Zim’s credit rating improves 

Source: Zim’s credit rating improves – DailyNews Live

Gift Phiri      8 March 2018

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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