Finance minister Tendai Biti has helped turn around Zimbabwe’s economy since taking office in 2009. But he faces a tough task trying to lure foreign investors to a country whose politics are still so messy.

Tendai Biti, Zimbabwe’s finance minister, must feel stuck between a rock and a hard place. A key facet of his job is to promote Zimbabwe and bring back investors who fled in 2000 following president Robert Mugabe’s land seizures, which caused the country's gross domestic product (GDP) to plummet by more than a third in the following eight years. For that, he needs to convince investors that the country’s political situation is improving and that the ruling coalition between his Movement for Democratic Change (MDC) and Mr Mugabe’s Zanu-PF, in place since early 2009, is working.

Yet the outspoken Mr Biti struggles to hide his contempt for Zanu-PF. This is hardly surprising, given his run-ins with the party, which include being arrested in 2008 for treason and having a bomb explode outside his house. The latter incident, in June, happened days after Mr Biti defied populist calls by Mr Mugabe for civil servants’ salaries to be hiked.

Under Mr Biti’s stewardship, Zimbabwe’s economy has reversed its downward spiral. Hyperinflation is a thing of the past, thanks to the scrapping of the Zimbabwean dollar and declaration of the US version as legal tender shortly after the coalition was formed. As such, real GDP rose 5.7% in 2009 and 8.2% in 2010. Mr Biti says it will expand more than 9% this year and inflation will be about 4.5%.

Agriculture and mining are causing much of this growth. Agricultural output, mainly consisting of tobacco, maize and livestock, is expected to increase 23% in 2011 and mining revenues, chiefly from platinum and gold, 45%.

Highly indebted

Nonetheless, investors are still wary of the country. Foreign direct investment is forecast to total $90m this year, far below the levels in most of Zimbabwe’s slower-growing neighbours.

Donors are also refusing to recommit on a large scale. Zimbabwe, which has been in default for most of the past decade, has failed to agree a repayment schedule with its external creditors, most of them multilateral institutions, to which it owes $7bn (slightly over 100% of GDP). Until this happens, it will not be eligible for the concessional loans needed to rebuild its economy.

“The unfortunate story of Zimbabwe is that we get judged by non-financial things,” Mr Biti said to The Banker at a recent African Development Bank meeting. “We get judged by our politics, which are very ugly. A lot of countries have adopted the attitude that they will not come into Zimbabwe as long as Robert Mugabe and Zanu-PF are there. The correct attitude should be that there are ordinary Zimbabweans who need jobs, schools and hospitals. There must be assistance [for them].”

Rule of law

Mr Biti acknowledges, however, that investors are unlikely to ignore politics altogether. “In engaging with Zimbabwe, people must rightfully raise issues of the rule of law, violence and constitutionalism,” he says. “I’m pushing a case for re-engagement with Zimbabwe, but not blind re-engagement. The rule of law must be complied with. Zanu-PF must [refrain from] violence.”

That the coalition is still in place is testament to Zimbabwe’s political paralysis since 2009. When it was formed, the two parties signed a Global Political Agreement (GPA), setting out to draft a new constitution within two years and hold elections shortly afterwards. But constant fighting over electoral, judicial and media reforms meant the deadline was missed.

Zanu-PF is pushing for elections to be held before the end of the year, without a new constitution in place. Mr Biti, who is also the MDC’s chief negotiator with Zanu-PF, insists that will not happen. “Nobody knows when elections are coming up,” he says. “What we do know is that we agreed on a roadmap. What will determine the timing of [the] next election is the implementation and execution of these agreed things. Whether they take one year or two years is beside the point. We have to do those things first.”

The MDC says that Zanu-PF has regularly hindered reforms and flouted the GPA. But Mr Biti is confident that will change, if only because the Southern African Development Community (SADC) and South African president Jacob Zuma, who are brokering talks between Zanu-PF and the MDC, are stiffening their resolve to ensure the GPA is adhered to. “Zanu-PF will always be Zanu-PF,” says Mr Biti. “They are unrepentant, they are incorrigible. But I think that Africa has seen through them. I think that [SADC], president Zuma and the world won’t allow other diversions from democratic will.”

Who’s in charge?

The MDC and Mr Biti are widely respected outside of Zimbabwe. But many investors and donors perceive them to have little real power. Zanu-PF is still in charge of several key institutions, including the central bank, judiciary and security services, and some believe it still rules the country as it likes. Mr Biti bristles at this. “I’m the minister of finance and I make real decisions,” he says. “[MDC president] Morgan Tsvangirai is the prime minister. So that’s a sweeping statement that is very inaccurate. Zimbabwe’s moved on from 2009.”

His claim is not helped, however, by Zanu-PF’s determination to implement a controversial indigenisation law, which counters attempts to attract external investment. Under the law, mining companies should cede at least 51% of their equity to black Zimbabweans or state companies.

Mr Biti concedes that indigenisation could scare off investors. But he says that mining firms can offset the need to relinquish control of their assets by investing in infrastructure and development projects. “The law isn’t what it’s been portrayed in the West,” he says. “This is not nationalisation. The [51% rule] is just a starting point. There are many exceptions. If you show that you’ve transferred technology or put in $400m, that 51% just becomes a nominal threshold.”

No exceptions

Zanu-PF politicians hardly seem willing to countenance such exceptions, however. In July the indigenisation minister, Saviour Kasukuwere, rejected black empowerment proposals from all 175 mining companies that submitted them. He said any that missed a deadline to carry out the law by the end of September would be “kicked out”.

Mr Biti does not rule out some forms of indigenisation being applied to the rest of the economy, but says that no plans have been decided for industries such as finance. “The key thing is to grow the economy, to have foreign direct investment,” he says. “But any country has a duty to democratise its economy. The minute you have a situation where 90% of your economy is foreign-owned, it’s a recipe for disaster.”

Among the finance minister’s other pressing tasks is financial sector reform. He wants to demutualise Harare's stock exchange and introduce automated trading by setting up a central securities depositary.

Zimbabwe’s banks are high on his agenda. There have been some encouraging trends recently. Total deposits grew from $1.4bn to $2.5bn last year and loan-to-deposit ratios from 52% to 65%, suggesting that credit is creeping back into the economy.

Lack of liquidity

But liquidity is still shallow, something which is hindering Zimbabwe’s growth. Manufacturers, in particular, struggle because of a lack of finance, with banks reluctant to lend beyond six months and often charging interest rates of more than 25% when they do. The situation is hampered by an absence of a lender of last resort (the central bank has access to only $7m) and interbank lending, mainly thanks to there being no acceptable collateral instruments, such as government bonds, for banks to use.

A lot of countries have adopted the attitude that they will not come into Zimbabwe as long as Robert Mugabe and Zanu-PF are there. The correct attitude should be that there are ordinary Zimbabweans who need jobs, schools and hospitals. There must be assistance [for them].

Tendai Biti

Mr Biti says that the low capitalisation of the banking system is the main cause of its vulnerability. “Up until January 2009, the banks were well-capitalised in terms of Zimbabwean dollars,” he says. “The move to [dollarisation meant] the entire economy had to start afresh and find new money. That clearly affected financial viability and capitalisation. Clearly, the banks need time to capitalise.”

He knows, however, that achieving this will be difficult without an influx of foreign money. “Zimbabwe is suffering from a capital deficit,” he says. “We need capital in the form of foreign direct investment, lines of credit and overseas development assistance.”

Diaspora to the fore

Mr Biti is also trying to woo Zimbabwe’s vast diaspora, over a million of which live in South Africa alone. He says the government wants to encourage some Zimbabweans to return home by permitting them to have dual nationalities. “We need to look after them,” he says. “For instance, we have to address dual citizenship, which our law doesn’t permit.”

He is also considering selling more diaspora bonds, following a recent $50m two-year note, which had an 8% coupon and was oversubscribed.

Mr Biti will be hoping that where Zimbabwe’s diaspora treads, donors and foreign investors follow.

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