016 comparable period but a far cry from the regional averages.

“Although the commitments point to re-emerging interest on Zimbabwe we believe flows of such magnitude will only trickle in once elections are done with and economic reforms are effected.”

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