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AGF Magazine - April 2019 issue

  • In a region where only a minority of the population has access to a bank account and SMEs struggle to get financial help from traditional banks, Albert Alsina, CEO and Founder of Mediterrania Capital Partners, explains how the PE industry is becoming a catalyst for the African Fintech ecosystem’s development, enabling large-scale banking and supporting entrepreneurs and SMEs in their expansion plans (pp. 10-12).
  • In this month’s issue of Africa Global Funds, we also caught up with Kenneth Kaniu, Britam Asset Managers CEO, to learn about their anchor investment in Tiserin Capital, and the needs and constraints of institutional investors in Kenya and East Africa (pp. 14-15).
  • On the infrastructure front, we hear from Moritz Breickmann, Investment Director at African Infrastructure Investment Managers (AIIM) who showcases some successful airport redevelopments in Africa. Read on to find why airport infrastructure projects on the continent can provide attractive long term returns to investors (p.17).
  • In this month’s issue we also learn that the FTIF Templeton Africa Fund was merged into the FTIF Templeton Frontier Markets Fund. We speak with Ahmed Awny and David Haglund about the Fund and its African investments (p.16).
  • Finally, Rob Childs, Head of International for Prescient Fund Services shares his views on the global distribution challenges facing African fund managers and why the firm decided to domicile their offshore fund range in Ireland (p. 22).
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Analysis > Interviews

Zimbabwe’s elections: Lost opportunity?

Gavin Serkin, Managing Editor, Frontier Funds Media & Intelligence
Oct. 16, 2018, 9:42 p.m.

Word count: 1043

Zimbabwe’s President Emmerson Mnangagwa had regarded the recent elections as his opportunity to rehabilitate the country in the eyes of the international community. To what extent has that opportunity been lost? Here’s an assessment from Dr. Christopher McKee (pictured), the CEO of PRS Group, the biggest quant-driven country risk analysis firm, whose data feeds Transparency International, the IMF and many of Wall Street’s largest investment firms.

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Zimbabwe’s President Emmerson Mnangagwa had regarded the recent elections as his opportunity to rehabilitate the country in the eyes of the international community. To what extent has that opportunity been lost? Here’s an assessment from Dr. Christopher McKee (pictured), the CEO of PRS Group, the biggest quant-driven country risk analysis firm, whose data feeds Transparency International, the IMF and many of Wall Street’s largest investment firms.

Gavin Serkin (GS): Given the election’s violent aftermath and the concerns expressed over the President’s seeming inability to control the nation’s security forces, can Zimbabwe salvage support from investors and the wider international community?

Christopher McKee (CM): There is no doubt that the post-election violence was a setback on that front.  And while the Opposition’s challenge to the validity of the official vote tally was dismissed by the Constitutional Court, its ruling is unlikely to convince doubters that Mnangagwa’s victory is legitimate.

The US is particularly important in that regard. The Trump administration extended sanctions on Zimbabwe, and has indicated that they will remain in place pending free and fair elections. The sanctions legislation requires that US representatives in multilateral organizations block any agreements with Zimbabwe. That would seem to pose a significant obstacle to reaching a lending deal with the IMF, which is a prerequisite for debt relief.

Mnangagwa can only rehabilitate Zimbabwe in the eyes of the international community if he has the scope to build goodwill.  The exclusion of coup leader Constantino Chiwenga from the new Cabinet is a bold step in that direction, and arguably creates an opportunity to establish some form of limited power-sharing arrangement with the MDC, which would certainly help to build international credibility.  That said, there are no guarantees that the president will be able to assert civilian authority over the armed forces, and a partnership with the MDC does not appear to be on the cards.  

GS: How concerned are you about the President’s apparent dependence on the military? How significant is the risk of renewed power struggles?

CM: There is not much concrete evidence of a power struggle among or within the security forces.  The main fault lines are between the civilian leadership and the top ranks of the armed forces, and between ZANU-PF’s old guard and younger, ambitious figures who remain within the party fold.  While the risk of a coup is clearly present, we put the probability of the ZANU-PF regime being replaced by an overtly military-led government at just 15% within five years, largely because the generals have every incentive to remain behind the scenes as long as they are able to do so without endangering their interests. 

GS: Casting forward, is Zimbabwe likely to become another one-party state, effectively? The opposition’s credibility has suffered through failing to provide convincing legal evidence to substantiate its allegations of election manipulation. What are the chances of the opposition rehabilitating before the next elections?

CM: Given the political obstacles to establishing constructive relations with the West, the leaders of the current regime will be inclined to lay the foundation for a de facto one-party state, a process that could be facilitated by ZANU-PF’s parliamentary supermajority, rather than moving in the direction of democratic pluralism. That said, the ruling party remains vulnerable to factional strife, and there is a fairly high probability of another split before the 2023 elections. The security apparatus has managed to suppress Grace Mugabe’s allies in the G40 faction and the MDC, but further splintering of ZANU-PF could test the limits of the party’s ability to dominate through repression alone. We assign a fairly high 35% probability of ZANU-PF remaining the dominant political force but having to share power with a rival party in order to ensure a stable political climate over the next five years. 

GS: Putting official attitudes to Zimbabwe aside, how is private foreign direct investment evolving?

CM: The government claims to have approved $16bn worth of investment applications during the first six months of 2018. Look for that figure to drop sharply in the second half of the year as potential investors reassess their faith in Mnangagwa’s ability to ensure a stable political climate. Some companies have already postponed planned fact-finding visits in response to the post-election violence.

Most investors will have been guided by Mnangagwa’s promise of free and fair elections. Having set the bar that high, and having failed to measure up to his own standard, Mnangagwa may have damaged his credibility to an extent that he will no longer be given the benefit of the doubt. Put another way, before the elections, investors were running ahead of the IMF and the international community. The risk going forward is that they will take their cues from external agencies, and will display a greater reluctance to bring their capital into Zimbabwe without reassuring signals from the IMF, Washington, and the EU. 

As I mentioned, US sanctions pose an obstacle to obtaining IMF loans, and the recent assessment of two US-based watchdog groups — the International Republican Institute and the National Democratic Institute — that Zimbabwe lacks a democratic culture does not bode well for any relaxation of Washington’s position. The EU has emphasized economic reforms as a condition for financial support, specifically highlighting the need for legislation to strengthen protection of property rights and steps to improve the ease of doing business. But Europe is also pressing for political reforms, and given the questions surrounding the conduct of the elections and the troubling events that followed, the EU probably won’t be inclined to break stride with the US on this point.  

GS: Given your caution on the outlook for Western capital flows, what are the implications for economic stability? 

CM: Any chance of rapid employment growth or tackling the government’s mushrooming domestic debt load demands foreign investment. While we’re cautious on that front, Mnangagwa has certainly been opening up the economy since first taking office last November. The government has eliminated equity restrictions in most sectors and has been preparing a one-stop window for foreign investors. Officials have confidently maintained that they will obtain a $2bn loan from China and claim that some $1.8bn of arrears will be cleared within six months, financed by commercial loans backed by export receivables.


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