The long awaited political reforms in Zimbabwe, commencing with 2008 democratic elections that resulted ZANU-PF losing its vice like grip on power, was a moment when Zimbabwe took a deep breath in for progress and change. Following the continual stalemate of the past eighteen months, we ask when will Zimbabwe be in a position to let that breath out?

The investment environment in Zimbabwe may begin to look more promising than it has been at any time in the past decade but caution and a careful evaluation of potential risks is still advised, according to Pasco's Group CEO George Nicholls. Speaking to a select group of foreign investors Nicholls set out a 'risk roadmap' for economic recovery in Zimbabwe, referring to a number of 'mission critical' factors that will determine the country's risk profile in the short- and medium-term. Nicholls identified key junctures on the risk roadmap as being political risk and uncertainty, the implementation of the country's Short-Term Recovery Program, infrastructure recovery and managing the weight of social expectations.

Politically, Zimbabwe has been moving slowly towards normalization but the instability of the coalition government, the on-going arrest of MDC supporters and MDC politicians together with uncertainty around political succession issues remain key risk factors, Nicholls said. While the governing coalition between ZANU-PF and the MDC has endured several challenges it has displayed a decidedly on-again, off-again character that begs the question of how sustainable it will be in the longer term. “By definition coalition governments have a built-in fault line and are therefore inherently unstable”, Nicholls commented.

In the case of Zimbabwe, this inherent instability is compounded by lingering concerns about the role-loyalty of the country's military leaders towards the civilian government and the Constitution. Here Nicholls notes that in March 2008 it was the powerful Joint Operations Command (JOC) headed by Minister of Defense Emmerson Mnangagwa that intervened and propped up President Mugabe when he appeared to be on the brink of defeat at the hands of MDC leader and now Prime Minister, Morgan Tsvangirai. Many of Mugabe's generals still refuse to salute Tsvangirai in his official role as the country's Prime Minister while those that do have been branded as sell-outs and appear to be increasingly marginalised. This is a key point of concern expressed by Nicholls, who believes that in the absence of unambiguous support on the part of the military for democratic process and rule of law, the risk of a Madagascar-style intervention on the part of the army is a worrying threat. The extent of this risk may reside in the degree to which the MDC concedes to demands from senior military rulers to provide guarantees that they will not be prosecuted for alleged criminal actions and atrocities, something which Tsvangirai's party remains divided upon.

Even if political stability becomes a reality, there are a number of other challenges that should be considered so far as the risk environment in Zimbabwe is concerned. Decades of neglect have left an infrastructure that is incapable of supporting industrial expansion. A reliable supply of electricity is an immediate priority, but growing concerns about the sustainability of water supplies and a crumbling road and rail network, coupled with a critical shortage of skilled labour resources, disease and workforce malnutrition compounds the problems for new or expanded business opportunities.

Nicholls points out that the Southern African Development Community has promised a significant infusion of donor funding to address some of these challenges and to support Zimbabwe's Short-Term Recovery Program objectives, but traditional donors such as the EU, IMF and World Bank appear to be more reticent in their approach to Zimbabwe. This, Nicholls believes, is a reflection of the dual impact of global financial constraints and realistic concerns about political scenarios for Zimbabwe. “This, of course, creates ground for China to continue to exert influence on Zimbabwe. As Chinese government delegations are currying favor with both Zanu-PF and the MDC, it is a clear indication of their strategic intent”, Nicholls adds.

Taking these considerations together, investors are faced with a tough choice: enter the Zimbabwe market now, when there is still high risk and uncertainty, or delay and face the prospect that prime opportunities may go the way of players who have a stronger appetite for risk, such as China and BRIC companies.

The solution, Nicholls believes, is for potential investors to develop intelligence-driven risk scenarios pertaining to specific prospects or opportunities, and to tie investment strategy to risk mitigation plans based on those scenarios. “The value of intelligence-driven scenarios is that they allow investors to focus on credible and reliable frameworks rather than hypothetical or abstract possibilities. This allows for solutions to potential problems to be identified and implemented”, he explains. While investors may not be able to control political uncertainty and risk, for example, these risks can be monitored, predicted and factored into planning and operations. As another example of the need for intelligence driven risk decision making, Nicholls points to the need for due diligence investigations to be conducted on potential acquisitions and local partners, particularly for foreign investors who operate in jurisdictions where there are stringent requirements to compliance with good governance codes and anti-corruption legislation.

In the absence of an informed approach to investing in Zimbabwe, it may be case of holding one's breath and waiting to exhale.

Pasco is a global risk consulting company, providing a range of Protective Intelligence services for clients operating in Zimbabwe and in Africa.