Economic crisis unlikely to threaten neighbours' stability

[Zimbabwe - South Africa] Formal sector trade between South African and Zimbabwe
Zimbabweans will have to absorb a large fuel price hike (IRIN)

With inflation topping 100 percent, the local currency tumbling and over three million people in danger of going hungry, local industrialists and analysts are divided on the knock-on effects Zimbabwe's economic meltdown will have on the Southern African region.

"It is difficult to assess what all of this means just yet because of the deliberate disinformation and the poor quality of official data. Although, economic sense suggests that if the Zimbabwe economy collapses, it does not necessarily threaten the region.

"This is not to say that there won't be any long-term ramifications of what is going on in Zimbabwe now," Tony Hawkins, professor of economics at the University of Harare, told IRIN on Wednesday.

Zimbabwe, although the second largest economy in the region, accounts for only four percent of the Southern African Development Community's (SADC) gross domestic product (GDP), accounting for little more than Botswana and less than Tanzania and Angola. Neighbouring South Africa accounts for 72 percent of SADC's GDP.

"Nor is there any hard statistical evidence that the Zimbabwean crisis has cost SADC inflows of foreign direct investment in the region," Hawkins added.

Business Map, an investment advisory service based in South Africa disagrees. According to a Business Map report released in January, the South African rand has lost more than a third of its value since the beginning of the year, partially because of the instability in Zimbabwe.

Jenny Cargill, a director of Business Map said: "There has been a definite adverse contagion effect, especially on the rand, as well as on the tourism industry. While Harare continues to define its problems as domestic ones, the effects are already being felt throughout the region."

On a political level, according to political science lecturer Peter Gareth of the University of Natal, the Zimbabwean scenario has presented Southern African leaders with a difficult challenge.

"The tradition in the region is that internal matters are a country's own affair and despite Southern African governments rallying behind Mugabe's victory, the old custom of support through thick and thin is starting to waver, especially amongst countries in the region who see the Zimbabwe crisis as yet another blow to their already fragile economies," he said.

Malawi Foreign Minister Lilian Patel is under no illusions.

"To begin with, we are landlocked, and that makes us very vulnerable. Anything that happens to our neighbours happens to us," she has said, reflecting on Malawi's status as one of SADC's poorest members.

The long tradition of border-crossing to trade and look for work also plays its part. Many Malawians work in Zimbabwe.

"In Malawi, the kwacha is now seriously overvalued against the Zimbabwean dollar, encouraging massive smuggling, damaging exports and hurting local industry," Majakhathatha Mokoena, a regional political economist told IRIN.

In Zambia, manufacturers are facing a bleak future. A year after the two countries joined a new regional Free Trade Area, Zambian companies are battling with an endless supply of cheap goods pouring across the border from Zimbabwe.

The low prices are largely the result of Zimbabwe's chronic shortage of foreign currency and the huge gap between its official exchange rate and the black market rate. The disparity means Zimbabwean companies exporting through normal channels are hit with a huge mismatch between what they earn and what they must pay out for raw materials. Zambian traders can ship in goods from Zimbabwe so cheaply that they price local products out of the market.

"This is a clear case of Zimbabwe flouting trade rules, but trying to prove it could take a year, during which more Zambian jobs will disappear. The best hope for Zambian companies is probably for the economic and political turmoil in Zimbabwe to worsen. This would lead to a further reduction in manufacturing output and in exports. But that might still come too late for many Zambian companies and their employees," Nelson Chisenga, a trade economist at the Zambian Chambers of Commerce and Industry told IRIN.

Namibia, according to Hawkins, may in fact actually see some benefit in increased tourism. "While the Victoria Falls is a major attraction for tourists, many will be reluctant to venture to the country for security reasons - which could see Namibia picking up some of the tourists who would have gone to Zimbabwe," he said.

Patrick Bond, a political economist at the University of Witwaterand, said the Zimbabwe meltdown would have a mixed impact on the economies in the region, and would likely benefit South Africa.

"While countries like Malawi, Angola and Mozambique may feel the brunt of current crises, as commodity prices begin to soar in the near future and investor confidence lags, South African businesses may see the devaluation of the Zimbabwean dollar as a lucrative opportunity," Bond told IRIN.

"The Zimbabwean crisis is a political embarassement for Southern African leaders, especially since the leadership is trying to attract more foreign investment to the region under the guiding principles of good governance, but corporate South African giants are likely to take advantage of the weakening Zimbawean currency and move into the country to buy up huge assets dirt cheap."

Analysts, however, agree that the more serious result of the Zimbabwean crisis is the damaging effect it will have on already low investor confidence in the region.

"Most investors do not understand the politics in the region and tend to lump all Southern African countries together. This does not help [South African President] Thabo Mbeki, who is trying to win western governments over to the Africa recovery plan," Hawkins said.

Political developments in Zimbabwe this week did not do much to ease fears of further turmoil. On Tuesday the opposition Movement for Democratic Change (MDC) released what it referred to as the "most detailed analysis ... supporting claims that the 9-11 March presidential poll was "stolen" and "massively rigged".

The party, led by former unionist Morgan Tsvangirai, found large differences between the number of ballots tallied at polling centres and the number of votes cast according to the official results.

Some African nations have backed the results, including South Africa, Kenya, Namibia, Nigeria, Tanzania and Zambia, even though South Africa and Nigeria were part of a three-nation team that subsequently suspended Zimbabwe from the 54-nation Commonwealth group.

This article was produced by IRIN News while it was part of the United Nations Office for the Coordination of Humanitarian Affairs. Please send queries on copyright or liability to the UN. For more information:

Share this article
Join the discussion

Support The New Humanitarian

Your support helps us deliver informative, accessible, independent journalism that you can trust and provides accountability to the millions of people affected by crises worldwide.