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29/07/2013 00:00:00
by Wall Street Journal
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ALLIED Timber Holdings has felt the tremors of the approaching elections in the same painful way as other companies in the country. Suddenly, there aren't enough U.S. dollars to go around.

Allied can't seem to scrounge enough greenbacks to pay its 3,000 lumberjacks and sawmill operators on time. Some customers for its lumber, telephone poles and furniture are making late payments for the same reason.

Allied's Indian investment partners put on hold plans to build a sawdust-fueled power plant ahead of what many fear could be a contentious and scheduled for July 31.

"Essentially any investment into the country would help," says Allied's chief executive, Joseph Kanyekanye.

After widespread attacks on voters in the 2008 election, the country discarded its currency in favour of the dollar to halt hyperinflation and pull its economy back from the brink of collapse. So-called dollarization stabilized things for a while.

But deprived of its own currency, Zimbabwe is at the mercy of foreign investors, who have turned skittish again.

"In a dollarized economy, you have to attract dollars with an environment attractive to investors, and that's what they aren't doing," said Steven Radelet, a development professor at Georgetown University and former chief economist for the U.S. Agency for International Development.

"This is not really an economic problem as much as a very deep political problem."
Some investors say just putting the election behind them will make it easier to do business in Zimbabwe.

South Africa's Standard Bank Group has slowed lending in the country this year along with other major foreign banks, including Standard Chartered PLC and Barclays PLC.

But Chris Clarkson, executive director of Standard Bank's corporate and investment banking in southern Africa, said he is eager after the election to dive back into a country where he said he sees "a pipeline of deals as long as your arm."

To sustain the 10% annual growth the economy briefly enjoyed after abandoning the local dollar in 2009, Zimbabwe needs to win back international trust and quell intermittent calls to seize foreign-owned companies, said David Rawlinson, chief executive of South African manufacturing and engineering firm Reunert Ltd.

Reunert bought an electric-cable factory in in Harare in the late 1990s and has kept it profitable with generous credit from the parent company and regular shipments of raw copper and aluminium.


But Rawlinson said his dream of expanding the 200-employee operation to tap surging demand in the rest of Africa will likely remain on hold no matter who wins this election. "We can't put money into it until things normalize," Rawlinson said.

Everyone from farmers to homeowners is feeling the cash squeeze.

Lending has slowed to a 23% annual growth rate in April from 38% a year earlier, according to Zimbabwe's central bank. Mortgage defaults have climbed past 50% from less than 20% a year ago, says the Estate Agents Council of Zimbabwe.

The country's trade deficit ballooned to $1.6 billion through April from $1 billion across the same four months in 2012, government statistics show, meaning even more money is leaving Zimbabwe than is coming in as demand for imports outpaces profits from mining and farming.

As a result, Zimbabwe's economy is sputtering. Annual growth slowed to 4.4% last year from 10.6% in 2011, the International Monetary Fund says.

For agricultural conglomerate AICO Africa Ltd., the crunch has derailed plans to restructure or sell its edible-oil and canning business. Banks still willing to lend are focused on the safest companies with the biggest cash flow, said Chief Executive Patrick Devenish.

"Liquidity in the market has tightened, and there's no credit for us," Devenish said.

The election will pit President Robert Mugabe, in power since 1980, against Prime Minister Morgan Tsvangirai. The two have been locked in a tortured "unity government" since the bloody 2008 election, when Tsvanigirai beat Mugabe in a first-round vote but then dropped out of a run-off to halt attacks on his supporters.

Mugabe set the vote for the end of this month despite calls from his political rivals and the leaders of neighbouring countries to allow more time to implement democratic and electoral reforms laid out in a new constitution that Zimbabweans adopted in a March referendum.

Tsvangirai lost an appeal for the elections to be pushed back. He has said he will compete with "sadness and reluctance."

Zimbabwe's economy has weathered waves of turmoil for over a decade, since Mugabe's allies seized white-owned farms across Zimbabwe, sparking capital flight and hyperinflation that brought commerce to a standstill.

Despite fertile farmland and rich mineral deposits - along with some of the continent's best roads and railways at independence - Zimbabwe ran aground. The economy shrank by more than a quarter between 2004 and 2008.

Allied Timber, meanwhile, is stalling for time. It is stretching out the window between customers' delayed payments and its own obligations to employees and suppliers in order to protect its balance sheet, according to Kanyekanye, the chief executive.

"If the anxiety around these elections can pass as soon as possible," he said, "then it will hopefully bring us some relief."

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