To fix economy, Zimbabwe first needs political reforms

Ask the average Zimbabwean, at home or abroad, and the answer to the question of whether Mnangagwa has delivered on those promises, or not, will almost certainly be “No”.

Although Mnangagwa has deployed what is described as “flowery reform rhetoric”, his administration's piecemeal actions belie any movement toward genuine political or economic reform.

“Repression has increased and the economy continues to sink,” says the Rand Corporation, a Washington-based fiscally-conservative think-tank, in a recent report.

“With the old guard and military still firmly in power – and both benefiting from perches atop the highly cartelised and patronage-based economy – genuine reform is unlikely in the next one to three years under present conditions in Zimbabwe.

Two sectors

“Politics and economics are inextricably linked in Zimbabwe, and the country will be unable to recover unless the two sectors are addressed in tandem.

“To help the country recover from years of mismanagement, corruption, and state violence, international actors – including the United States – would be wise to push the government in a coordinated fashion to implement genuine political, economic, and security reforms,” says the report.

A key finding of the think-tank was that genuine reforms were unlikely under present economic and political conditions in Zimbabwe and in the lead-up to national elections in 2023.

“Zimbabwe is likely to continue down a path of political polarisation, protests, political violence at the hands of the state, and economic deterioration.

“Although the Mnangagwa government has taken some modest steps that could be seen (together) as an indication of progress – particularly on the economic front – there is a wide gap between the government’s reform rhetoric and the reality on the ground.

“Well-rehearsed slogans appear to be largely political theatre targeted at the international diplomatic community and investors.

Reform promises are severely lagging.

“On the political front, reform promises are severely lagging (while) the Mnangagwa government continues to prevent and violently suppress political protests, and the media remain heavily biased in favor of the ruling party,” says the report.

Few tangible steps have been taken toward reconfiguring Zimbabwe's autocratic system. Security forces have cracked down on protests since Mnangagwa came to power and the military, which has always played a prominent role in Zimbabwe's political life, has increased its influence under Mnangagwa.

Despite a brief government surplus and the introduction of a new currency aimed at curbing inflation, the economy is again close to collapse, says the recent country assessment.

Zimbabwe is suffering from fuel, food, and electricity shortages reminiscent of its political and economic crisis in the mid- to late-2000s.

The Mnangagwa administration, it is suggested, needs to make reforms which “would go a long way towards putting Zimbabwe on the democratic path, lessening high levels of political polarisation, and repairing the collapsing economy”.

Far cry

“The international community should proceed with extreme caution on economic support for the government,” concludes the report.

That assessment, which is not especially severe on Mnangagwa’s governance record, is a far cry from his pledge after being sworn in of “radical economic reforms” to correct his country’s severe downward economic trajectory.

The then-75-year-old former security chief’s promises of a new era for Zimbabwe after years of international isolation and economic malaise gave some hope to Zimbabweans.

Mnangagwa positioned himself as the leader who would bring an end to the hard times, re-engage with the international community, and open the country for business.

But voting in the 2018 elections was marred by a post-election crackdown in which soldiers killed six people, and by opposition allegations of fraud.

The violence and contention left Zimbabwe divided and severely hampered Mnangagwa’s efforts to attract vital foreign investment.

In particular, Zimbabwe has been unable to make headway on weighty sovereign debt – officially well over 200 per cent of GDP at US$7 billion, but that is without another US$4 billion owed to other African states and China.

At the time Mnangagwa officially took over from Mugabe, Zimbabwe had urgently to clear about US$2 billion in debt arrears to multilateral institutions, mostly owed to the World Bank, and could not begin discussions for new loans.

Since then, economic conditions in the country have worsened considerably.

Mnangagwa’s attempted reforms towards opening Zimbabwe for business include abandoning his predecessor’s “indigenisation” policy, which “requested” (read required) businesses to cede 51 per cent equity stakes to “indigenous Zimbabweans”.

This policy has made investment in Zimbabwe unattractive and has discouraged potential investors, as acknowledged by the Zimbabwean foreign minister.

The move was meant to empower local businesses and spur Zimbabwe’s platinum and diamond mining sectors, thereby generating important growth and foreign currency.

Zimbabwe’s mining sector, being second only to South Africa’s in the region, possesses many undeveloped mineral resources.
But such efforts, along with the launching of a new currency to replace the US dollar, which was taken up after the Zimbabwe dollar collapsed due to a million per cent runaway inflation under Mugabe’s rule, failed to take off.

Bond note

In November 2016, Finance Minister Mthuli Ncube introduced the Bond note as Zimbabwe’s currency to address the continued repercussions of the 2008/2009 liquidity shortage.

By 2018, the effort to revive a domestic currency had failed and most Zimbabweans reverted to using US dollars and South African currency.

The African Development Bank Group has said it considers Zimbabwe’s fiscal imbalances as “significant inhibitors” to development.

As a result of all the economic headwinds, unemployment pressures have mounted as employment opportunities have continued to dwindle.

The World Bank said another million Zimbabweans entered extreme poverty in 2019, even before the Covid pandemic hit the already failing economy.

The country’s poor have also been subjected to a steep rise in the price of basic commodities and food due to recent droughts.

Food and non-food prices inflated 319 per cent and 194 per cent respectively, in July 2019 alone, according to one analysis.

Reduce spending

Mnangagwa has also attempted to cut government spending and increase tax revenue but these austerity measures have not been widely popular since the majority of those still formally employed are in the government sector and few businesses can manage new taxes.

Private-sector development is very limited in Zimbabwe and hindered by lack of investment regulation, high input costs, outdated machinery, and inefficiency and corruption in the bureaucracy.

The brief economic ‘boom’ after the 2018 election – despite some post-poll violence and poll fraud claims – was due to consumer confidence from a relatively peaceful election.

Zimbabwe’s GDP subsequently contracted by 7.4 per cent in 2019, and has been hammered further by the Covid crisis, the exact extent being largely unknown as most economic activity is now in the informal sector.

The International Monetary Fund (IMF) said Zimbabwe urgently needed a concerted effort to coordinate fiscal, monetary and foreign exchange policies, along with implementing non-essential spending cuts and agricultural support reforms while enhancing central bank independence and transparency.

One issue

The recent agreement by Mnangagwa to pay out US$3.5 billion to some 4,500 dispossessed white commercial farmers is a move to address one of the lingering issues arising from Mugabe-era land-grabs – but there is no money to pay this compensation.

The IMF has also stressed the need to address “governance and corruption challenges, entrenched vested interests, and enforcement of the rule of law” in order to improve the business climate.

It is expected by economists at the IMF and other international financial bodies that 2020 will prove to be “extremely testing” for the Mnangagwa government, the Zimbabwean people, businesses and investment.

There seems, to these observers and analysts, “little prospect of a major improvement to Zimbabwe’s economic and financial challenges in the short- to medium-term”, as one put it.

And those few measures in place designed to improve prospects were likely to have negative social consequences, with some accompanying risk to political instability.

Such is the uncertainty around Zimbabwe’s future economic stability that some analysts here have begun to ask whether Zimbabwe has reached the point where public outrage and a failing economy will unite to inspire another ‘soft coup’ such as that which ousted Mugabe.