By Newton Mambande
Since Robert Mugabe’s presidency, the economy and financial markets have experienced long periods of unstable growth, leaving the Emmerson Dambudzo Mnangagwa administration with a mess economy.
The economy was in recession mode under Mugabe from the beginning of 1987 through the end of February 2009. When confronted with insurmountable cash economic challenges, Mugabe implemented a series of economic policies in an attempt to avoid the fate.The Zimbabwean dollar (ZW$) was dropped from the international basket of currencies in 1987, and when Mugabe inherited the economy from colonial Rhodesia in April 1980, the ZW$ was stronger than the United States dollar (US$). The US$1.00 was worth ZW$0.75, while ZW$1.00 was worth British £1.00, indicating that the country had a stable currency and economic stability.By then, Julius Mwalimu Nyerere had advised Mugabe to preserve the ‘Jewel of Africa’, and even the founder President of Mozambique, Samora Machel, echoed the same sentiments that Mugabe was supposedly not to take the socialist-influenced policy path that had failed them.
However, Mugabe did not heed the piece of advice from these Pan-Africanists that had advised him not to adopt policies influenced by command economics. After the collapse of socialism, Mugabe had a paradigm shift to a free market economy determined by a structural adjustment program (SAP) that had failed in countries such as Nigeria and Kenya. Except during the tenures of President Rev. Professor Canaan Banana (1980-1987) and Prime Minister Morgan Tsvangirai (2009-2013), economic growth was not achieved during the rest of Mugabe’s presidency.Mugabe’s failure to achieve sustainable economic growth, starting in 1980 and ending in November 2017, worsened the common citizenry’s social welfare as there was deepening poverty attributed to currency instability and inflation.
Mugabe’s mismanagement of the economy and financial markets is indebted to corruption, a decline in productivity and exports, and an increased money supply in response to huge external debts. The crisis economy and economic crisis began in October 1997, when Mugabe directed the Reserve Bank of Zimbabwe (RBZ) to print more money in order to pay war veterans’ gratuities of ZW$50,000.00 (a one-time payment or lump sum) and monthly pension pay-outs of ZW$2000.00 per month.These unbudgeted pay-outs to war veterans that fought in the 1970s struggle for independence caused the Zimbabwean dollar to lose 70 percent of its value in one day and signaled a well-documented economic collapse, as stated by economic analysts and financial experts.
This was followed by the unbudgeted US$3 billion doled out to finance an unbudgeted ego trip to the Democratic Republic of the Congo (DRC) war, starting in 1998 and ending in 2002. The purpose of the war was to defend the embattled Laurent Kabila against the Tutsi rebel movements of Rwandan and Burundian origin. This had seen the country paying hugely in the economic field because of the war, which aimed to enrich certain governing elitists in the government and business, and the effects of the DRC war are still rippling to this day. Analysts argue that the war to enrich individuals through the diamond industry was one of the pivotal points resulting in an economic meltdown and weakening currency, compounding into a decade-long hyperinflation.
The government of Mugabe embarked on the hazardous Fast Track Land Reform Programme (FTLRP) which adversely transformed the face of the economy and the financial markets. The FTLRP did not attest to the fundamentals of the agriculture enterprise system that was dominantly controlled by white commercial farmers from 1890 to 2000. There were discontinuities in some forms of agriculture (e.g. coffee in Chimanimani, horticulture, and sheep in certain parts of the southern Eastern Highlands). Agriculture insurance uptake declined because the new farmers had no money and little knowledge and understanding of insurance products and services. Since 2000, it has been difficult for banks to provide financial capital for agricultural operations, and insurance companies and risk managers cannot offer their products and services to indigenous black farmers. The poor implementation of FTLRP resulted in the decline of agricultural productivity and food insecurity, as well as the decline of exports and the output of the manufacturing industry. It is, therefore, argued that the shortages brought by FTLRP implementation adversely impacted currency, leading to hyperinflation; and at the peak of the 2008 crisis economy, the RBZ had 100 trillion dollar notes being circulated in the economy and introduced the “fourth dollar”.
In this context, the government of national unity (GNU), through Finance and Economic Development Minister Tendai Biti, fully implemented a multi-currency policy regime that ended hyperinflation and an eleven-year-old economic and financial crisis that lasted from November 14, 1997 (when the stock market crashed) to February 26, 2009 (when the new GNU implemented dollarization).During the dollarization period, Biti achieved double digit economic growth and maintained single-digit inflation; however, he failed to reduce the unemployment rate from 97 percent and reduce the 75 percent of demographics languishing in absolute poverty by transforming their livelihoods to middle-class levels. Short-term economic recovery programs (STERPs) were more successful than any other government economic policy before or after Biti in reviving the economy and financial markets.
Following the 2013 harmonised elections, Patrick Chinamasa succeeded Biti as treasury chief, inheriting a US$100 million budget surplus left by Biti.The money was gobbled up in less than six months. To protect their monetary assets, the middle class withdrew US$2 billion from bank accounts because they were concerned that their savings and investments would be mopped up again.While corporate institutions had an exodus of foreign currency by establishing offshore bank accounts, it was revealed that US$3 billion was lost in the fiscal years (FYs) of 2015 and 2016, and the financial resources lost during this period were 10% of Zimbabwe’s GDP; however, the RBZ does not state how much was lost through illegal externalization of foreign currency.These financial losses between 2014 and 2017 resulted in deflation, leading to elusive economic growth and development that was sustainable. This implies that the economy under Mugabe experienced a liquidity crunch and cash crisis due to the shortage of USD notes in circulation.
ED Mnangagwa served as a chief advisor to Mugabe’s presidency for 37 years during the Mugabe regime.He was the cabinet minister that held portfolios such as state security; justice, legal and parliamentary affairs; and defense forces, just to mention a few. In the last days of Mugabe’s presidency, Mnangagwa was the vice president and minister of justice (2014–2017), and he was assigned to spearhead the engagement and re-engagement with the West and “all-weather friends” like China, so that the Zimbabwean economy could be revamped. For instance, through the RBZ governor, John Mangudya, he came up with a plan to clear off the following international financial institutions (IFIs): the International Monetary Fund (IMF), the African Development Bank, and Paris Club member states (e.g. France, Canada, the United Kingdom, and the US). Unfortunately, ED failed to yield results in clearing the huge external debt, approximately amounting to US$8.3 billion, because of factionalism in the governing party, ZANU (PF), as the G40 cabal wanted to block ED from succeeding Mugabe, when he leaves office by death or retirement.
Importantly, Mnangagwa, who was in charge of the Zimbabwe Anti-Corruption Commission (ZACC), wanted to see a corruption free environment. In order to eradicate perpetrators of corruption in the public sector, Mugabe was a stumbling block as he protected his members of the kitchen cabinet, like Professor Jonathan Moyo, the then information and tertiary and higher education minister who embezzled the Zimbabwe Manpower Development (ZIMDEF) funds to finance his campaign during the July 2015 by-election, when he bought bicycles for traditional leadership. This had inspired the international community, including the UK and the US, to lift sanctions on ED so that they could make room for re-engagement negotiations; though he did achieve what he was anticipating in terms of foreign policy objectives anchored on political and economic reform processes.
It is therefore no surprise that after the “military assisted transition”, military coup, in November 2017, Zimbabweans from all multi-faceted spheres of life sanitized the military coup as they celebrated Mugabe’s ouster. The political and economic luminaries, such as Tsvangirai; Strive Masiyiwa, the founding chief executive officer of Econet; and Trevor Ncube, the proprietor and executive chairman of Alpha Media Holdings, sanitized the military coup. All of them said that ED should be given an opportunity to run the show, forgetting that he was part and parcel of the system led by Mugabe for 37 years. Little did they know that ED was softening and sweetening everyone to negotiate his way to the presidency, and this is why the international community did not condemn the military coup because the people did not raise an objection about the act? The majority of Zimbabweans were duped by Mnangagwa’s false hope of addressing or resolving economic problems brought on by the Mugabe administration.
- Anti-corruption and amnesty for capital flight culprits: Mnangagwa offered a three-month amnesty for individuals and corporate enterprises to surrender public resources illegally stashed on offshore financial markets abroad, starting in November 2017 and ending in February 2018. Those who failed to return public property stashed abroad would face prosecution.It was estimated that between $1.42 and $591 million were stashed abroad.Government critics, political scientists, and economists estimate that US$15 trillion of Zimbabwean assets and monetary capital were stashed in the southern African region during the tenure of Mugabe’s office; however, it is argued that the capital flight in the form of illicit financial flows and the externalization of foreign currency cannot be quantified. All the facts and figures presented by the presidency and other sources evidently reflect that the presidential amnesty for violators of law was ineffective because those who failed to return public funds were not prosecuted and less than 50 percent of the funds were recovered.Currency Reform and De-dollarization of the Economy and the Financial Markets: In order to stabilize the economy and the financial markets, the Mnangagwa administration, through Exchange Directive 120/2018 in accordance with Statutory Instrument (SI) 109 of 1996 legalized the separation of foreign currency accounts (FCA), and SI 110 of 1996 encouraging discontinuities in trade transactions using foreign currency. This decision by Mnangagwa’s administration marked the beginning of the reintroduction of Zimbabwean local currency (ZWL), also known as real-time gross settlement (RTGS).
- Re-dollarization of the economy and the financial markets: The Mnangagwa administration lifted a ban on use of the US dollar and other foreign currencies in April 2020 to ease banking and trade transactions during the COVID-19 lockdown through SI 85 of 2020. This was to boost investor confidence in the economy and financial markets, as it was stated by the Finance and Economic Development Minister, Mthuli Ncube. The administration also legislated the multi-currency policy regime by enacting SI 118A of 2022. This would allow Zimbabwe to deal with its shaky economy by using the US dollar and a basket of currencies.Mnangagwa had temporarily banned lending and borrowing in financial institutions shortly before this piece of legislation, causing economic shock waves.As a result, the financial system misbehaved, causing inflation to accelerate and productivity costs to rise.
- Foreign Exchange Auction System: The foreign exchange auction system was introduced to replace the interbank market in June 2020 to provide a supportive role in improving optimism for small and medium enterprises, as it aims to ensure fairness, transparency, and effectiveness in the distribution of foreign currency. This had temporarily stabilized the financial markets and the economy. This is evident in the slowing of inflation and the economy’s 5.2 percent growth in 2021 after contracting by 6.2 percent in 2020.By the end of 2022, economic growth is projected at 3.2 percent; and the elusive economic growth is indebted to droughts and poor rains.
- Gold Coins: The Mnangagwa administration introduced gold coins into the monetary economy on July 22, 2022, as a financial and monetary policy measure to douse off inflation and stabilize the currency. By the time the Mosi-oa Tunya gold coin was introduced, the ZWL parallel market rate was at ZWL 850.00, and the introduction of the gold coin at financial markets reduced demand for the US dollar, as evident from the surge in demand for gold coins rather than green bucks. In fact, because gold’s value is not corroded by inflation, gold coins are more reliable in terms of value preservation.However, gold coins have had little effect on inflation.The local currency continues to slide at weekly intervals, though the gap between interbank market and parallel market rates has been drastically reduced, while inflation has slowed and the rate at the parallel market remains at ZWL 800.00, equal to 1 USD.
Of course, the Mosi-oa Tunya administration has stabilized the economy and financial markets, but marginalized low-income groups are still excluded from financial markets.In order to buy the Mosi-oa Tunya gold coin, at least US$1,827.42 or equivalent local currency at the prevailing interbank market rate is needed. The average Zimbabwean earns a gross income of US$150.00 before deductions such as pay as you earn (PAYE), the AIDS levy, and insurance pension; therefore, it is beyond the affordability of many people. Thus, the largest chunk of the population cannot cushion itself against hyperinflationary-induced poverty.
- The Smith Commission of Inquiry: The former President, Robert Mugabe, appointed retired high court judge, Justice George Smith, to lead the Commission of Inquiry into the conversion of insurance and pension values from ZW$ to US$, but nothing was done to take action on its findings and recommendations. It was in October 2022 when the Mnangagwa administration, through the Insurance and Pensions Commission (IPEC), had to ensure that the insurance companies and pension funds had to provide US$150 million to pensioners. This policy measure is to revive confidence in the financial markets, but with the given scenario of policy inconsistencies and little resources being channeled to pensioners, the administration has much work to do.
The economy under the Mnangagwa administration has worsened since Mugabe left in 2017. Today, inflation is at 268 percent—many times higher than it was during the last eight years of the Mugabe administration, from 2009 to 2017, as stated by ZimStat, the national statistics body.
The proportion of Zimbabweans living in abject poverty has doubled from almost 30 percent in 2017 to 50 percent during the coronavirus pandemic, according to the World Bank.
When Mugabe left office, public servants were earning a minimum of US$520.00 per month, while semi-skilled plantation laborers at Border Timbers Limited in Chimanimani and Penhalonga took home a minimum wage of US$90.00 every month. In the south-eastern lowveld, the Tongaat Hulett sugarcane plantation laborers earned a gross income of US$350.00 per month. By then, an average Zimbabwean family needed US$90.00 to buy household essentials. Border Timbers and Tongaat Hulett provide accommodation, energy, water, and sanitation for plantation laborers.This shows that the social welfare of workers was relatively good as their earnings were slightly below or above the total poverty consumption line (TCPL), and today the earnings are extremely below the TCPL.
When Mnangagwa took power following a military coup, he promised to implement a slew of policy measures aimed at instituting political and economic reforms. But the situation is getting worse under his administration. This means, the poisoned and polarized political environment since 2000 did not come to an end. To add on to that, the Mnangagwa administration has failed to engage and re-engage the West and to promote a corruption free environment. Because of this, the economy under Mnangagwa is in a mess, as reflected by the failure to improve the livelihoods of millions, bring food to the table, and tame inflation – Harare
Newton Mambande is an economic historian and a financial advisor. He can be reached at +26773411103 or via email at firstname.lastname@example.org.