15 August 2018

Zimbabwe Govt's Own Goals Leave Re-Engagement Process On Shaky Ground

Photo: 263Chat
MDC Alliance's Nelson Chamisa and Tendai Biti (file photo).
analysis

With a series of own goals, the government has driven its re-engagement plan towards, if not actually onto, the rocks. To win over the international community, President Emmerson Mnangagwa and his ZANU-PF party needed credible, if not free and fair, elections. For a time, it seemed they were succeeding but in the immediate aftermath of election day, hopes of a relatively smooth path to re-engagement began to fade.

The military overkill

The use of the military to crush a demonstration by opposition party supporters firing live ammunition killing six people including innocent bystanders crossed a red line for Western donors and lenders. The subsequent disruption of an MDC press briefing, the reported attacks on MDC supporters in high density areas over the previous weekend, the arrest of former finance minister Tendai Biti and media reports of infighting within the military-backed regime over who was culpable for the own goals undid the positives achieved on polling day itself.

As if to cap it all, the president-elect decided to intervene in the legal process by ordering Mr Biti's release on bail prompting opposition claims that the country's legal system is susceptible to political pressure. Well-intentioned though President Mnangagwa's motives may have been, the timing - the Constitutional Court is about to hear the opposition's challenge to the election results - could hardly have been worse.

Only time will tell how what impact these events will have on the government's re-engagement game plan.

The US government's hard-line statement concluding that "an electoral process marred by violence that does not respect constitutional rights and procedures" is not a step toward a brighter future for Zimbabwe's citizens has set the tone. Coming on the heels of President Trump's re-imposition of limited economic sanctions against Zimbabwe and re-affirmation of the Zimbabwe Democracy and Economic Recovery Act (ZIDERA), it highlights the serious political obstacles to re-engagement.

Even before the process can start, Harare must clear $2 billion in arrears owed to multilateral lenders - the World Bank, the African Development Bank and the European Investment Bank. Only when that is done, will talks start with the IMF on a lending programme whose conditionalities are certain to include structural reforms of a kind that in the past, ZANU-PF refused to contemplate.

Assuming an IMF programme can be reached, Zimbabwe will then have to negotiate a debt-restructuring and hopefully debt-forgiveness package with the Paris Club of official creditors (donors).

A spanner in the works

ZIDERA is not just a potential but an actual spanner in the works, because it stipulates that the US representative at the IMF and World Bank must vote against lending to Zimbabwe. Assuming this hurdle can be overcome, the process will take months to complete, meaning that Zimbabwe is unlikely to see any new money from the Bretton Woods institutions until 2019.

Over the past year, the government, state media and some businesspeople and donors have sold re-engagement to Zimbabweans as a one-way street. In this narrative, donors, lenders and investors cannot wait to spend and lend in Zimbabwe resulting in remarkable growth of 13% annually in per capita incomes to propel the country into upper middle-income status by 2030.

Economists point out that for this target to be reached, the country with virtually no domestic savings, would need to invest at least 50% of GDP each year - more than China in its growth heyday. In a country where consumption spending exceeds GDP, this is a tall order.

Such rose-tinted scenarios bear no resemblance to the reality. At present, Zimbabwe is investing 15% of GDP, two-thirds of bank lending is to the government sector, much of it to subside loss-making parastatals, a bloated public service, food prices, agricultural production (so-called command agriculture) and exports.

Formal sector employment has stagnated for a quarter of a century. The capital stock is both depleted and obsolete; less than 10% of the workforce has a formal sector job while two-thirds of the population live below the poverty line.

The reengagement pain

Re-engagement will be far less growth-friendly than officials and ministers believe. It will involve a sharp cutback in government spending, laying off thousands of people from the public sector, privatising parastatals, (more redundancies), a steep devaluation of the currency - perhaps as much as 50% - higher interest rates and increased taxation.

In the early 1990s, Zimbabwe implemented a structural adjustment programme that was very unpopular and failed to achieve its aims, largely because the government which had agreed to it, balked at its implementation.

Almost 30 years later, the economic and social climate is far worse than it was then, meaning that the reform medicine will be even more unpalatable. No-one - in the ruling party or the opposition - told the electorate what re-engagement would mean. No politician was prepared to admit that without pain there would be no gain.

The government and the media have created expectations that will not be met, meaning that whatever the outcome of the 2018 polls, their effect has been, yet again, to kick the economic can down the road while deepening the country's reliance on outsiders, the diaspora, foreign lenders, investors and donors.

Zimbabweans are about to learn that there is no sentiment in economics and that foreigners, struggling to improve living standards in their own countries, are in no mood to finance the profligacy of the Zimbabwe government.

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