Southern Africa
Zimbabwe crisis drags neighbours into recession

afrol News, 12 December - While the domestic economic development in South Africa generally is seen as sound, its currency, the rand, continues its steep drop in value, affecting regional partners such as Namibia, Botswana and Zambia. The reasons are mainly found in the Zimbabwean crisis.

This year, the South African rand has lost over 25 per cent of its value against the US dollar, this month dropping under the psychological barrier of R10 to the US dollar. By Thursday the currency was trading at around R11,19 to the dollar.

The dollar of neighbouring Namibia is pegged to the rand, making it continue the dwindling value of the leading economy of the region. Following the regional devaluations, "Namibians will have to dig much deeper into their pockets to meet the sharp rise in prices of basic commodities," 'The Namibian' today observed. 

In Zambia, the kwacha fell by 1.3% cent last week alone and is expected to go above the K4,000 to a dollar mark level soon. Analysts see the drop of regional currencies linked to a growing South African recession. 

True - South Africa has its domestic barriers preventing investors from trusting the rand. Analyst Anthony Stoppard from IPS mentions "the slow pace of South Africa's privatisation process" being a reason for international lack of confidence. 

However, domestic developments in South Africa in general should have routed for optimism. Analysts agreed that South Africa had ridden of its temporary recession by 2000. GDP growth had risen from 0.7% (1998) to 3.1% (2000), and trends looked positive at the beginning of the year, the South African Ministry of Finance anticipating an annual growth of 3.5% between 2001 and 2003. 

Based on these positive results and trends, independent consultants classified South Africa as the continent's best-risk country for foreign investors one year ago. Government efforts to stimulate private investments and push ahead with the upgrading of infrastructure produced confidence in the rand. Botswana and Namibia, wagons carried by the South African economic engine, enjoyed the same classification. 

South Africa's annual growth rate
19951	19981	19991	20002	20012	20022	20032
3.1	0.7	1.9	3.0	3.5	3.7	3.3
1 Source: World Development Indicators database
2 Source: Estimates from South African 2001 Budget

The second half of 2001 however produced negative international trends, slowly undermining the trust in investment in South Africa. Other emerging national economies, such as Argentina, dropped into crisis. The terrorism attacks on 11 September in general slowed foreign investment. Finally, the general pessimism about the political and economic future of Africa found new nourishment in the deepening crisis of Zimbabwe.

The Zimbabwean negative influence indeed is essential in the interwoven regional economy. Mugabe's Zimbabwe expects a 10% drop in GDP in 2001, mostly due to failing export production as a result of the political unrest, and due to what in practice may be called international sanctions against the regime, almost totally depriving the country of foreign investments.

Due to the disruption in the agricultural sector only about 220,000 tons of maize is expected to be produced this year, in comparison with the normal yield of 850,000 tons. Harare analysts expect the tobacco harvest to only comprise 165 million kg, compared with the 235 million kg harvested two years ago. Farm invaders have slaughtered approximately 30% of Zimbabwe's beef cattle. Industrial production is decimated.

- In a short period in Zimbabwe, the industrial capacity has been destroyed, South African Trade Minister Alec Erwin complained already two months ago. "What is happening to ordinary people and workers is absolutely devastating." The awakening consciousness of a "Zimbabwean contagion" to South Africa's economy led the South African government to end its quiet diplomacy towards Mugabe and demand democratic improvements.

- When democracy is imperilled, as is the case today in Zimbabwe, investment suffers, Dwayne Roberts, an investment banker in Johannesburg told IPS this week. "Where democracy does not exist, like Swaziland, new investment is hard to attract." Facts underline his statement, as investments have been flat in the autocratic Swazi kingdom this year, according to the Central Bank of Swaziland. Democratising Mozambique, on the other hand, enjoyed an investment increase of 15%. 

Mozambique, however, seems the regional exception. With an expected 2001 growth of 16%, the country is in a boom situation, attracting foreign investment independently of regional developments. South Africa, on the other hand, "only" has healthy economic indicators, thus competing with a series of emerging economies for the decreasing total of foreign investments.

Zimbabwe's decline has direct influence on South African production, as the two countries are major trade partners. According to the South African Chamber of Business, 47% of Zimbabwe's total imports in 2000 were from South Africa, while 12% of its exports were sold to South Africa. In 2000 South Africa exported US$ 966 million worth of goods to Zimbabwe, constituting about 1.7% of South Africa's total exports.

While trade between South Africa and Zimbabwe is declining, due to the shrinking Zimbabwean economy, the possibility of less South African exports to Zimbabwe is not what really scares of investors. It is rather the political implications of violence in Zimbabwe constituting a threat.

A total political collapse of Zimbabwe would produce a large number of refugees, moving to South Africa. The racial aspect of the Zimbabwean conflict could even cause political crises and parallel developments in South Africa and Namibia, where equal structural problems combining race and economic resources are found. Could it even bring about a civil or regional war? None of the scenarios are anything close to likely, but they are the type of speculations that influence regional investments and currency values.

Optimism in South Africa is seriously curtailed and observers expect significant adjustments in the national budget. Before the rand's dwindling, the national budget stated; "The positive effects of recent international trade agreements and the competitiveness of the rand will boost both export growth and inward investment." 

Now, the rand is anything but competitive, and there are no signs of a rescue operation to halt its devaluation. South African Reserve Bank Governor, Tito Mboweni, has made it clear that he does not have the money to try and save the rand. 

Statistics SA already has announced lower economic growth expectations, the third quarter of 2001 only showing an annualised GDP growth rate of 1.2% - far behind the optimistic 2001 budget projection of a 3.5% growth. .

Sources: SA Statistics, SA govt., press reports and afrol archives

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