By Newton Mambande
The Zimbabwean economy is presented with a number of opportunities to become one of the top first-world countries. This is because of its diversified range of resources, including skilled and talented human capital, the highest literacy level, a favourable climate and land. The land of Zimbabwe is endowed with fertile soils suitable for arable land and more than forty minerals.
It is, however, considered to be among the poorest least economically developed countries (LEDCs), and yet the United Arab Emirates (UAE), Saudi Arabia and Qatar have only one mineral resource, such as “black gold” (petroleum), that has made them thriving upper-middle economies. While South Korea, Sri Lanka, Singapore and Hong Kong do not have God-given resources in the form of precious mineral wealth, they are counted among the most economically developed countries (MEDCs) in the first world or developed countries.
Zimbabwe has the potential to surpass the economic giants mentioned above, provided that the principles of economics are applied religiously. Today, it is a farfetched dream or unrealistic to achieve greater economic growth because of economic mismanagement indebted to huge external debts, policy inconsistencies and reversals, toxic politics or fragile peace, corruption, illicit financial flows (IFFs), money laundering and smuggling activities that have been detrimental to the economic development of post-colonial Zimbabwe from 1980 onward.
Debts
The Robert Gabriel Mugabe administration inherited a debt equaling US$700 million from the previous colonial administrations of Prime Ministers Bishop Abel Tendeukai Muzorewa of Zimbabwe-Rhodesia and Ian Douglas Smith of Rhodesia. This debt was rooted in the armed struggle for independence in the 1960s and 1970s, when Rhodesia was forced to borrow heavily to finance the military. By then, the Rhodesian government had spent resources equaling US$1 million per day to finance the war against the liberation movements, the Zimbabwe National Liberation Army (ZANLA) and the Zimbabwe People’s Revolutionary Army (ZIPRA). Based on historical understanding of the huge debt having an adverse impact on economic growth and development, it is regarded as an inherent challenge that has spilled over to this day.
Today, Zimbabwe has huge external debts that the previous and current administrations of Mugabe and Emmerson Dambudzo Mnangagwa failed to service for a varied number of reasons. The debt amounts to almost US$20 billion, but financial experts and economists disagree with this figure, citing issues to do with a lack of transparency, accountability, and honesty by government leadership, which is unwilling to have disclosure of real figures, except for “cooking books” of public accounting. That is, the exact amount of money advanced to Zimbabwe by international financial institutions (IFIs) is not in the public domain. Such nondisclosure of real information related to public accounts management might be one of the reasons Zimbabwe has failed to clear off its debt arrears.
There is nothing wrong with borrowing from IFIs and other institutions because loans and grants are essentials of economic life. In the case of Zimbabwe, there is financial mismanagement related to the misappropriation of resources and embezzlement of public funds that has resulted in an economic meltdown.
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During the Mugabe administration, money advanced to Zimbabwe by lenders like the Paris Club and the Bretton Woods Institutions (the International Monetary Fund (IMF) and the World Bank) was used to finance “white elephant” projects, such as the National Sports Stadium and Sheraton Hotel, rather than funding investments in manufacturing industrialization and infrastructural development in the form of hydropower stations, dams and irrigation schemes. Then, in the late 1990s and early 2000s, money meant for economic development projects from Bretton Woods institutions was diverted to the ego trip to the Democratic Republic of Congo (DRC War) and to finance state-sanctioned violence against the opposition Movement for Democratic Change (MDC), civil society members, and other suspected government critics. This left the Paris Club, IMF and World Bank with no option except slapping the Mugabe regime with “smart sanctions” through the closure of credit lines. To add on that, failure to honour promise of paying international creditors and respect the rule of law has forced IFIs and other creditors not to advance financial resources for development in the 2000s.
Because of this, the Mugabe administration in around 2005 had a paradigm shift to the Look East Policy that successfully engaged an “all weather friend”, People’s Republic of China and one of the “friendly nations” the Russian Federation. Under the Mugabe and Mnangagwa administrations, they managed to secure millions of dollars in loans and grants from the Chinese, with which they were and are still able to finance white elephant projects and power retentions for governing elitists belonging to the former revolutionary party, ZANU-PF.
The resources doled out by Beijing were used to finance the construction of the new government administrative city in Mt Hampden. The Mugabe and Mnangagwa led governments constructed a new parliament complex, government offices, the presidential palace and other buildings in Mt Hampden. More so, the ZANU-PF government also built the Golden Peacock Hotel in Mutare and the National Defense College (now the National Defense University) and modernized military machinery to provide security for diamond fields in Chiadzwa against the possibility of terrorist insurgency from neighboring Mozambique. All these projects solely benefit elitists, not common citizens languishing in extreme poverty to the extent of failing to access sustainable income for food security and nutrition, basic healthcare and primary education.
To make matters worse, the diamonds, gold, platinum and other mineral wealth were mortgaged to acquire loans and grants from the Chinese and Russians. The US and Bretton Woods Institutions had forewarned Zimbabwe and her African counterparts not to mortgage precious minerals; mortgaging mineral wealth would allow the new imperialists and colonizers China and Russia to loot tenfold what is not equal to the value of infrastructural development brought by them and leave the country poorer. This was not different with the African forefathers, who exchanged gold in return for one bottle of champagne or brandy at the time of legitimate commerce in west Africa. Therefore, it is high time for government leadership to revisit their economic thinking of securing Chinese grants and loans.
The Bretton Woods Institutions are not saints in this issue of overmilking African economies. In the 1970s, the African states, namely, Nigeria, Ghana and Kenya, adopted structural adjustment programmes (SAPs) that had financial constraints on their economies because the governments would be forced to pay loans with high interest rates per annum. The SAP compelled them to have liberalized markets, enabling transitional corporations (TNCs) to compete with local companies offering inferior products and goods and employing austerity measures.
To resolve the economic problems the country had to experience in December 1987, the Mugabe administration was forced to adopt and implement economic structural adjustment programmes (ESAP) authored by Finance and Economic Development Minister, Dr. Bernard Chidzero. The ESAP, in its package, advised the government to employ austerity measures such as laying off thousands of civil servants, removing subsidies for healthcare and primary education and privatizing state-owned enterprises to pave the way for a free market economy. Such terms and conditions of an ESAP-related loan from Bretton Woods institutions failed the Zimbabwean economy, as it was admitted by Mugabe himself in person in 1999.
According to President Mnangagwa, the nation is built by its own citizens, not by foreigners. In the context of this research and economic analysis, Zimbabwe should stop depending on external debt. Supposedly, public expenditures must be financed through revenue collection and debts from local institutions (especially banks and companies). This concept might be borrowed from Adolf Hitler, who solely relied on borrowing from the local business community to fund the economic development and growth of Germany from 1933 to 1945.
Further, the Zimbabwe economy should be rescued from drowning in huge external debts by making a feasible payment plan. The wise one, former President Joachim Chissano of Mozambique, had advised the Mnangagwa administration to clear off its external debts by honoring the promise of debt payment in order to secure loans today and in the future. Thus, the formulation and execution of a debt management strategy must not be theoretical but practical. There is a debt management plan presented before international creditors in Peru by former Finance Minister Patrick Chinamasa and RBZ Governor John Mangudya; however, it has remained rhetorical instead of being realistic. In so doing, the investors lose confidence in the economy, and as a result, there would be stagnant growth or a spiral downturn of the economy.
The former Finance and Economic Development Minister, Tendai Biti, once recommended that Zimbabwe volunteer to be declared a highly indebted poor country (HIPC), so that the economy could get a rescue package from the international community and have its debts written off. The thriving emerging and middle-income economy of Ghana applied to be placed under the HIPC category, and this paid off dividends. That is, the only way Zimbabwe can go for HIPC application and acceptance rather than pretending as if everything is okay. President Paul Kagame of Rwanda advised Mnangagwa during the international food security conference that he must tell the world the truth and not lie in order to get sympathizers.
Corruption
In its 42 years of independence, the Zimbabwean economy has remained stagnant due to corruption and anti-development practices related to corruption. Mugabe admitted that diamonds worth US$15 billion were siphoned out of Manicaland, while Biti and Chinamasa, who served under the administration of Mugabe from 2008 and 2017, lamented that the Treasury was receiving less than US$41 million. This meant billions never found their way to being repatriated to the national treasury. Mugabe attempted to minimize leakage of Chiadzwa and Chimanimani diamond fields by consolidating all mines and mining firms such as Marange Resources, Mbada Diamonds and Anjin Zimbabwe into SOE, but it is allegedly said that this strategy backfired on him as it gathered momentum for his being ousted in a military coup in November 2017.
The Al Jazeera Gold Mafia Scandal has presented how mighty elitists like business and economic Pedzisai “Scott” Sakupwanya, Simon Rudland and Ewan MacMillan, among others, have smuggled and money-laundered gold and US dollars between Dubai and Harare. This unaccounted gold and money end up in London and Switzerland in the already developed territories, and the exact figure or value of bullion and money lost by Zimbabwe during the money laundering and gold smuggling activities is unknown.
But arithmetically, the US$50 billion that is siphoned off every year could be used to finance subsidization of basic healthcare, primary universal education, agriculture and infrastructural development. It is unfortunate that the cartels are not sharing their wealth with the commoners. In that regard, the nonexistence of an economic relationship between the high- and low-income groups has resulted in elusive economic growth.
In order to minimize corruption, the present and future governments must have legislation on diamond and bullion laws. The mining regulatory framework should borrow from concepts used in Botswana in the management of diamonds and bullion. Supposedly, the administrations in the present and future should introduce legalities making it compulsory for organized mining entities to invest in corporate responsibility, community share ownership trust and employee ownership trusts. This might reduce the adverse impact of corruption.
Bad Governance and Crisis-management
The Zimbabwean economy and economic crisis have historically been associated with crisis management resulting in policy inconsistencies and reversals. This has led to an economic meltdown starting from 2000 onward.
When Mugabe saw that his power was on the line, he embarked on a fast-track land reform programme (FLTP) in July 2000 after losing a referendum on February 14, 2000. The National Constitutional Assembly (NCA) and formidable opposition MDC, in collaboration with commercial white farmers, managed to mobilize 52 percent of the protest vote against the Justice Godfrey Chidyausiku Constitution Draft. The Constitution Draft had a clause mandatorily legalizing land acquisition without compensation since the Mugabe administration was bankrupt and cash strapped to finance resettlement and land redistribution programme, let’s not delve much on politics.
Looking from the economist’s point of view, the agrarian policy adopted and implemented by Mugabe was a good ideology. The aim of the policy was to address historical imbalances brought about by racial inequity and inequalities influenced by colonial land laws and policies. This agrarian policy was to ensure that the agenda of economic empowerment and indigenization is achieved in its totality to eradicate racial poverty.
The arable land was owned and managed by four thousand white commercial farmers, who underutilized farming land. So, underutilization might be one of the reasons influencing the slow economic growth of Zimbabwe, as the white farmers did not fully capitalize land to boost productivity that would drive greater economic growth and development during the first twenty years of independence. Furthermore, the white farmers and TNCs in commercial agriculture remitted much of their profits to metro capital in the UK and Western Europe instead of growing the economy. It is, therefore, arguable that Mugabe embarked on land reform to promote full utilization of land and reduce externalization of profits.
However, the agrarian policy went wrong because of the methodology applied in its implementation. Shortly before the land reform programme, 80 percent of raw material exports were mainly from agriculture. In addition to that, the food and beverage manufacturing industry got over 90 percent of its raw materials from local farms. Today, the country is importing raw materials for manufacturing vegetable cooking oil, margarine, maize-meal and soap mostly from Zambia; and yet in the past, Zambia was a net importer of Zimbabwean farm produce and end-products. The industrial productivity in the economy is operating at 30 percent of or below its capacity.
This is indebted to violent farm seizures that resulted in displacement economies. The displacement economy is highly characterized by gross violations of property rights and fundamental human rights. During the FLTRP, more than 800,000 households lost employment and a source of livelihood. There was massive vandalism of farm machinery and equipment and looting of farm resources at commercial farms like Charlsewood Estate, owned and managed by Roy Leslie Bennet and Elsie Moyo in partnership with the de Klerk couple of Kondozi Farm in Manicaland Province. Such criminalities in land acquisition resulted in decline in agricultural productivity. After the occupation of Kondozi and Charlsewood by Bennet, Moyo and the de Klerk family’s horticultural and coffee production and exports to western Europe ceased because there had been and still is a discontinuity of agribusiness operations since 2004 onward.
The land acquisition law supposedly had to be applied selectively. This meant that in the agrarian economy, there were and are still sectors treated as sacred cows. These include commercial exotic pine plantations, dairy and so forth. By then, they were referred to as export processing zones (EPZs). Such EPZs that were owned and managed by Border Timbers and Allied Timbers were invaded by illegal settlers. There was and is still no legal action taken by the government to evacuate them. This implies that failure to apply the rule of law has halted productivity.
Against this background, Zimbabwe’s board, pulp and paper industry in Mutare closed, resulting in the country becoming a net importer of Chinese and South African paper products. Yet, 100 percent of our paper products were proudly Zimbabwean in the past century. This could be applied to coffee, which used to be wholly Zimbabwean. Zimbabwe needs 15 years to resurrect the plantation agriculture industry in the Eastern Highlands if the rule of law is upheld and the plantation agrarian sector is given assurance of security.
The FLTRP disrupted the entire business cycle. This is reflected in the business closures of conglomerates such as British Petroleum (BP), Castro and Karina Textiles. Some of the businesses left the country and minimized operations due to the slowdown in the agrarian economy, but, Harare laments that “illegal sanctions” forced companies to close, suspend or minimize business.
Importantly, the indigenization and black economic empowerment programme was introduced with the aim of minimizing capital flight. This means that the government during the post-independence period has successfully empowered young black businessmen and economic elitists like Phillip Chiyanga, Peter Pamire and Supa Mandiwanzira, though the criterion itself was marred with irregularities. That is, those who managed to benefit from affirmative action programmes were and are still politically connected to the governing party.
However, the black empowerment programme scared off potential investors, especially from 2008 to 2017, when the Mugabe regime formulated a well-defined black economic empowerment policy. The policy mandated that foreign investors could not hold more than 49 percent of the shares they acquired. The legal framework compelled foreign-owned businesses to cede 51 percent of ownership to indigenous black Africans, and it was poorly defined to the extent that many investors and policy planners failed to interpret it, so it kept prospective investors at bay or suspended their plans to make investments in the economy.
The fiscal and monetary policies were and are chaotic to the extent of failing to manage the crisis economy, which is highly characterized by inflation. Currently, the multi-currency regime is one of the influences on the stagnant economy. The Mnangagwa administration is not willing to introduce a mono-currency regime by dumping the ZWL for the South African Rand (ZAR). This means that it is important to join the South African Rand Union (SARU) as it was done by Botswana, Lesotho and Namibia.
The ZAR might be suitable for Zimbabwe because South Africa is its biggest international trading partner and it would be more affordable considering geographical factors. Aside from geographical factors, the sour relations between Harare and Washington might make things uneasy. Aside from legal processes and procedures, the Mnangagwa administration should introduce a raft of political and security reforms in accordance with the international legal framework. In that regard, the Finance and Economic Development Ministry is not going to have a difficult time getting a nod from the US and formalizing full dollarization of the economy, which is currently 77 percent dollarized.
Fragile Peace and Democracy Deficiency
The worsening of the democracy deficit is due to the moral decay of state institutions and a draconian legislature. Zimbabwe historically never enjoyed peace; when the country attained independence in 1980, peace remained fragile as the country spent much of its time fighting against dissidents during the Matebeleland Crisis from 1982–87. In the meantime, there were numerous external attacks from apartheid South Africa and the Mozambique National Resistance (RENAMO) targeting infrastructure in strategic economic zones.
With the coming in of the MDC and the emergence of civil society starting from 1995 on, the government had a passage of draconian legislation reducing democratic space. Since 2000, elections have been marred by violence and irregularities associated with fraud and unethical vote-buying. Today, the PVO Bill, aimed at monitoring the activities of civil society organizations (CSOs) and non-government organizations awaiting presidential approval, is likely to result in the economy losing nearly US$1 billion from FDIs per year. This implies that toxic politics is associated with anti-development practices that led to the elusive growth and development of Zimbabwe for the past 42 years of its independence.
Recommendations for Policy Formulation and Implementation
The following are suggestions or recommendations for policy reforms for economic development and growth:
The government should open or widen the democratic space through the repeal of the draconian legislature and introduce the diaspora voting right. This boosts cash flow for economic growth and development from FDIs.De-politicization of government institutions and employment posts, or top lucrative jobs such as permanent secretary, attorney general, or university vice chancellor. De-politicization promotes efficiency and competence, which are essential for good economic management.Debt arrears must be cleared off. The government should desist from a culture of mortgaging precious mineral wealth. It is high time for application and acceptance of HIPC status. The concise and comprehensive debt management plan would enhance opportunities for receiving finance for economic development from FDIs.Financial institutions such as the apex bank and other fiscal and monetary bodies must have full independence from the Treasury and the Presidency.Liberalize stock exchange and foreign currency exchange markets to determine rates in the financial marketplace. This will halt parallel market rates, as there will be nobody trading forex in the streets. It will also encourage everyone to keep their greenbacks, which are currently kept under bedroom pillows.Incentivize exporters in the value addition chain, and this will enable the scaling up of production in the economy and job creation.Dollarization or joining SARU for currency stabilization and rapid economic growth But it should be a mono-currency regime, as it would effectively deal with hyperinflation.Land reform programme is irreversible, but something should be done to make corrections by learning from successful cases of agrarian economies such as Israel, Australia, New Zealand, the US and Western Europe.
Conclusion
Zimbabwe’s challenge of elusive economic growth and lack of economic development is indebted to huge external debts, crisis-management led policy reversals and inconsistencies, a democracy deficit and fragile peace, corruption and public maladministration. The Zimbabwe government in the present and future must create an environment conducive to the rule of law, respect property rights and fundamental human rights, implement political and security reforms, foster democracy, create a corruption-free environment, and maintain policy consistency. By doing so, it will promote rapid economic growth and the development of the country.
Newton Mambande is reachable via the following E-mail: newtonmunod@gmail.com Call/App: +263773411103