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Backs to the wall

Backs to the wall

mugabe from the photo

By
Published: 3 October 2015

ZIMBABWE – Beer-drinkers should have been clinking glasses in celebration when, at the start of the year, Zimbabwe’s biggest brewer slashed the price of lager by 10%. Yet instead of chugging back their brews, Zimbabweans are being forced to sober up by an economic crisis that is hitting harder than most measures would suggest. Viewed through the bottom of a beer glass, the economy is as close to collapse as it has ever been.

Despite price cuts of more than 20% over the past year, sales of beer have fallen by 8%. Other symptoms of harmful deflation abound. The collection of value-added tax has slumped by 8%. Corporate tax receipts have fallen sharply, too, as have sales of tobacco, Zimbabwe’s main export crop. The IMF reckons Zimbabwe’s economy will grow by about 1.5% this year, but that seems optimistic, especially since a drought has halved its maize crop (and left 1.5m people needing food aid), workers have been laid off en masse and power cuts last 18 hours a day in parts of Harare.

 

Zimbabwe is no stranger to economic crisis. In 2008 it suffered a crippling bout of hyperinflation that at one point saw prices rising at a rate of 500 billion percent (see chart) before the government ditched its currency in favour of dollars. But the economic stress of this downturn is so dire that, for the first time in more than a decade, there is a real possibility of political change in the country. Robert Mugabe has ruled for 35 years and impoverished his people (see chart). His big problem now is finding money to pay the policemen and soldiers who prop up his rule.

To be sure, Mr Mugabe is a master at outlasting his foes. The Movement for Democratic Change, an opposition party that ought to have won the rigged elections of 2000 (and several since), has splintered into bickering factions and poses no real threat. Its leader, Morgan Tsvangirai, fulminates impotently to his dwindling followers. Western countries have also been outsmarted. The European Union, which slapped targeted sanctions on Mr Mugabe and his inner circle, has quietly dropped most of them. Countries that had stopped giving development aid in protest against election-rigging and violence by Mr Mugabe’s ruling Zanu-PF are now feeding hundreds of thousands of people.

Yet unhappiness is mounting within the party, and its bigwigs have started to dismantle Mr Mugabe’s economic policies, among them his plan to “indigenise” the economy by insisting that all companies must be majority-owned by black Zimbabweans. Some are even said to be trying to get him to announce his retirement.

Only the naive would count Mr Mugabe out of the game. His rule has lasted as long as it has because he has proved a master at setting potential successors against one another and ruthlessly cutting down the winner. Even now no clear heir has emerged. Emmerson Mnangagwa, the vice-president, appears to be in the lead, but his position is not secure. “There’s a vipers’ nest inside Zanu-PF fighting for power,” says Piers Pigou of the International Crisis Group, a Brussels-based NGO.

Yet Mr Mugabe’s grip may at last be weakening, along with his mind (he recently read out the same speech to parliament twice). And the stresses of this downturn are more severe than previous ones. Apart from the drought, the slowdown in South Africa is hurting. As many as 3m Zimbabweans work in South Africa, earning rands, which have fallen by 15% against the dollar this year. Officially remittances contributed some $837m to the economy last year, but many reckon that the real figure is double that and boost national output by more than 10%.

This crisis is particularly acute largely because the government’s responses to each previous one have narrowed its options. In the 1990s, when faced with a debt crisis, Mr Mugabe simply defaulted. In the 2000s, when he ran out of money, he simply printed more. When that sparked hyperinflation he ditched Zimbabwe’s currency in favour of the dollar.

Now Zimbabwe has run out of road: it can neither borrow money nor print it. By surrendering its currency it has lost not just control over monetary policy but also an important shock-absorber. If a country wants to use the currency of another, it must earn the cash through exports, investment or remittances. Yet Zimbabwe’s devastated economy imports far more than it exports, and poor rains will make matters worse. Every dollar used to pay for an imported bag of maize is one that cannot be used to pay for, say, a haircut, or the salaries of the soldiers and policemen who keep Zanu-PF in power.

This shortage of cash is forcing a brutal and deflationary internal devaluation on Zimbabwe’s few remaining private companies. Consumer prices have fallen by about 3% over the past year, and companies have responded to falling revenues by sacking workers or cutting their pay. Econet Wireless, a mobile-phone network, has reduced salaries by 35%. TelOne, a rival, has trimmed wages by 15%.

Such pay cuts pose a challenge to a government that relies on hired muscle to stay in power. Although tax revenues are falling, it seems unwilling (or perhaps unable) to cut civil servants’ pay, which consumes more than 80% of government spending. When earlier this year Patrick Chinamasa, the finance minister, tried to lower spending by suspending the payment of an annual 13th pay cheque to civil servants, he was swiftly overruled by Mr Mugabe.

Yet tough times are forcing the government to make hard and potentially dangerous choices. Earlier this year it delayed salary payments to employees of the Central Intelligence Organisation, Mr Mugabe’s spy agency. The spooks’ response hints at just how fragile his rule has become. “How does the president expect us to be loyal to him when we are being treated like this?,” one reportedly complained to a journalist. “Most of us are no longer as dedicated to the job as we used to be.”