The Zimbabwean economy has been teetering on the edge of a crisis for the past 20 years, save for a brief interlude during the Government of National Unity (GNU) between 2009 and 2013.
The economy is bedevilled by many ailments. The country's economic revival has been constrained by a number of factors, which include low productivity, policy inconstancy and uncertainty and the government's inclination towards control, as well as a currency and liquidity crisis. From a historical perspective, the country has not been favoured with significant inflows of foreign direct investment (FDI).
Joe Muzurura observes that since the Unilateral Declaration of Independence in 1965, the country has experienced low FDI, low levels of domestic capital formation and foreign exchange scarcity. The regime of Robert Mugabe was characterised by unbridled government profligacy and the triumph of political expediency over economic fundamentals.
The political crisis reached its peak in November 2017, resulting in the "military assisted transition". Emmerson Mnangagwa took over the reins of government from Mugabe. As President, Mnangagwa anchored his political message on a new dispensation characterised by a more open, market-based economy, progressive economic reforms, and the opening up of political and civic space.
The hope for economic revival hinged on a substantial injection of hard currency into the country, mainly as FDI. "Zimbabwe is open for business" became the catchphrase of the new government. Mnangagwa's presidency started off with candour, a marked departure from the intransigent Mugabe's reign. To the thousands who took to the streets to push for Mugabe to resign on November 18 2017, the military intervention -- and by extension Mnangagwa -- embodied, if only for a little while, hope and the possibility of a return to economic fundamentals, the reign of markets and free enterprise and respect for human rights.
This report seeks to establish the extent to which the new dispensation has lived up to the rhetoric of being open for business and of transforming the ruling Zanu PF. It analyses how the local and international business communities have reacted to the new government. It also seeks to answer the question of whether substantial FDI has found its way into Zimbabwe and, if not, why this should be the case, given initial indications of the Mnangagwa administration's professed intentions.
The report contends that while much was promised, very little has been delivered in terms of an injection of fresh capital into the economy. The new dispensation has squandered the goodwill it earned during the November 2017 transition. The pace at which the government has rolled out much-needed economic and political reforms has not met the expectations of either citizens or the international community.
Consequently, the much-vaunted investment has not found its way into the country. The economic situation remains perilous, with the government playing catch-up to market forces. The report is based on secondary data, key informant interviews, and conversations with local and international investors, government institutions and diplomatic missions.
The Mnangagwa administration inherited an economy that was wobbling towards a precipice, with a neo-patrimonial governance structure sustained by wanton corruption, patronage, arbitrage, a fiscal system akin to a large-scale Ponzi scheme and "economic short-termism".
In the past five years, domestic and external government debt ballooned from US$7 billion to US$17 billion. The government's unquenchable appetite for spending -- largely on public sector wages and expensive perks for senior bureaucrats and cabinet ministers -- has continued unabated, with the budget deficit reaching US$2,7 billion, well over statutory limits and at close to 20% of GDP before the rebasing of the economy.
From 2013, at the demise of the GNU, the government began funding expenditure by issuing Treasury Bills from government and Reserve Bank overdrafts.
During the Mugabe regime, Zimbabwe experienced significant divestment.
The pressures of an underperforming economy have hit the population hard. Fuel prices have risen by over 200% since January 2019. Prices of basic commodities are beyond the reach of many, yet the salaries of employees, including civil servants, have not been adjusted in proportion to increases in the cost of living, pushing more people into poverty.
In 2019, extreme poverty increased to 5,7 million from 4,7 million in 2018. Roughly two out of five Zimbabweans (7,3 million people) live on less than US$3,20 per day, the extreme poverty line for lower-middle-income countries. In some rural provinces, such as Matabeleland North, nearly 90% of the population are living in poverty. Zimbabwe's economy was projected to further contract by 6,5% in 2019.
The African Development Bank (AfDB) describes Zimbabwe as "an inhospitable business climate". Ranked 140th out of 190 countries in the World Bank 2019's Ease of Doing Business Index, Zimbabwe is one of the most difficult countries in which to start and operate a business.
Though progress has been made in the 24 months that Mnangagwa has been in power -- the country has moved up from 155th place in the index -- much remains to be done to make the country attractive to investors.
Zimbabwe's lethargic civil service, which is unfortunately charged with much of the regulatory oversight, vetting, reviewing and processing of investments, further complicates things. The country ranked 160th out of 180 countries in anti-corruption watchdog Transparency International's 2018 Corruption Perceptions Index.
The World Economic Forum's 2017 Global Competitiveness Index, which assesses drivers of economic growth and prosperity, institutions (legal and administrative) and quality of policies, ranked Zimbabwe 127th out of 141. The country ranks poorly on public sector performance with a score of 134 out of 141.
With Mugabe's departure, it became apparent that to salvage the fast-deteriorating economic situation, the succeeding government had to drastically shift from self-destructive policies such as the Indigenisation Act and Fast-Track Land Reform (FTLR), and begin the onerous journey back to normalcy.
Following the Zimbabwe Investment Guidelines and Opportunities document, the government packaged its ideas and ambitious targets into a policy document titled Towards an Upper-Middle Income Economy by 2030: New Dispensation Core Values. The document, designed for an international audience, set out a vision to transform the Zimbabwean economy into an upper-middle-income economy within 11 years.
The mantra "Zimbabwe is open for business" has been rehashed by the government since the fall of Mugabe. While there has been some increase in activity among local and international investors, the country has not yet managed to attract sufficient investment to support growth and productivity in the economy.
Zimbabwe faces serious economic challenges, with inflation back on an upward trajectory and the country struggling to achieve economic stability. The new administration has made concerted efforts to achieve macro-economic stability and rein in government spending. It has set itself an overambitious target of reaching middle-income status by 2030.
The plan includes FDI being injected into the moribund economy to propel growth and productivity. However, the mantra has not found full expression in practice. While a number of key reforms have been made, structural and operational limitations to really making Zimbabwe open for business exist.
A nuanced analysis of the mantra that "Zimbabwe is open for business" is that the call is for investors to make deals with bureaucrats, Zanu PF politicians and the military. The conversations are hardly business-to-business, but are between investors and the government and elites. The mantra and attractive soundbites do not reflect the stark realities on the ground. It is evident that after an extended period of bad policies, the abrogation of sound macro-economic fundamentals and disdain for the rule of law Zimbabwe's reputation precedes it.
Most would-be investors are sitting on the fence and do not buy the story that the new administration is indeed new. Optics are important and in the past 12 months the government has done more to tarnish its image than to burnish it.
Military intervention and the subsequent killings of protestors have cast a shadow over Mnangagwa's reform claims.
What is more is that the government, while promising to liberalise and adopt free-market principles, seeks to retain a measure of control over the economy and private sector activities to the detriment of the economy. The ideological flux only engenders a sense of policy uncertainty and brings into question the government's commitment to doing things differently from the regime of Mugabe.
Chikohomero is a researcher at the Institute for Security Studies (ISS) in South Africa. This is an abridged version of an article first published on the ISS website.