By Marthinus Havenga, Director of Cathkin Consulting (Pty) Ltd & Andrew McGregor, MD of Who Owns Whom (Pty) Ltd
It was reported that a journalist asked the then newly-elected president Nelson Mandela what he thought of Robert Mugabe, and he replied: “Mugabe thought he was the star of Africa and then the sun rose”. This may explain some of the political and economic policies that nearly halved the Zimbabwean economy between 2000 and 2008, the sharpest contraction of its kind in a peacetime economy, according to the World Bank, driving millions of Zimbabweans into the diaspora.
After Mugabe was unseated by Emmerson Mnangagwa in 2017, it was widely believed that the economy could not get any worse. Unfortunately it did, and this turn of events potentially holds dire consequences for South Africa and its companies, given the quantum of the bi-lateral trade and investment at risk.
The Who Owns Whom WOWEB database shows that South African companies have invested in just under 500 Zimbabwean-based subsidiaries, and research conducted by Cathkin Consulting highlights the importance of Zimbabwe as a trade partner, especially as an export destination for South African products:
- In 2018 Zimbabwe was South Africa’s 13th largest export destination (worth R31bn), a similar position it held in 1988, when it was 12th.
- In 1988, Zimbabwe constituted 36% of all South African exports to the African continent. By 2018 this has dropped to 9%. However, this must be seen in the context of South Africa’s exports to the continent exploding to 25% of all exports in 2018, even bigger than exports to Europe or the Americas. Africa constituted just 6% of South Africa’s total exports in 1988.
South Africa’s imports from Zimbabwe also tell an interesting story. Zimbabwe was South Africa’s 14th largest import partner in 1988, but by 2018, it had slipped to 50th – a reflection of Zimbabwe’s declining manufacturing and agricultural export base.
A Zimbabwean economic recovery is strategically important to South Africa as research conducted by Cathkin Consulting demonstrates the interdependencies of the two countries. In 2016, 41% of all imports into Zimbabwe were sourced from South Africa and 79% of all Zimbabwean exports were destined for South Africa. Interestingly, more than 74% of Zimbabwe’s oil was sourced from South Africa.
Should the Zimbabwean economy continue to decline, not only will the revenue earned by South African exporters to Zimbabwe be placed at risk, but auxiliary support services such as logistics will also be badly affected. A decline in these exports would be especially damaging as a big proportion are highly value-added in nature, as opposed to exports to China, for example, that are mainly of primary products. However, certain industries such as banks and insurance companies could benefit from such a scenario as they provide products and services that mitigate these risks.
The mismanagement of the Zimbabwe economy has led to many structural changes such as the decline in agriculture from almost 22% of GDP in 2007 to 8% in 2017. Although droughts are a contributory factor, poorly implemented land reforms, especially since 2000, had a major impact.
The manufacturing sector, likewise, declined from 27% contribution to GDP in 1992 to a mere 11% in 2017.
The post-2008 period has been particularly devastating for Zimbabwe as the global economic meltdown and the Zimbabwean financial/currency crisis took their toll.
Any reversal of fortune for these industries will present an opportunity for South African companies.
According to the Who Owns Whom report on HORTICULTURE AND THE GROWING OF CROPS IN ZIMBABWE, its main crops are tobacco, maize, cotton and sugar, and the South African agricultural industry has expertise in these areas. An example of an opportunity for South African agricultural equipment suppliers is that the area under irrigation in Zimbabwe has declined from 135,580 ha in 2012 to 78,204 ha currently. There are 300 large scale farmers and 238 000 small scale farmers and the industry is by far the biggest employer in the country.
The Who Owns Whom report on the BANKING SECTOR IN ZIMBABWE shows how mobile and internet banking have increased exponentially as the ATM network is aging and is poorly maintained. Unique to the country is the diaspora account where the vast global Zimbabwean diaspora repatriates money to their families back home.
Chapter 7 of the National Development Plan emphasises the necessity of regional economic integration, and now that one of the principal architects of the plan, president Cyril Ramaphosa, has the authority to implement it, one can only hope that South Africa will return to its previous position of respectability and influence on the continent.With political will, the Zimbabwean economy can recover. Given its natural resources, well-educated citizenry, decent infrastructure and returning exiles bringing back much needed experience and skills, the tide could easily turn.