Growing regional economy could be brought to a halt by political chaos

With Zimbabwe's problems now spilling over into South Africa, and the government here setting up camps on the northern border for refugees fleeing violence on Zimbabwean farms, financial analysts are warning of worse to come.

Chaos in Zimbabwe is harming what was predicted to be southern Africa's best economic growth rate in years. South Africa's currency and other regional ones are falling against the dollar and markets are suffering from the increasingly negative perceptions of investors.

Nick Barnardt, a leading South African economist, believes the direct and knock-on impacts of the Zimbabwean crisis could slash South Africa's growth. The economy was widely forecast to expand by 3.5 per cent - its best performance in two decades. "If the Zimbabwean economy totally collapses, the negative effect on growth will be 2 per cent," he said. Other southern African economies could be worse hit, especially those that trade heavily with Zimbabwe, which is currently racked by invasions of "white" farms.

They are Malawi, Zambia and Botswana, whose economies have been growing faster than South Africa's. "With Zimbabwe disintegrating, the whole region will be knocked back," said Morgan Mistry, senior economist for the South African banking group Nedcor. "Its ills will infect us all." As seriously, said Kristina Quattek, economist of the Dutch investment bank INB Barings in Johannesburg, instability in Zimbabwe is damaging investor sentiment and could radically reduce flows of money into southern Africa.

This week the South African rand and other regional currencies fell heavily against the US dollar. The rand dropped 10 per cent, from R6.10 to R6.70, against the dollar and rumours of a possible devaluation of the Zimbabwean dollar pressured the rand further yesterday. Analysts say Zimbabwe is largely to blame for the fall. Mr Barnardt, chief economist at the Johannesburg stockbroking firm AMB-DLJ Securities, holds it responsible for 3-4 per cent of the decline.

"I predicted R7 to the dollar by the end of the year. Maybe we'll get there faster," he said. About 3.5 per cent of South Africa's exports of goods and services go to Zimbabwe, representing around 1 per cent of gross domestic product. "But reduced trade has a multiplier effect, impacting not only on exporters and their employees but also on companies they deal with, goods bought in shops - all areas of business," he said.

Tourism is not included in Mr Barnardt's calculations, but it will be devastated by the Zimbabwean crisis. All of southern Africa's nations are heavily dependent economically on tour-ism, from Namibia in the west to Mozambique in the east, and have experienced a tourism boom.

"People aren't going to want to come to an unstable southern Africa for the rest of the year," Mr Barnardt said. "We've already had the floods, which hit tourism throughout the region. Many tourists do southern Africa as a package. Can you imagine them coming here now?"