Countries face mixed economic fortunes

The latest economic forecasting from the London-based Economist Intelligence Unit (EIU) shows that most southern African countries are facing mixed economic fortunes. In Zambia, the EIU noted that the economy was slowly becoming more service orientated despite recent investments in copper. "Zambia's comparative advantage is abundant fertile land suitable for agriculture, coupled with large water resources," said the EIU. "HIPC (the Heavily Indebted Poor Country Initiative) debt relief is likely to be awarded in full at the completion point, which is likely around 2003/04." The unit added that Zambia would continue to receive donor support as it was regarded as an "island of political peace" in comparison to its neighbours such as Angola, the Democratic Republic of Congo (DRC), Zimbabwe and the Caprivi strip in northern Namibia. According to the EIU South Africa's economic prospects were "cautiously optimistic", with the real gross domestic product (GDP) likely to pick up "gently". "However, the main external threat to the Economist Intelligence Unit's forecast remains a prolonged recession in the US, accompanied by instability in world financial markets, which would hit South Africa in terms of both growth, trade and FDI (foreign direct investment) inflows," said the EIU. "The rand is also highly likely to come under some significant pressure, even though the currency is already undervalued against the US dollar by roughly 30 percent". On the political front, the EIU said that President Thabo Mbeki's government was facing a "very challenging period". "The administration will come under the political spotlight regarding its handling of a controversial (and allegedly corruption-prone) arms deal; AIDS policy; the issue of rural and urban land; and in its handling of trade union action against its privatisation policy, as well as the divestment policy itself," warned the EIU. It added that party-political activities over the next 12-18 months would be dominated by the consolidation of the opposition and the possibility of a leadership struggle within the ruling African National Congress in the run-up to its national congress scheduled for December 2002. "Mbeki is not likely to face a serious challenge until 2009, when he is constitutionally required to step down. The crisis in Zimbabwe will remain a constant drain on time and political energy in the early part of 2002," the EIU said. The Malawian economy would continue to run large fiscal deficits because of poor financial management, relatively high rates of inflation and poor terms of trade, said the EIU. It added that this would affect the value of the its currency, the kwacha. The EIU added that the Malawian government needed to diversify the economy away from tobacco production and that there had only been "limited efforts" in this regard so far. According to the EIU President Bakili Muluzi appeared to be "gearing up" to stand for a third term in 2004, something that would require amendment of the constitution. "Opposition parties are in a state of flux: the former ruling group, the Malawi Congress Party, is split between two factions, the recently formed political group, the National Democratic Alliance, and a grouping informally supporting the current ruling United Democratic Front. Party re-alignment will not likely happen until elections take place," said the EIU. In Botswana, one of the most prosperous economies in the region, the EIU said that the economy would remain dependent on diamonds. It warned however that this sector was threatened by a possible prolonged slowdown in the US economy following the 11 September terror attacks and the "negative fallout" from the current campaign against "conflict diamonds". "HIV/AIDS will have a growing impact across the economy - Botswana has the highest prevalence in the world - although the pandemic will have a limited affect on the capital-intensive diamond industry," said the EIU. On a more positive note, the EIU said that Botswana was "much better placed" than most southern Africa countries to deal with the financial implications of the disease "because of the country's substantial foreign reserves and access to capital markets". It said that "solid finances" meant that Botswana was expected to remain rated as the best (economy) of all countries in the region. Politically speaking, the EIU said that domestic politics would focus on the build-up to presidential and legislative elections in 2004. "Divisions within the ruling Botswana Democratic Party (BDP) over the prospective presidential candidacy of the vice-president, Ian Khama, will intensify," said the EIU. "A new leader for the main opposition party, the Botswana National Front, is scheduled to be chosen in November. A unified opposition could mount a credible challenge to the BDP, but relative political stability will not be threatened." In war-torn Angola, the EIU cautioned that a lack of financial transparency would continue to be a problem. It added that the staff-monitored programme with the International Monetary Fund (IMF) had been extended to of this year, in theory to allow the government to meet outstanding targets. "However, this is very unlikely to happen, since Luanda does not want to deliver on its commitments to the IMF (although this will not stop the authorities from continuing to court the Fund to buy time). The IMF seems to be aware of this but has little choice but to participate in the charade," said the EIU. "Oil production will increase to 1.3 million - 1.5 million barrels/day by 2005, putting Angola into the same league as Kuwait." The EIU said that Angola was stuck in a "military stalemate" with both sides determined to maintain a costly war of attrition. "However, both sides do appear to realise that it is necessary to find some kind of alternative to the current impasse," the EIU said. "The two sides are still too far apart for there to be any imminent prospect of dialogue or peace, but talks could reach some suitably ambiguous position that allows a cease-fire and an end to the current killings." The base of the Namibian economy, the EIU said, would continue to consist of agriculture, mining and fishing, all of which were "vulnerable" to "external shocks". Greater offshore diamond recoveries and a new zinc mine should boost real GDP growth, in 2003 particularly, the unit noted. It added that the government was not expected to gain control of recurrent expenditure, ensuring that the fiscal deficit will remain around 3 percent of GDP. The main political developments, said the EIU, will be based around the build-up to presidential and legislative elections in 2004. "A new party leader should be chosen at the ruling South West Africa People's Organisation (SWAPO) party conference next year. Several candidates are in the frame and there is a risk that not all will accept defeat," the EIU said. "Should divisions open up within the party, the president, Sam Nujoma, may attempt to alter the constitution to stand for a fourth term in office, which would bring international condemnation." GDP growth in the Indian Ocean island of Mauritius will slow to 6 percent in 2002, down from 6.1 percent in 2001, the EIU said. It added however, that GDP growth would likely pick-up and improve to an estimated 6.4 percent in 2003. "Agricultural sector growth is forecast to stay fairly constant at around 5.4 percent in 2002-03. Financial services growth is expected to slow to around 6.8 percent in 2002, before increasing to 7 percent in 2003, with tourism following a similar trend," added the EIU. On the political front, the unit said that 2003 would prove to be a difficult time for the government. "Paul Berenger, currently the deputy prime minister, is due to take over as premier, while the current prime minister, Sir Anerood Jugnauth, becomes president," said the EIU. "The coalition was entered into on these terms, and includes an agreement to alter the constitution to give increased powers to the largely symbolic presidency. Terms of the expansion of powers and the transition could well prove destabilising to the coalition, whose term does not expire until 2005."