Implications of Zimbabwe's office of president becoming vacant

A torrent of rumours that President Robert Mugabe is on his deathbed in a Singapore hospital has reignited the always combustible drama of who will succeed the 88-year-old liberation hero.

Given recent media reports about President Mugabe's health (specifically that he may be gravely ill), below Renaissance Capital explore the likely implications of any potential imminent succession.

- A presidential election would have to take place within 90 days, if the office of president became vacant due to death or resignation or removal from office, according to the Constitution of Zimbabwe. In the interim, the vice-president that President Mugabe designated to act as president when he is absent from Zimbabwe, in this case Joyce Mujuru, would assume and perform the functions of the office of president.

- Are elections likely to come sooner or later? President Mugabe's political party, the Zimbabwe African National Union-Patriotic Front (Zanu-PF), has been pushing for early elections. We think Zanu-PF's calls for an early election would subside if the party were unable to put forward Mugabe as a candidate.

- Zanu-PF factions would likely complicate any such transition. There are two factions within Zanu-PF vying for support. One is led by Vice-President Mujuru, but since the death of her husband, retired General Solomon Mujuru, in unexplained circumstances in 2011, she appears to have lost some momentum. The other faction is led by Minister of Defence Emmerson Mnangagwa, who appears to be close to Mugabe and the candidate that Mugabe would probably be more likely to favour. Of the two faction leaders, Mujuru is considered to be more conciliatory, which might be seen as positive for the Movement for Democratic Party (MDC) factions, and would be expected to push for free and fair elections.

Renaissance Capital's understanding is that foreign investors and the development community would thus prefer a Mujuru presidency, as opposed to a Mnangagwa presidency. However, Mujuru or Mnangagwa may not be viable presidential candidates, as they are widely considered unlikely to win a free and fair election on their own.

- There is a slight possibility that Mnangagwa could defy the constitution and usurp Mujuru. There are two likely scenarios in the event of an unexpected end to Mugabe's office â€" the constitutional transition process is followed, or a state of emergency is declared. We think there is a higher probability of the first scenario. In this scenario, Mujuru would assume presidential powers, in accordance with the constitution. This would be a more positive outcome for Zimbabwe, as Mujuru leads the moderate faction of Zanu-PF. In the second scenario, a state of emergency would be declared that suspends civil and political rights as well as the constitution, and allows the army to impose a ruler. This scenario would be positive for Mnangagwa and the commander of the Zimbabwe Defence Forces, General Constantine Chiwenga. But we think it would be negative for Zimbabwe, and in particular for Mujuru and Prime Minister Morgan Tsvangirai, as they would essentially be politically marginalised. If Mnangagwa takes power and/or a state of emergency is declared, the political situation is likely to deteriorate and the indigenisation process is likely to accelerate. Zimbabwe would likely come under more sanctions and foreign investment would come to a halt.

- The most likely scenario â€" Mujuru assumes power. However, thereafter there would be uncertainty around the selection of a presidential candidate for Zanu-PF, which is likely to be contentious. Instead of holding elections within 90 days, we think Mujuru would likely stay in office until the constitutional process is complete, allowing for an election to take place, probably in 2013. The MDC factions would likely be agreeable, as it is in their favour to have a new constitution in place before elections are held. Mujuru is more likely to hold elections that are relatively peaceful; however, her chances of beating MDC-T's Tsvangirai in the presidential race are probably low. Crude polls suggest that Tsvangirai is more likely to win a free and fair election. We expect Tsvangirai would be keen to work with Mujuru post-elections in re-engaging the international community, thus opening up the way for debt forgiveness, allowing for foreign investment and aid inflows. But history suggests that Mnangagwa's camp will use intimidation and violence to ensure a Zanu-PF win in a presidential election. The international community is unlikely to restore relations with Zimbabwe following a flawed election.

- Stock implications. In a scenario where Mujuru were to assume power and pave the way towards relatively free and free elections, this would be perceived as a positive outcome and likely result in debt forgiveness and a flow of capital into the country, which would be a major boost for most sectors of the economy, from banks (which have faced liquidity challenges) to manufacturing (where capex requirements cannot be met by internal cash generation or local borrowing). We also believe a more moderate government, whether led by MDC-T or Zanu-PF, would result in a more measured approach to indigenisation. A negative outcome would effectively remove the scope for debt forgiveness and hence large capital flows into the country. We also believe the indigenisation process could be fast-tracked to the detriment of growth and sustainability of the economy. At high risk would be foreign-owned resource companies, given their cash generation and attractive asset bases. Renaissance Capital said it continue to recommend investors to stick with quality, cash-generative businesses that are at limited risk of indigenisation and their top picks in this regard would be Delta and Econet.

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Originators of the article are Yvonne Mhango from Malawi and Nothando Ndebele a Zimbabwean both with Renaissance Capital.