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Portrait of an economy in pain – Zimbabwe in 2015

Portrait of an economy in pain – Zimbabwe in 2015

Portrait of an economy in pain - Zimbabwe in 2015

By
Published: 14 October 2015

ZIMBABWE – The national treasury chair has a sobering effect upon its occupants. A little over a decade ago, Patrick Chinamasa, who was Zimbabwe’s Justice Minister, had an ominous message for the country’s then Chief Justice Anthony Gubbay. The Government could no longer guarantee his security, Chinamasa said.

Around the same time, a rowdy group of war veterans invaded the Supreme Court, where they sang war songs and danced on the tables, threatening the judges. It was during the early phase of a violent land reform programme. The Chief Justice, who was white, and fellow judges were seen as impediments to the land reform programme and they had to go. They had ruled in a judgment that the on-going land occupations were unlawful, thereby attracting the wrath of the executive arm of government.

Soon after Chinamasa’s statement, the Chief Justice took his exit, forced by circumstances. Other senior judges followed. It was no longer a safe environment. Chinamasa, as Justice Minister, stood aside and failed to defend them. Pleas that attacks on the judiciary were doing damage to the country went unheeded. The Chinamasa of that era had no time for such reasoning.

But the Chinamasa of that time seems to have disappeared and given way to a new version. In his place is a sober and more sensible character, willing to prioritise reason over populism. But, as he has discovered, pursuing common sense and reason can be a hazardous enterprise in the ruling party, Zanu PF. As Finance Minister, he has no choice but to deal with the realities of an impecunious country. In this portfolio, bombastic rhetoric is unhelpful. Every month, he has to scrounge around to find money to pay civil servants, let alone for capital projects or to clear long-standing arrears.

In a broad narrative of his time in office, Tendai Biti, Chinamasa’s immediate predecessor, best captures the grim reality that confronts a Zimbabwean Finance Minister. He writes of his first day in office in February 2009,

“Following introductions to the senior management team, the Principal Director (Budgets), Pfungwa Kunaka, pointed out that the following day was payday for civil servants.

“How much do we have to pay?” I asked.

“$30 million, sir” he responded.

“How much do we have?”

He shook his head in surrender. “$4 million, sir.”

“So where are we going to get the remaining $26 million?” I asked with a half-smile, beginning to understand what I had just gotten myself into.

“We were waiting for you, sir.”

(source: http://www.cgdev.org/publication/ft/zimbabwe-hemorrhage-stability-personal-journey)

Six years later, with a new Minister in charge, and an economy in free-fall, things have only got worse.

The government is broke. Corporate tax revenues have declined, as have income tax and VAT receipts, what with the recent heavy job cuts following a Supreme Court judgment in July, permitting employers to sack workers on notice. This was later reversed by legislation but tens of thousands had already been sacked. Econet, the biggest telecommunications company and one of the country’s few successful companies in recent years, was forced to cut employees’ wages by 20% early this year but last week, they announced an offer to retrench workers. If a big company like Econet is facing serious health issues, then the situation at smaller companies can only be dire.

In a recent survey by the Mass Public Opinion Institute (MPOI), 53% of Zimbabweans said they did not have a job that paid cash income. Other estimates are a lot higher than this, saying unemployment in terms of formal jobs is higher than 85%.66% said the most important problem they face is lack of cash income. The two most important sources of income are selling farm products and informal work, such as vending. 57% said their personal living conditions were bad, with 58% saying things are worse than a year before and 51% believing things will only get worse in a year’s time. Overall, 67% believe the country is going in the wrong direction.

One Minister’s unusual and thoughtless solution to the unemployment problem is to reduce the number of arts and social sciences graduates at universities. How exactly that would reduce unemployment is not clear, but that’s a Government Minister’s reasoning. Yet another Minister has come up with a new policy that O’ Level students must go on industrial attachment before enrolling for A Levels. It’s an idea that is totally at odds with the prevailing realities. Their parents are being made redundant, their older siblings at universities and colleagues are struggling to secure industrial attachment and yet this Minister thinks tens of thousands of O’ Level students must go on industrial attachment.

Most industries have closed down and if they are not shut down, the machinery is moribund and where it works, it’s old and expensive to maintain, adding to production costs. In Kwekwe, a small city in the Midlands, almost half-way between the capital Harare and the second city, Bulawayo, business for most of its heavy industries is at a standstill. A deal with an Indian company to resuscitate Ziscosteel, the iron and steel company, in the nearby town of Redcliff floundered in recent months.

In its heyday, Zisco was the hub of the region, around which other smaller companies and the entire community revolved. Suppliers and consumer industries relied on it. It sponsored a football club and produced superstars. It provided first class amenities to staff and their families, who made up the local community. Many companies that fed on it, like Lancashire Steel, Steelmakers, Zimasco are either dead or comatose, thanks to Zisco’s collapse. The situation around Zisco is not isolated. It is mirrored in many other communities around the country, which have become museums of 20th century colonial industry.

The electric rail that used to run between Harare and Gweru, the third largest city which is just a few miles from Kwekwe, is now redundant. The copper cables were stripped off and stolen a few years ago. The electric rail line would have run all the way to Bulawayo. But it stopped at Dabuka, a marshalling yard just outside Gweru. After the opening ceremony in 1982, the project wilted. Bulawayo never saw the electric train. Now it’s dead. Not a single person in Government talks about it. Notwithstanding that railway is ubiquitous in developed and emerging economies, the Zimbabwean government has abandoned it. The National Railways of Zimbabwe, like the national airline Air Zimbabwe, and indeed many other state companies, survives only because the government is too proud to pronounce death under its watch.

Probably one of the final nails in Kwekwe’s industry came just a week ago, when the Energy Minister Samuel Undenge, ordered a drastic cut in electricity supply to the fertiliser manufacturer, Sable Chemicals. Sable is the country’s only manufacturer of Ammonium Nitrate fertiliser, crucial for the agricultural industry. In response to the Minister’s announcement, Sable announced that it would suspend operations, leading to the loss of 500 jobs. This is quite apart from the impact on the agricultural industry, which will now have to rely on more expensive imports of fertiliser. Zimbabwe is already one giant supermarket of South African products.

Back in 2007, the central bank raided corporate foreign currency accounts from all banks operating in Zimbabwe. It was never paid back. Customers have been suing banks and the central bank. Earlier this year, government passed controversial legislation taking over all of the central bank’s debts. It had previously ring-fenced the bank’s assets against execution by creditors.

One company, Farmtec Ltd, was owed money for tractors that it had supplied to the central bank at a time when it was carrying out quasi-fiscal functions. It won its case in court but this year the High Court ruled that it could not attach and sell the central bank’s property as it was protected by legislation. Farmtec had to rely on the central bank’s good faith, the court said. Those who are owed money by the central bank are unlikely to ever get it back – a clear misappropriation of property rights, adding another dent to the country’s image as an investment destination.

These are the realities that Chinamasa, as Finance Minister has to face. If he tries to be sensible, as indeed he must, he risks being the target man. And already, he is being labelled by some of his own Cabinet colleagues as a “regime-change agent”, a euphemism for those accused of plotting to topple President Mugabe, who at 91 has been in power for the past 35 years.

Back in April, knowing more than most that the country was broke, Chinamasa made a bold announcement that there would be no bonuses for civil servants this year. For years, Zimbabwe’s civil servants have been accustomed to payment of the 13th cheque, an annual bonus just before the festive season, although these payments have had to be staggered in recent years, for lack of funds. It’s a sweetener that they have always looked forward to, even if its blanket payment is inconsistent with economic sense in a country where the wage bill already consumes 75% of the budget.

But soon after this announcement, Chinamasa was heavily rebuked at a public event by his boss, President Mugabe, who instantly reversed the decision and said the Minister would have to find the money. So, even as it is, with a broke government, Chinamasa is expected to pay bonuses at the end of the year.

In recent weeks, Chinamasa has come under a barrage of attacks from fellow Cabinet colleagues, Chris Mutsvangwa and Patrick Zhuwao, the latter enjoying the comfort of being the President’s nephew. Chinamasa’s major crime is that he is engaging the Bretton Woods institutions, as part of efforts to open up channels to resuscitate an economy that’s going nowhere. For the past 2 years, since he took over the finance portfolio, he has continued on the path trekked by his predecessor, Tendai Biti, then of the MDC-T. As Finance Minister, Biti steadily pursued the path of re-engagement with the Bretton-Woods institutions.

Upon taking over, Chinamasa did not change course, and like Biti, he has cultivated a good working relationship with the IMF. A few days ago, Chinamasa reported that he had agreed with the IMF/World Bank on plan to clear the $1,8 billion arrears that Zimbabwe owes. Without clearing those arrears, Zimbabwe faces serious challenges in accessing support from those institutions or any other lenders. Chinamasa knows these economic realities, hence his approach, even though it collides with his boss’ views on the Bretton Woods institutions. Mugabe has not commented yet but Chinamasa’s efforts have already attracted the wrath of his fellow colleagues.

Speaking at a public meeting of war veterans in Mutare recently, Minister of War Veterans and Chairman of the war veterans association, Chris Mutsvangwa was in combative mode and said,

“They (IMF) want to remove [President] Mugabe… they want [MDC-T leader Morgan] Tsvangirai to be at the helm. We have nothing to do with IMF because their agenda is removing war veterans from influential positions in government. They want security sector reform and they want Tsvangirai to be at the helm of the government.”

Later, speaking to a South African news channel, ANN7TV on its Africa Tonight programme, Mutsvangwa was even more critical of Chinamasa,

“It’s very unfortunate that a Minister of the Zimbabwe government becomes a spokesperson of a multinational funding agency which has got its body in Washington and answers to its shareholders also in Washington. I want to put it on record he is not their spokesperson. I think he is now appropriating a role which does not belong to him and he should stop it. When IMF officials visited Zimbabwe Chinamasa was blocking government officials and diplomats including myself from asking the IMF officials questions, and instead he was jumping around to answer for IMF.”

While Chinamasa thinks he is working to open channels to resuscitate an ailing economy, Mutsvangwa sees it as a regime-change agenda.

The recently-appointed Minister of Youth, Indigenisation, and Empowerment, Patrick Zhuwao, also issued scathing criticism against Chinamasa for his re-engagement efforts, attempts to cut the civil service wage bill and review indigenisation laws to promote foreign direct investment.

“Those who are talking about foreign direct investment are precisely saying we should go home. If he is your legislator who is saying that then he is saying youths should be fired and go home. Please sit down with him or her and tell him that he is going to be the first one to go!”

These statements were greeted with wild applause at the public meeting. Government reportedly has thousands of youth leaders, who are essentially Zanu PF youths, on its wage bill. They are referred to as “Youth Officers” and are stationed across the country. If Chinamasa goes ahead with his plan to cut the civil service, these ‘workers’ would be affected, hence Zhuwao’s fighting talk.

But Zhuwao has gone further. He is proposing a 10% indigenisation levy on the gross profits of all foreign-owned companies. This would be in addition to the taxes levied by the Zimbabwe Revenue Authority. The purposed the levy, he says, is to fund community-share ownership schemes and to encourage foreign companies to indigenise as those that are fully indigenised would benefit from discounts. The fact that this would only add to the cost of doing business in Zimbabwe and therefore make the country less attractive to investors does not seem to bother him at all. In his assessment, FDI is not that important.

What Zhuwao doesn’t say is whatever happened to the funds disbursed to thousands of youths before the 2013 elections under Youth Fund administered by the Ministry that he is now heading. Those loans from the Youth Fund, dished out to scores of Zanu PF youths, have not been accounted for. A parliamentary committee has been trying to investigate this issue but two years down the line, nothing of substance has yet emerged.

Zimbabwe has a long history of such funds that have been grossly abused. Back in the 1990s, when the indigenisation calls started, government paid out millions of dollars to so-called indigenous entrepreneurs but there is nothing to show for it. In a video at a conference in the US about 20 years ago, Emmerson Mnangagwa, who is now the country’s Vice President, spoke about millions of dollars that were given out under the empowerment schemes but were unaccounted for.

In 1998, a judicial commission uncovered rampant abuse of the War Victims Compensation Fund that had been set up to compensate victims of the war. The predominant abusers were top government Ministers and officials. Some of them claimed they had 90-98% disability, which meant they were entitled to larger claims. But those huge disability claims did not stop them working as senior Ministers and government officials. A VIP Housing Scheme, designed to assist civil servants secure homes was also abused by top government officials, a saga in which the First Lady was also implicated. There were absolutely no repercussions for those involved in these scandals. Instead, they looked for, and found new rent-seeking opportunities.

The simple fact is that Zimbabwe has a long and murky history of abuse of such funds as Zhuwao is now proposing. Before 2013, President Mugabe officiated at a lavish ceremony where it was announced that a $50 million fund had been launched by the 5 mining companies operating at the Chiadzwa diamond fields. But a year later, the companies denied that they had even made such a pledge. Some of the money paid into the fund remains unaccounted for.

Proceeds from the diamond fields themselves have, up to this day, not been accounted for. When Tendai Biti was Finance Minister, he spent 4 years protesting that the treasury was not receiving anything tangible from the Chiadzwa diamond fields. Unsurprisingly, critics have been quick to raise concern that Zhuwao’s is yet another rent-seeking opportunity which will only fuel corruption and looting. Thus, quite apart from making the environment highly unattractive and dissuading foreign investors, the Zhuwao 10% indigenisation levy proposition is seen as no more than a looting opportunity.

The country is in dire need of investment. But this fact is lost on most members of Cabinet, whose current major pre-occupation is the battle to succeed Mugabe. Electricity generation is at an all-time low. Right now, Zesa, the electricity supply authority, manages to supply power for just 6 hours a day, usually at night, when everyone is asleep. For 18 hours, there is no power in most areas. The well-heeled are turning to solar power. The Government recently announced that there would be a ban on electric geysers in all households, to save energy. Industry has suffered due to power-cuts and, to add salt to the wound, the Energy Minister said mining companies would have to cut down power-usage, which will affect production in one of the country’s largest foreign currency earners.

President Mugabe has blamed low water levels in Kariba Dam, where hydro-electric power is generated, and old equipment at the thermal power station at Hwange. What he does not account for is that the energy demand/supply mismatch and old equipment were perfectly foreseeable circumstances in the 35 years that he has been in power. Contingency measures should have been made. But no, it’s easier to blame God. The same excuse that Government has made over the years whenever there has been a low harvest, which has become a perennial affair.

Just a few weeks ago, the agriculture Minister said the country would not suffer food shortages because Zimbabwe would import grain from neighbouring Zambia. He said this without any sense of shame and added that this was in line with ZimAsset, the country’s economic blueprint. The irony is that some of the big farmers producing the grain Zimbabwe is now importing from Zambia were once big farmers in Zimbabwe before they were kicked out and settled in Zambia a decade ago. Zambia, which used to be behind Zimbabwe, then known as the bread-basket of Africa, is now far ahead of Zimbabwe.

Government proudly speaks of land reform but is clueless on how to turn that land into a productive resource. It has dilly-dallied on the issue of security of tenure, which, if properly addressed, would turn land from the current comatose state into ‘live capital’. Banks are unwilling to lend to the new farmers because, with the current system and insecurity, the land is essentially ‘dead capital’.

The patrimonial state is unwilling to trust the people it gave land with secure forms of property rights. Yet in its current state, land is unlikely to attract any meaningful investment. Government doesn’t understand that the old white farmers were successful not just because they had good land, but also because there was an infrastructure of property rights which supported farming as a business. The Government took the land but completely decimated this supporting legal infrastructure.

One expedient way to make productive use of the land in the circumstances is a form of contract farming, where new farmers team up with the old white farmers to do business. The new farmers have the land and the old farmers have the knowledge and expertise. They work together and at the end of the day, share profits. Everybody wins. But government resists this, most likely out of pride: they can’t be seen to be condoning a system that suggests an admission that the old white farmers have any use in the new set-up. That would be an admission of failure, or so they think.

However, one of the agriculture Deputy Ministers, Paddy Zhanda, himself a farmer, admitted recently that it was important to protect the remaining white farmers. He knows the race card can’t be used forever, to the country’s detriment. President Mugabe himself admitted earlier this year that perhaps the Government had given people too much land, which they were failing to utilise. “I think the farms we gave to people are too large. They can’t manage them. You find that most of them are just using one third of the land,” he was quoted as saying by the state daily, The Herald in February 2015.

But, despite these admissions, the Government has done nothing to address the situation. The new Constitution requires a Land Commission to be established. One of its duties would be to carry out a land audit, because too many senior Zanu PF people are believed to be holding on to too much land. Yet two years after the constitution was adopted, there is no Land Commission. There is no appetite to transform the system. Yet when there are low harvests, Government blames drought.

So, aware of the multitude of challenges, Chinamasa has been trying to make headway with the Bretton-Woods institutions. He realises the enormity of the problem that Zimbabwe is facing and knows all too well that it’s an impossible job unless there is some re-engagement with Western institutions, Government rhetoric notwithstanding.

Despite the Government noise about “mega-deals” with China, the Look East policy hasn’t produced much fruit in the last 15 years. China is also one of Zimbabwe’s many creditors which expects its loans to be repaid. Last year, Chinamasa confessed that he had had to make a token payment to the Chinese on loans that Zimbabwe owes. This was out of embarrassment as his boss, President Mugabe, was going to China on a state visit. Truth is, as long as we are delinquent debtors, no lender, not even China, will pay us any serious attention.

Zimbabwe can pick a few lessons from China. They look everywhere, including the West for investment and to invest. In fact, China has poured billions of dollars into Western economies in investment projects. Just a few weeks ago, the Chinese President Xi Jinping was in the US on a state visit, cementing a relationship. Just before that trip, NBC reported a multi-million dollar investment which will see China’s largest train maker, the CCRC, building a high-speed bullet train railway linking Las Vegas and Los Angeles http://www.nbcnews.com/tech/innovation/china-help-build-las-vegas-los-angeles-high-speed-railway-n429346.

This month, in October, the Chinese leader will be in the UK on a similar visit and more such huge investments can be expected. Yet when the Zimbabwean leadership talks about China and the Look East policy, it makes it seem like we are special. There is nothing special about us to the Chinese. We are just another struggling African country with exploitable resources. Ethiopia, which opened a new modern metro-rail service in Addis Ababa has received more Chinese investment than us.

In fact, on the list of top 20 African countries where China has major investments, Zimbabwe doesn’t feature at all. When the Chinese President visited African countries last year, he skirted Zimbabwe. A year before, the Chinese Vice President had held only a brief meeting with the then Vice President Mujuru during a stop-over at Harare International Airport. The country’s Vice President had to leave her office to go and see her Chinese counterpart at the airport, of all places. He was on his way to our neighbour, Zambia.

Chinamasa knows all this too well, hence his efforts to woo Western countries and bring them onside. But his fellow ministers are not amused.

It remains to be seen how Mugabe himself will react to Chinamasa’s tango with the West. It depends on whether the group that is critical of Chinamasa will gain traction. One way to do that is to suggest that by engaging these institutions, Chinamasa is already looking beyond Mugabe. It is to say that Chinamasa is acting in full appreciation of the fact that these are the last days of Mugabe, hence the engagement of groups that Mugabe has previously likened to the devil. The narrative they are already building is that Chinamasa is anti-Mugabe and that he is teaming up with regime-change agents. Mugabe will not be amused. And this might indeed, end up costing Chinamasa his job. But it won’t save the economy. It will probably only make things worse.

The fact of the matter is that Chinamasa is fighting a lone battle in an environment where the majority of his colleagues are only interested in the succession battle and this current government does not exhibit the will or the ability to rescue the country from the abyss. When elections were held in 2013, Zanu PF promised to deliver 2 million jobs. The reality is that Zimbabweans are facing 2 million problems. The one man who is trying to create a solution is instead being pilloried from all directions.

When Nigerian billionaire Aliko Dangote arrived in Zimbabwe last month, he was given rock-star treatment by Government and state media. It was welcome news, yet without solving the electricity challenge, among other ills blighting the country, he and his billions will face the same problems that have seen the likes of Econet retrenching and others like Sables, suspending operations and throwing yet more workers into the streets.

It’s a grim scenario. Yet by far the biggest pre-occupation of most politicians and government leaders in Zimbabwe today is the question of succession of President Robert Mugabe.