Eager foreigners still wary of investing in Mugabe's Zimbabwe

Recent moves to nationalize big businesses have made several companies postpone plans to invest.

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 Nestle canceled a contract with a company owned by Mr. Mugabe's wife last week, the government temporarily froze its bank account. This 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 percent unemployment and 231 million percent inflation. Mugabe has only reluctantly allowed the winner of last year's national election, Morgan Tsvangirai, to serve as his prime minister and as recently as last December he threatened a broad program of nationalizing banks, mines, and factories, similar to the decade-old campaign to force white commercial farmers from their land.

"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,'" says John Robertson, an independent economic analyst based in Harare. "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, Mr. 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.

Economic impact on the power-sharing government

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 [Mr. Tsvangirai's Movement for Democratic Change] hasn't worked, and it's MDC who is to blame," says Robertson.

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 Tsvangirai's MDC party, has also talked up the economy, promising as much as 15 percent growth for Zimbabwe if it sells off state-owned telecommunications companies, banks, and the National Oil Company of Zimbabwe.

The International Monetary Fund is not as optimistic as Mr. Biti, projecting 3.7 percent growth. But the very possibility of growth is a positive change for Zimbabwe, where the economy has contracted for 10 straight years.

Investors don't share optimism

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 Nestle has their accounts frozen. This is precisely the type of action that investors don't want to see. They look at that and say, 'We're not risking that kind of exposure.' "

Mugabe has not always been a pariah for international business. In the early years of his rule, the business community praised Mugabe for sound economic management and for promising to protect the farming and mining businesses that are the engines of Zimbabwe's economy. But in 2000, after Mugabe lost a referendum that would have allowed him to change the Constitution and remain in power for life, Mugabe turned on white farmers and businessmen with a vengeance. Thousands of white-owned farms have been taken over by mobs of self-described "war veterans" and many of the choicer properties have ended up in the hands of senior members of Mugabe's ZANU-PF party.

In September, the Zimbabwe government ordered the country's largest supermarket and hotel chain, the Kingdom Meikles Africa Ltd., to be placed under state administration. The government alleges that the Meikles group "externalizes foreign funds," which is to say, it takes profits out of the country as soon as it makes them. Meikles group lawyers say the government action is illegal.

In 2004, multimillionaire businessman Mutumwa Mawere saw his mining company nationalized after Zimbabwe officials accused Mr. Mawere of taking some $80 million of the company's financial assets out of the country. Those Zimbabwe officials, Justice Minister Patrick Chinamasa and A. M. Gwaradzimba, now control Mawere's company, Shabanie Mashaba Mine Holdings. (Read an in-depth Monitor story on the case here.)

Shabanie's new owners, the Zimbabwe government, have had trouble both with labor relations and paying their bills on time. In late September, police opened fire on an estimated 2,000 striking mine workers, injuring three. And last week, Mr. Gwaradzimba, the state administrator for Shabanie, confirmed that the state electric company had cut off power to the mines because of an outstanding $3 million in electricity bills.

Another Mawere investment, the local franchise of the Schweppes soft-drink company, was also seized by the Zimbabwe government and liquidated. Today, the Schweppes franchise is jointly owned by the Zimbabwe government and Coca-Cola.