But analysts say serious doubts over political reforms are dampening the prospects of attracting foreign aid and investment.

President Robert Mugabe, blamed by critics for the crisis, was forced to share power with his rival, Prime Minister Morgan Tsvangirai, in February after last year’s disputed polls.

Dumping the worthless Zimbabwean dollar in favour of foreign currencies, such as the South African Rand and the US dollar, stopping hyperinflation at a stroke, was the first step in halting the decline.

“We now have money that fits in wallets,” one Harare resident said when asked if things were improving.

The local currency hit its lowest ebb last year, symbolised in a written warning put up at the busy Beitbridge border post by South African authorities against the use of Zimbabwe dollar banknotes in toilets, which was causing frequent pipe blockages.

A year ago Zimbabweans had to carry bagfuls of notes to purchase bread and had to queue for food, cash and fuel. Now, despite obvious continuing problems, positive signs abound.

Shopping, which had become a surreal experience with some traders intermittently closing to adjust prices by the hour as shoppers lined up outside, is no longer a frenzied affair and, with shops restocking, prices are actually falling.

Operations have also resumed at factories and mines that shut last year, hit foreign currency shortages and rocketing prices.

Joblessness remains chronic, but some Zimbabweans are now working five day weeks again and queues have appeared outside the capital’s factories as jobseekers try to get back into formal employment.

“I am hoping to get a job, at least now one can earn money that can buy something,” said Garikai Chitiyo, who left his factory job in 2007 when inflation drove his weekly transport costs above his monthly wage.

Major infrastructural works are also underway to revamp Harare’s aged water and sanitation network, blamed for a cholera pandemic that killed over 4,000 people. Poor townships have started to get water for the first time in three years.

Schools have also re-opened and teachers have returned to work across the country, while hospitals are again a place of hope for the sick after turning away patients last year.

Growth contingent on reform

The government and the IMF project the economy to grow 3,7% this year, ending a decade of contraction, and Zimbabwe’s Economic Planning Minister on Monday forecast 15% annual average growth between 2010-2015.

Factory output doubled in the first six months of 2009 and capacity utilisation climbed to 32,3% from below 10%, the Confederation of Zimbabwe Industries said recently.

But Zimbabwe is still struggling to attract some $10 billion in aid and investment to fix the economy, with major Western donors pressing Mugabe to show commitment to sharing power with Tsvangirai make real economic and political reforms.

One hitch was the government’s failure to reform the central bank, which international donors fear could misuse aid flows, Finance Minister Tendai Biti, a member of Tsvangirai’s party, told parliament on Tuesday.

“Until the political terrain is clear, investors will remain cautious about investing in Zimbabwe. So politics remain the biggest factor for the country’s economic prosperity,” Eldred Masunungure, a political analyst said.

The continuing wrangles within the coalition government would hold back progress and external support, said Witness Chinyama, chief economist at Kingdom Financial Holdings.

“Foreign direct investment and related foreign currency inflows to Zimbabwe are necessary for the rejuvenation of the economy,” Chinyama said. “These can only flow to Zimbabwe when the political environment is stable.”

More positively, though the unity government has been beset with problems, it was not in danger of imminent collapse, analysts say.

“The respective motives for the two parties to remain in the government remain intact, and we continue to believe the unity government is the most sustainable and practical solution to the political solution in Zimbabwe,” Renaissance Capital said in a recent research note.

Share market barometer

The Zimbabwe Stock Exchange (ZSE), which closed in November 2008, re-opened after the introduction of foreign currencies and its market capitalisation will reach $4,3 billion by next month, up from under $1 billion, according to Renaissance Capital.

Renaissance projects a 65% jump in the ZSE’s total capitalisation to $7,1 billion by 2011.

But the economy remains sensitive to political developments, illustrated by the ZSE’s main industrial index falling 13% last month after Tsvangirai and his MDC party boycotted cabinet, accusing Mugabe of refusing to fulfil a power-sharing pact, analysts say.

The MDC later reversed the boycott.

Miners were among the worst hit by Zimbabwe’s economic meltdown, which saw gold production plunge to an all time low of 3 tonnes in 2008 compared with a high of 30 tonnes in 1999.

But the mining chamber says most gold mines are now operating after the government allowed miners to sell their own bullion and say output will rise to 4,5 tonnes this year.

Investors will be looking at how Zimbabwe concludes its empowerment plans after passing a law last year forcing foreign owned firms to sell majority shares to locals.

The most affected sector would be mining, where world number one platinum miner Anglo Platinum, number two producer Impala Platinum Holdings and resource firm Rio Tinto have operations in the country.

And continued violence against the remaining few white commercial farmers — which many say started the country’s crisis — also casts doubt on the government’s commitment to respect property rights.