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16 January 2018
Zimbabwe- Where to now?

Zimbabwe- Where to now?

  Zimbabwe’s unexpected revolution in November 2017 took just a few weeks. As citizens wearily braced themselves for Robert Mugabe, 93, to serve yet another five-year term in power from 2018...

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  • As stated by the authors of Making Africa Work, tourism is one of the most – perhaps the most – promising sector for many African countries, because it offers a possibility for the creation of a large number of jobs, especially for new entrants to the labour market. Having started tourism startups in East Africa, NTU-SBF invites Cherisa Kwong, entrepreneur from Singapore and owner of TribeXploer, and Mark Aikiriza, entrepreneur from Uganda, to share their expertise to increase awareness of Africa through tourism. 

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The military, who finally removed Mugabe, carefully avoided undertaking a textbook coup d'état in order to circumvent the need for regional intervention in the extraordinary events. Indeed, Zimbabweans insisted on social media that the Southern African Development Community (SADC) keep out of it. The antipathy towards regional leaders is based on years of perceived betrayal of ordinary Zimbabweans by the SADC, which has legitimised what were widely believed to be elections rigged to keep Mugabe in power.

The news delivered on national television late one night by a military general that Mugabe was under house arrest and the army was taking action against criminals surrounding the president, came as a shock to citizens. They awoke the next day to tanks in the streets. It didn’t take long for the celebrations to begin.

A few days later, Harare, the capital, was flooded with thousands of people hailing the previously hated military, celebrating, hugging and crying. They also called in unison for the president to actually resign. Similar scenes were last seen 37 years ago in 1980 when cheering Zimbabweans flooded the streets to welcome Mugabe home from exile before electing him president.

What began as a factional battle in the ruling party turned into a revolution. When the dust settles, Zimbabweans may find either that real change is underway or that they have become a de facto military state with a leader cut from the same cloth as their ousted dictator.

BACKGROUND

Zimbabwe’s economy has been on a rocky road for many years as a result of poor governance, a lack of policy vision and political expedient actions by the president and ruling party. Structural reforms and political accountability, even in the darkest days of economic collapse, were politically unpalatable; they were at odds with the survival of Zanu-PF. Instead, for the most part, the government followed a path of patronage, pillaging, and, crisis management. Instead of tackling its problems, it cast about for scapegoats and enemies to blame.

Many believe the problems are recent. But Mugabe’s record has been chequered for a long time. His intolerance of opposition showed in the early 1980s, soon after he became head of state (then prime minister). The army, at his behest, killed at least 10,000 Zimbabweans in a campaign to quell dissent in the region of Matabeleland.

Economic problems also appeared early on. High investment in health and education in the early days of his rule, albeit designed to counter the neglect of the masses by the former Rhodesian government, resulted in unsustainable levels of public expenditure, which also crowded out private investment and fuelled inflation. The implementation of an IMF structural adjustment programme in the early 1990s, which aimed to fix mounting economic challenges, exacerbated the problems and the project was abandoned by Mugabe before it had run its course.

The president made costly political choices. In 1997, for example, he made unbudgeted payments to restive war veterans demanding payment for their role in the war of independence. The effect on an already ailing fiscus was dramatic. The Zimbabwe dollar fell by 70% against the US currency and the stock market plunged overnight.2 This was followed by Zimbabwe’s expensive, and unnecessary, intervention in the Democratic Republic of Congo war.

In 2000, the emergence of the first serious opposition to Zanu-PF since independence in the form of the Movement for Democratic Change (MDC) triggered a decade of violence against opposition supporters and a slew of rigged elections.

But the biggest economic upset was the seizure and redistribution of thousands of white-owned commercial farms, which formed the backbone of the Zimbabwe economy. This began in 1998 but gained momentum after 2000 when farmers were accused of supporting the MDC. Commercial agriculture output plummeted, with a knock-on effect on the manufacturing sector, which was tied to agricultural inputs. It also affected tobacco production, a key export.

Meanwhile, the government began to print money to cover its debts, unwilling to reform in order to attract new investment. The economy eventually collapsed in 2008 under the weight of hyperinflation that reached nearly 231,000,000% in the summer of that year.

2008 was also a pivotal year politically, as Mugabe and MDC leader Morgan Tsvangirai went head to head in an election characterised by disputed results and unprecedented levels of violence. Eventually, the SADC intervened, brokering a government of national unity in which Mugabe remained president, Tsvangirai became prime minister and cabinet posts were shared among the main parties.

The uneasy political compromise, while it disappointed Zimbabweans hoping for change, allowed the economy to stabilise. The Zimbabwe dollar was replaced by a multicurrency regime, which enabled the wheels of commerce to turn again.

2013 ELECTIONS AND BEYOND

The unity government ended in 2013 when the next election ushered Zanu-PF and Mugabe back into power. Their obstruction in implementing media, security and electoral reforms that formed part of the unity government negotiations, served them well. It also highlighted the weakness of what was by then a fragmented opposition, beaten down by years of fighting on an uneven political playing field.

But it was business as usual for the newly installed administration, which had no workable plans for the economy. Western investors, still waiting to see the back of Mugabe, mostly kept away. The government’s Look East policy, designed to lure less critical Asian investors to Zimbabwe, had limited success. The challenging business environment and concerns about policy predictability remained. A particular issue was the indigenisation legislation that forced foreign investors to cede 51% of their companies to locals.

Manufacturing continued its decline, with companies battling with power shortages and unable to source foreign exchange for inputs and machinery upgrades. Imported goods flooded the market, particularly from neighbouring South Africa, and the trade deficit widened to more than $3 billion by 2015.4 In 2016, Zimbabwe received foreign direct investment of just $320 million.

The opportunity presented by Zimbabwe’s significant diamond fields was undermined by the widespread looting of the commodity by military leaders and political elites in partnerships with Chinese and other companies licensed to mine them. It is suspected that more than $15 billion worth of revenues were diverted from the national treasury.

While the multicurrency regime allowed nine currencies as legal tender, most citizens preferred the US dollar. However, this removed control from the monetary authorities. Cash quickly disappeared across borders and, as cash shortages loomed, it increasingly was stashed under mattresses. The Reserve Bank of Zimbabwe said in 2015 alone, $1.8 billion worth of dollars left the country. Zimbabwe’s budget in 2017 was just $4 billion.

The use of the US dollar has also made exports and tourism expensive, particularly for regional trade and tourism as all currencies in the region are weaker than the US currency.

In 2016, in a desperate measure to introduce liquidity, the government announced a limited number of “bond notes”. These were theoretically backed by hard currency, but their value against the real dollar quickly deteriorated, reaching lows of 80% against the greenback. Zimbabweans mistrusted the move, believing it was a way of introducing through the back door a new local currency that the authorities could control. The existence of a quasi-currency that was not tradeable beyond Zimbabwe was also unappealing to investors.

Zimbabweans have eschewed the use of the South African rand as a result of the currency’s volatility and rising political risk in that country. It would, however, make more sense given that South Africa is Zimbabwe’s biggest trading partner and about 70% of Zimbabwe’s tourists come via its southern neighbour.

The long-term dysfunction of the economy has had wider consequences. Key among them is the erosion of institutions and the dysfunction and even paralysis of state-owned enterprises. Corruption had become rife, in both the public and private sectors.GDP growth declined from 1.4% in 2015 to 0.7% in 2016. Projections were for growth of over 2% in 2017 on the back of improved mining receipts.

2017: A PRELUDE TO MILITARY INTERVENTION

By 2017, Zimbabwe was effectively bankrupt. The fiscal and monetary situation was again parlous with a fiscal deficit of about 55% of total expenditure and government spending being driven by Treasury Bills, a trend that potentially put the banking sector in peril as the main buyers of government debt. Contributions to pension funds had dropped by 40% as formal sector jobs dried up and the cash crunch had hit hard, with most Zimbabweans turning to plastic and mobile money to effect transactions. Cash withdrawals at banks were limited to as low as $20 a day.

Forex transactions were sharply curbed on the back of shortages. Supply fell far short of demand. Although mining sector revenues, buoyed by increasing commodity prices and improved productivity from the gold, platinum, chrome, nickel and coal sectors, rose, the currency was quickly snapped up.

Foreign institutions tightened transaction limits on international cards, while nearly 50 international correspondent banks turned their backs on Zimbabwe.

The Mugabe government’s response was to criminalise black-market foreign currency trading. Similarly, it imposed price controls on a range of goods, blaming retailers for profiteering. But it steadfastly refused to cut expenditure on the public service, which swallows more than 70% of the budget.

Overarching the economic problems was a gathering political storm that had its genesis in the succession battle that had raged around the presidency for years. Two clear factions had emerged: Team Lacoste, headed by long-time Mugabe ally and first vice president since 2014, Emmerson Mnangagwa, and G40, fronted by first lady, Grace Mugabe, whose political ambitions to succeed her husband, once muted, became clear in 2017.

She openly campaigned against Mnangagwa, accusing him of plotting to topple Mugabe, as she had done with his predecessor, Joice Mujuru, who was eventually fired. Mnangagwa suffered a similar fate at her hand, being removed in early November from government and the party. He fled the country.

But his friends in the powerful security establishment came down on his side. Within days, tanks rolled into Harare. In a rapid sequence of events that stunned Zimbabweans and the world, Mugabe was put under house arrest, government buildings were sealed off and a general was seen on national television announcing that the military had taken over in the interest of saving Zimbabwe. He said Mugabe was safe, but the criminals around him would be targeted. Several ministers and G40 members were arrested while others fled.

Mugabe, under threat of impeachment and removed as president by his party, resigned a few days later. Zanu-PF also restored Mnangagwa’s membership and voted for him to finish Mugabe’s five-year term, with a new interim cabinet, ahead of elections due to be held by mid-2018.

THE MNANGAGWA PRESIDENCY

The interim cabinet was a disappointment to Zimbabweans hoping for change. It was full of old Zanu-PF hacks with military leaders in key appointments. In essence, it was a “payback” cabinet. The need to keep the military and the party sweet is bound to have been on Mnangagwa’s mind when he chose his line-up. Many hope that with political debts taken care of early on, there is a chance for a reform cabinet after next year’s poll in the likely event he takes part and wins. But for now, he has to tread carefully.

Zimbabweans have not forgotten that he was among those accused of siphoning off billions of dollars of diamond profits, or that he was part of the security cabal that murdered thousands in the early 1980s. Nor have they forgotten that he propped up Mugabe.

But with their backs against the wall, the economy tanking again and the prospect of a dynasty succession plan, accepting a tainted successor was a compromise worth making. Mnangagwa has, for some time, been pro-business and supportive of international re-engagement.

His inaugural speech made all the right noises. “I am not oblivious to the many Zimbabweans across the political and racial divide who helped make this day happen, and thus have legitimate expectations of the office I now occupy,” he told a packed stadium.

He vowed to uphold the constitution and conduct the election as scheduled. He promised the safety of investment, reform of land title, increased local productivity through support to industry, and improvements to the business environment, among other things. Mining, agriculture and tourism are also at the centre of his recovery strategy and investors are already focusing on new opportunities there, banking on change.

Measures announced in the 2018 budget by recycled finance minister Patrick Chinamasa on 7 December backed up the inauguration promises. Key elements included the scrapping of the 51% requirement of local ownership for foreign investors, except in the diamond and platinum sectors. Non-performing state-owned enterprises are to be privatised or closed; the public service is to be trimmed and legislation affecting business is to be reviewed.

Education received the highest budget allocation. On the downside, defence was allocated significantly more than agriculture and health, underlining the notion of Zimbabwe as a securocratic state.

International re-engagement has already begun. China, Zimbabwe’s fourth-largest trading partner and biggest investor, is leading the charge. Days after the inauguration, Mnangagwa was visited by China’s Assistant Foreign Affairs Minister, Chen Xiaodong.

China has already announced a $153 million deal to expand the international airport, build a new parliament and a computer centre at the university. None is a priority in this stricken economy, but it is a start. But more than $1 billion of Chinese money is on standby for the revival of Zimbabwe’s defunct iron and steel company, Zisco.

Britain has also beaten a path to the new president’s door and the IMF sent a delegation in early December to see what assistance it could offer to rebuild the economy. International lending is constrained by Zimbabwe’s large debt burden and Zimbabweans are wary of incurring more debt if existing obligations are cleared, but the size of the need may push the country back in this direction for now.

The region has been quietly supportive, with several Southern African presidents attending the inauguration. Their support for the new administration is important politically, as it has been for Mugabe for years.

The big test will be to see if Zanu-PF and its new president will conduct a free and fair election in 2018, particularly if the fragmented opposition puts up a united front. A level playing field would require long overdue electoral and other reforms, which may be politically unpalatable to the party.

CONCLUSION

Under the right leadership there is no reason why Zimbabwe should not quickly begin the long rebuilding process. Its institutions are resilient and there is still a reservoir of skilled professionals and nimble companies, as well as a large diaspora to tap into.

The new president can build on recent achievements in improving agricultural production and tap into rising interest in mining, telecoms and other sectors. GDP growth for 2018 is difficult to predict, but it is likely to be well above the 0.8% predicted by the IMF before the change of president. But it is vital that Zimbabwe addresses critical issues in monetary policy to really unlock opportunities.

Although the international community has fretted about the fact that Mnangagwa appears to represent more of the same, Zimbabweans believe that Mugabe’s removal was a necessary condition for economic removal and they are, for now, celebrating change as an end in itself. They seem to have finally found their voice. It will not be easy to go back.

This article was specifically written for the NTU-SBF Centre for African Studies by Dianna Games & Jaco Maritz.

Published: 16 January 2018

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