Sept. 18 (Bloomberg) -- Zimbabwean President Robert Mugabe stacked his new cabinet with ruling party loyalists, signaling a return to policies that caused a 40 percent contraction in the economy.
Since his election victory in July, Mugabe, 89, has pledged to press ahead with a policy to force mining companies such as Impala Platinum Holdings Ltd. and Anglo American Platinum Ltd., both based in Johannesburg, to cede majority stakes in their local units to black citizens or the government. The southern African nation holds the world’s second-biggest platinum and chrome reserves after South Africa, as well as diamond, gold, iron ore and coal deposits.
“This cabinet doesn’t bring with it the air of significant change, and foreign investors will have to be convinced by actions of the appointees before they rush in,” Scott Gibb, a London-based partner at Cube Capital where he manages $750 million including investments in Africa, said in a Sept. 11 interview. “It is perhaps a wasted opportunity.”
Zimbabwe’s economy emerged from almost a decade of recession when the government in 2009 permitted the use of the U.S. dollar and other currencies including the South African rand, after the local currency’s devaluation drove inflation to what the International Monetary Fund estimated was 500 billion percent. Agriculture was decimated in the one-time grain exporter after the violent seizure of white-owned commercial farms began in 2000.
From 2009 to this year’s election, investors drew confidence from the inclusion of the opposition Movement for Democratic Change and its control of the Finance Ministry in a coalition government. The MDC, led by former Prime Minister Morgan Tsvangirai, boycotted the opening of parliament yesterday, claiming the elections were rigged.
Tsvangirai said today he wouldn’t step down as head of the MDC before his current term ends in 2016.
Following news that Mugabe had won another five-year term and his Zimbabwe African National Union-Patriotic Front secured a two-thirds parliamentary majority, the Zimbabwe Stock Exchange’s benchmark index plunged 11 percent, its biggest one-day decline since 2009. The benchmark stocks gauge has fallen by 18 percent since the announcement.
Patrick Chinamasa, who has been justice minister for 13 years, became finance minister, a position he filled for a month in 2009. Chinamasa, 66, is a senior member of ZANU-PF’s politburo, its highest decision-making body.
“An opportunity has been missed in not appointing a more technocratic minister of finance, as this is a crucial role for investors,” who will probably adopt a “wait-and-see” approach to Zimbabwe, Peter Leger, who runs a $600 million fund for South Africa’s Coronation Fund Managers Ltd., said in an interview.
While MDC Secretary-General Tendai Biti served as finance minister under the coalition government, the economy averaged 9.7 percent annual growth between 2009-2011, according to IMF data. Schools and hospitals reopened after he ensured teachers and nurses were paid.
The removal of Saviour Kasukuwere, who presided over the youth, indigenization and empowerment portfolio, and Mines Minister Obert Mpofu from their positions is positive, Leger said. Their replacements, Francis Nhema and Walter Chidhakwa, respectively, are “more technocratic and more moderate.”
Kasukuwere, 42, described himself as the “Hitler of our time” for enforcing the 2008 black empowerment law that requires all foreign and white-owned businesses to sell or cede 51 percent of their shares to black Zimbabweans or the National Indigenization and Economic Empowerment Board, Harare-based Newsday reported in April last year.
A farm owner, Kasukuwere has on several occasions also suggested banks should be forced to lend more to black farmers. “Banks just want to look nice and do not assist local people,” he told a conference a year ago.
Banks including Barclays Plc and Standard Chartered Plc must also show how they’ll comply with the indigenization law, Kasukuwere said in March.
“Implementation of the country’s indigenization and economic laws is to be pursued with renewed vigor,” Mugabe told lawmakers yesterday during the official opening of parliament in the capital, Harare. “Indigenization and empowerment legislation will be strengthened during this session.”
With Nhema and Chidhakwa likely to be “more open and pragmatic” than their predecessors, the indigenization program may not be “pushed as robustly and as abrasively as it was under the previous administration,” Piers Pigou, a researcher at the International Crisis Group, said by phone from Johannesburg.
Central bank Governor Gideon Gono also immediately reassured people he had no plans to bring back the Zimbabwean dollar anytime soon.
Mugabe has blamed the nation’s economic woes on sanctions from the European Union and the U.S., which are limited to a travel ban and an asset freeze on his most senior supporters as well as an arms embargo.
Zimbabwe has also been starved of foreign borrowing and has $10.7 billion in debt, the same size as its economy, according to the IMF. The Washington-based fund on June 13 said it will start its first program with Zimbabwe since the country defaulted on international loans in 1999. This is the initial step toward making the country eligible for external borrowing.
Ultimately, policy will be set by Mugabe and his closest advisers rather than the full cabinet, Pigou said.
“It’s not a disaster, but it won’t necessarily allay concerns,” he said.
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