Foreigners set to freeze Zimbabwe investment plans

JOHANNESBURG (Reuters) - The move by Zimbabwe's opposition to pull out of Friday's presidential run-off election has hit hopes for a resumption of the foreign investment crucial to rescue the country from economic ruin.

Once touted as a beacon for southern Africa, the economy has been ravaged by inflation, which the last official figure put at an annual rate of 165,000 percent in February, although economists say the actual rate is now around 14 million percent.

Foreign currency is perpetually scarce -- one U.S. dollar now costs around 8.2 billion Zimbabwe dollars -- and residents have suffered chronic food shortages since 2001.

Critics largely blame the policies of President Robert Mugabe, who looks set to extend his 28-year rule by another five years after Movement for Democratic Change leader Morgan Tsvangirai withdrew from a June 27 election re-run, citing widespread violence against his supporters.

Official figures showed Tsvangirai won the first election in March 29, but did not secure adequate votes to avoid a re-run.

The MDC says more than 80 of its supporters have since then been killed in a violent campaign of intimidation by Mugabe's ZANU-PF, which in March also lost its majority in parliament for the first time since independence from Britain in 1980.

Prospects of another term in office for Mugabe will deter investors who have pulled out of Zimbabwe over the years but were positioning themselves to return and do business with a new government.

"I think everything will be frozen for now. All plans will be put in abeyance," said independent economic analyst John Robertson, based in Zimbabwe's capital Harare.

"I think that while everything is in abeyance at the moment, maybe people will still hold their options open, and hope that within a couple of months they can come back and renew their investigations into (investment) possibilities," he told Reuters.

Tsvangirai said on Monday he was prepared to negotiate with the ruling party for a resolution to the crisis, but that this could only happen when political violence ended.

Critics say skewed government policies have scared away foreign investors over the years, chief among them Mugabe's forcible redistribution of white-owned commercial farms among blacks, a program blamed for the collapse of the key agriculture sector.

DONORS WITHDRAW SUPPORT

The country's woes have been exacerbated by the withdrawal of support from foreign donors led by the World Bank and the International Monetary Fund.

A World Bank report on conditions for doing business around the world ranks Zimbabwe 152 out of 178 countries in terms of conditions in place for investment, down from 144 in 2007.

"Considering the level of economic mismanagement seen in Zimbabwe I would be extremely wary of investing. I think it will be quite some time before Zimbabwe offers safe conditions for investors," said Alvise Marino, a U.S.-based emerging markets economist at IDEAglobal.

"Inflation is running above 100,000 percent, legal enforcement of contracts is iffy at best, public officials corruption is endemic and as for risk of expropriation the country compares unfavorably to Venezuela," he added.

A defiant Mugabe rejects responsibility for Zimbabwe's economic meltdown, blaming it on sabotage by "Western imperialists" he says are bent on ousting him over his white farm seizures.

The veteran leader has over the last few years courted investors from Asian countries like China under a "Look East" policy, but analysts say the drive has not really yielded much in terms of real cash flows into Zimbabwe's economy.

Some Western investors are not averse to venturing in.

Last week London-listed investment group LonZim said it planned to raise a further $60-100 million through a share sale to purchase assets in Zimbabwe, betting on the country's recovery despite current turmoil.

But increasingly those investors say they are playing a longer waiting game, while the country remains well off their radar screen for more established emerging markets investors.

"I wouldn't touch Zimbabwe with what's going on now," said head of global markets for Societe Generale Philippe Langham, adding that events there may color perceptions of the rest of Africa.

"Risk levels are way too high, you don't know if you will get your money back... I think there are definitely risks that some countries in the region could go in a similar direction in the long-term (although) there doesn't seem to be anything imminent."

However the mineral-rich country, which also boasts some of the world's biggest tourist attractions like the Victoria Falls, still holds a lot of potential for investors keen to position themselves for an eventual economic rebound.

"The kind of investor we're talking about are people who take a long term view, and they would be unwilling to relinquish an opportunity where there is a longer-term potential," said Robertson.

"They mostly recognize that Zimbabwe does still have considerable potential, even if they cannot realize any of that potential yet."

(Additional reporting by Peter Apps and Sarah Marsh in London; Editing by Ron Askew)