PRIME MINISTER TSVANGIRAI . . . formed a power-sharing government with President Mugabe in February

HARARE – Failure by Zimbabwe’s coalition partners to solve outstanding issues from their power-sharing deal is holding back foreign investors from returning to the country, according to a report released last week by a Russian investment house.

The report by Renaissance Capital, titled "Zimbabwe: 2010 outlook: Cementing the turnaround" says the global political agreement (GPA) signed by President Robert Mugabe, Prime Minister Morgan Tsvangirai and Deputy Premier Arthur Mutambara leading to formation of the government of national unity last February was the best viable option for the country.

But Renaissance said failure to implement the deal in full has become an impediment to investors.

"Politics remains the key determinant of external funding for government – specifically, how quickly the respective parties can resolve their outstanding issues," the report said, adding; "Political tensions have also limited the inflow of funding from external sources, specifically the West, however Zimbabwe did receive its general allocation from the IMF ($510mn), under liquidity support measures to combat the global credit crunch.”

The investment house does not see the unity government completing the constitution-making process in time to hold elections by 2011. Renaissance also feels that the country’s political environment is still volatile.

It said: "However we do not expect elections to take place in the medium term, given the potential for re-polarisation of the political climate. In our view, the GPA remains the most viable political arrangement for Zimbabwe. We remain positive on economic prospects for 2010, and forecast GDP growth of 7.1 percent, and year-end YoY (year-on-year) inflation of 6.1 percent."

For 2010, the investment house thinks Zimbabwe’s intrinsic fiscal shortfall will increase to $810mn (14.6 percent of Gross Domestic Product from $391mn in 2009 (7.5 percent of GDP).

"The country’s Ministry of Finance assumes the deficit will be funded externally. We estimate Zimbabwe’s external debt at $5.4bn, of which $3.8bn is arrears. We note that the government plans to set up a debt management and clearance office at the Ministry of Finance to devise a reduction and clearance strategy,” the investment firm said.

The report said the signing and ratification of the Bilateral Investment Promotion and Protection Agreement (BIPPA) agreement between Zimbabwe and South Africa, in November last year should spur an increase in FDI inflows.

"Other initiatives to promote greater investment will likely include resolving issues at the Reserve Bank of Zimbabwe (RBZ) to better promote depth in the financial system, and therefore credit growth, as well as clarity on the issue of tenure on agricultural land," it added.

Mugabe, Tsvangirai and Mutambara formed a coalition government nearly a year ago to end a political crisis following an inconclusive election. 

The government has done well to stabilise Zimbabwe’s economy and end inflation that was estimated at more than a trillion percent at the height of the country’s economic meltdown.

But unending bickering between Mugabe’s ZANU PF party and Tsvangirai’s MDC as well as the coalition government’s inability to secure direct financial support from rich Western nations have held back the administration’s efforts to rebuild the economy.