If Zimbabwe is really open for business, this could be the ideal time

by Justice Zhou

It’s easy to connect the dots between bad politics and a faltering economy.  In Zimbabwe, the effects of how politics and the economy are not mutually exclusive have been glaring throughout Robert Mugabe’s chequered tenure in the position of power.

An atmosphere characterised by radical ideological fantasies and the tendency to whip up emotions and discredit each other has for quite a long time put paid to the country’s potential, but if Zimbabwe is really open for business, this probably could be the best time.

Even though the new government finds itself going out to the world with cap in hand once again, it looks like the prospects are far much better this time around. The post-Mugabe administration, regardless of its shortcomings, deserves a round of applause for the spirited efforts in bringing about a new order in which the economy is no longer a back burner issue as compared to cheap politics.

It takes a lot of getting used to, especially in a country where those in the upper echelons of society are obsessed with triviality, conspiracy theories and gamesmanship— from politicians to the intellectual classes— at the expense of the generality of the ordinary masses on the ground.

However, events in the past few weeks are proof that it has finally dawned on our political leaders that Zimbabwe isn’t an island unto itself after all, and nothing can stop the country rising again from the ashes like the proverbial phoenix as long as they do the right thing.

I have a strong conviction that the newly-appointed president Emmerson Mnangagwa, is aware of what it takes to rebuild an economy whose ousted former boss ran to the ground over a period of 37 years.

His promises to relax the hostile indigenisation policy, embarking on greater structural reforms, upholding the rule of law, cracking down on graft and cutting back on wasteful government expenditures among other bespoke policies, appears to have struck the right cord with potential investors and the global lenders.

The past week saw Mnangagwa enjoying the international media spotlight at the World Economic Forum in Davos, Switzerland. The elite meeting of global heavy-hitters offered him the platform to clearly outline his intentions to break away from ruinous policies, helping reintegrate the country into the interconnected global economy, reaching out to old friends in the West and rolling out the red carpet to international investors.

This couldn’t have come at a better time than when Zimbabwe desperately needed to avoid sliding back into a protracted recession similar to the one it experienced between 2000 and 2018. With capital inflows hard to come by, signs where already showing it was in the process of hitting the skids.

Mnangagwa's break with old routine could be trump card for Zimbabwe economy

by Justice Zhou

The manner in which Robert Mugabe was forced to relinquish his vice-like grip on power might have come as a culture shock to many a critic and political experts, primarily because it involved the army.

But his final exit definitely brought a sigh of relief to the majority of Zimbabweans, judging by the wild celebrations that ensued, as crowds flooded the streets of the country’s major cities just to demonstrate their delight at his sudden departure.

To the average Zimbabwean, what mattered isn't necessarily the politically-charged debate surrounding his exit or the semantics about whether the army actually carried out a coup d'état or not, when it rallied around his party and parliament to pressure him into stepping aside,

If we focus more on the semantics, we definitely would be misreading the cards. Ordinary Zimbabweans had not only suffered 37 years of authoritarian rule, if truth be told. They also have had their livelihoods smouldered by endless economic hardship.

As such, many are looking forward to a new era in which the country’s economic fortunes will be turned around; jobs created and democratic values entrenched under the new administration, this is probably what they expect.

There’s no justification, whatsoever, for the new dispensation to expect people to pamper them or not to place them under close scrutiny, treating them like celebrities. The danger is that politicians easily transform into patronising despots once they are not closely monitored and held to account for failing to deliver on promises.

Checks and balances and constructive criticism are part of the hallmarks of any government that claims to be a champion of democracy. At the same time, it’s unfair to dismiss the potential and capabilities of the new government simply based on the previous regime, if not too early.

The advent of Emmerson Mnangagwa onto the scene as the new president has generated a lot of political heat. A flare-up of arguments and counter-arguments has broken out among the who’s who of analysis, as to whether he should be treated as just another Mugabe or given a chance to prove that he actually is himself.

Some say Mnangagwa is ordinarily turning out to be exactly what the doctor ordered, doing what is expected of him as a public servant, while others have argued that the true test of his credibility and popularity will be revealed through the results of elections due to be held in a few months time.

However, Mnangagwa has proved beyond any reasonable doubt that, even with his shortcomings, he has a reformist agenda and knows what it takes to lead Zimbabwe out of its economic hell-hole. This is despite the ghost of Mugabe’s chequered legacy still hovering over his head, as unrelenting critics take turns to smear his personality.

Just a few weeks into office, the few changes that have been made under his interim administration signal a remarkable shift in policy. There already are moves to relax the investor-unfriendly indigenisation laws, as well as re-engagement overtures to the international community.

Efforts are also being made to woo back investors, the diaspora and evicted white farmers so they would take part in rebuilding an economy battered by years of mismanagement and isolation.

Here’s how Mnangagwa’s government appears to be breaking with the old order:

He has introduced a raft of austerity measures that include the reduction of the number of cabinet ministers, freezing the recruitment of new workers, retiring older staff, and cutting back on government-issued vehicles to officials as well as the size of delegations on foreign trips.

Calls for the return of increased production on farms and an end to land-grabbing have been made, with the deputy finance minister having also met with white farmers in neighbouring Zambia, who were evicted by Mugabe during the country’s often-violent land reforms, urging them to return home.

Targeting re-engagement with the international community and restoration of relations with western countries, the government has embarked on a charm offensive based on what the new minister of foreign affairs says is centred around win-win economic diplomacy, “on an equal footing” with his counterparts.

A zero-tolerance approach and crackdown on corruption, if it won’t later turn out to be politically-motivated or just meant to punish Mugabe’s allies, is already underway, with top officials accused of graft being put behind bars and hauled before the courts.

In fact, Mnangagwa has signalled his intentions to shift towards an economy-based approach to his rule rather than a populist and totalitarian style, unlike his predecessor Mugabe. It might as well be too soon to cast aspersions on his leadership potential, even as he should not be spared criticism.

                                                    Surprise package

The period between now and the polls will be very short and action-packed, yet also crucial for Mnangagwa to fancy his chances. Will he pull out just another one of the usual Mugabe-type of shockers, proving his critics right?

Will he betray the generality of ordinary people who look up to the new order for salvation, representing the interests of emerging oligarchs instead, as some of his detractors have suggested?

Or will he shame the sceptics by working towards successfully putting Zimbabwe’s economy back on the path to recovery, raising his approval ratings and ultimately winning the next elections?

In any case, first impressions make him look like the man with a surprise package up his leadership sleeves, probably unlikely to revert back to the ways of the old regime.

Currency should not be Zimbabwe’s main election worry, but policies

by Justice Zhou

Zimbabwe’s national election campaign season is now in full swing, with quite a number of presidential wannabes, including prominent economist and former minister of industry and trade, Nkosana Moyo, having thrown their hats into the ring.

Through the crystal ball of the average Zimbabwean, it’s easy to foresee that the economy will feature prominently on the campaign trail, something which has become a familiar mantra since the country buckled under its decade-long Great Recession.

Nevertheless, the pre-election drama itself is a mere sideshow. Bond notes—Zimbabwe’s stand-in derivative currency—also isn’t what we should focus much of our worries on, if they indeed are just a stopgap  that would soon be withdrawn from the system.

Perhaps such worries are prompted by the misplaced belief that the central bank alone can be the ultimate solution to our economic problems. 

Rather than relying too much on or hoping that looking only to the central bank is the way to go, we should to a larger extent hold the treasury and government responsible for the well-being and general performance of the economy.

If we direct most of our scrutiny and expectations on the responsibility to deliver on positive results only towards the reserve bank, then we are simply keeping the treasury, which has not lived up to its duty and outcomes, off the hook.

The treasury and reserve bank should complement each other in executing macroeconomic policy objectives. They must act in sync when finding ways to stabilise economic cycles or recession and to avert the vagaries of runaway inflation.

In the run-up to elections, politicians often have a bad habit of preferring monetary to fiscal policy so as to shift the responsibility of creating jobs and stimulating economic growth from them to central bank policymakers. 

Suggesting or hoping that the reserve bank will create the much-needed jobs and stimulate growth alone is a complete fallacy.

In theory, the Phillips Curve is used to argue that an inverse relationship between rates of unemployment and corresponding rates of inflation exists within an economy. In practice, latest studies have proven otherwise.

In fact, it is in the area of combating runaway inflation or maintaining the stability of prices and manipulate interest rates, that the central bank’s role can have a major impact. Politicians know full-well that the fiscal policy response of boosting taxes and cutting government spending is an elephant in the room when it comes to winning the support of voters.

Just for the record, the primary mandate of the Reserve Bank of Zimbabwe is the formulation and implementation of monetary policy, directed at ensuring low and stable inflation levels. A further core function of the bank is to maintain a stable banking system through its supervisory and lender of last resort functions.

Of course, fears that the government may try to cut corners and monetise its staggering sovereign debt by printing bond notes “out of thin air”, hence stoking hyper inflation in the process, are genuine to some extent.

However, there is no compelling evidence suggesting that the reserve bank policy makers will suddenly defy the fundamentals of logic and let history repeat itself. Allowing themselves to be used as political pawns by the incumbent government in the run-up to the elections will only sound a death knell to their credibility.

Here is how the bond notes conspiracy theory goes: If the ruling party elites decide once again to arm-twist central bank policymakers into printing money to fund the budget deficit, it would be a political illusion that only serves to transfer debt from the treasury to the reserve bank without proffering any solution.

If that happens, it would be a trick! Monetising debt would probably involve a two-step process whereby the government simply issues debt instruments, supposedly through open market operations, to raise money for its expenditure programmes, then the central bank purchases the debt, holding it until it comes due, and leaving the system with an abnormal supply of money, thereby stoking hyperinflation.

However, while possible scenarios in the pre-election period are just as worth putting into perspective, it remains my  strong conviction that what really  matters here is whether the leader and government that are set to assume power in the upcoming polls have the ability and temerity to put the economy back on the recovery path.

A new government will be confronted with an unenviable task of ensuring that it tackles unemployment rates of roughly 90 percent, frequent electricity outages, a budget deficit that has shot up to over $1.4 billion, a rapidly-shrinking tax base, a yawning current account deficit, low production levels, capital flight, cash shortages, to name a few.

At $1.4 billion, the deficit is about 10 percent of GDP, way above previously revised estimates. Reducing or rolling over this debt has, therefore, become a major policy objective which the current government has failed to meet. Treasury bills worth about $2,1 billion were issued in 2016 to honour a $1,7 billion national debt and to finance the previous year’s $356 million budget shortfall.

That Zimbabwe’s inflation rate slowed to 0.14 percent year-on-year in July from 0.31 percent in June, according to data from the national statistics agency, provides proof that bond notes may not necessarily be the hyperinflation bogeyman that the herd-mentality claims to be. 

If any, an increase in inflation will mean that there is a decline in the purchasing power of money, reducing consumption and in turn GDP. High inflation hurts the poor, who unlike their wealthy counterparts may not have asset to hedge against it. It also makes investments less attractive, due to the future uncertainty it creates.