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CAPE TOWN — Nothing less than a complete break with the past can satisfy investors that Zimbabwe is salvageable and worth risking new investment, says Simon Gray, a retiree from the World Bank and former Zimbabwean. Rhetoric like ‘all foreign investment is safe,” and “building a free and transparent economy,’ from new president Emmerson Mnangagwa will not cut it unless 37 years of economic mismanagement is first dealt with and fiscal and wider reform becomes a reality. Expropriation and indigenisation that either keep South Africans awake at night or dreaming about, (depending on which side of the apartheid divide they fall), will have to avoid the prevailing chaos of corruption on both sides of the Limpopo River. Grand corruption and the top perpetrators will have to be brought to book to further convince investors that the waters are clean and safe enough to dip into. Gray could just as easily be talking about a post-Zuma South Africa as a post-Mugabe Zimbabwe – the difference is in the degree of degradation. (This piece was first published on the Daily Maverick.) – Chris Bateman
By Simon Gray*
As Zimbabwean President Mnangagwa was ushered into power in November he clearly called for new investment in “building a free and transparent economy”. Followed closely by an affirmation that “All foreign investment is safe”.
These few words point to the new president’s conviction that economic growth is the number one priority. And, for it to happen the specter of expropriation and indigenisation that has plagued a post-independent Zimbabwe must be put to rest. Or, at the very least, have rationality that defies the prevailing chaos of corruption.
Can Mr Mnangagwa pull off a complete break with the past? At least in economic policy terms.
With the end of a 37-year reign, the opportunity for change is undeniably there.
The new president is in an unenviable position though. Expectations for change are high but an array of economic mismanagement needs to be addressed immediately as a prerequisite for any new investment. Much of the action to stabilize the economy will be painful to the very Zimbabweans that have placed their hope in Mnangagwa for a better future. To make change happen will require grit, implacable determination and a tremendous ability to listen and communicate with the people.
Public expenditure (principally wages) need to be significantly curbed. Macro imbalances are not uncommon in fragile countries. But Zimbabwe is in the peculiar position of being a US dollarised economy, with access to external ($) resources falling while public expenditures grow. The usual mechanisms to correct these imbalances have been artificially circumvented through the holding of RTGS electronic balances, the issue of bond notes officially at par with US dollar; and, the adoption of a combination of current and capital account controls. A toxic concoction that can’t endure. Worse – risks significant further damage to the financial sector and the economy if they are not dismantled in parallel with fiscal and wider reform.
To unwind this precarious prevailing construct would normally require robust international support to minimize shock and hurt not only to the poor but to what is left of the middle class.
Securing the support of the international community, but more importantly the people of Zimbabwe, will only happen if President Mnangagwa is prepared to embark on a bold course of action that confronts corruption, protects private property and focuses public policy and scarce resources on empowering those that are struggling to make ends meet.
The conviction is that Zimbabwe suffers from grand corruption by those who progressively tightened their grip on the levers of economic and political power. How far has this seeped down into day-to-day life? A potent step would be to constitute an independent commission with full power to analyze, investigate and prosecute the genuine sources of the disorder. And not just those petty and politically expedient. It goes without saying the more endemic the cancer the longer the curative haul. Establishing a society with unassailable normative values is really the only enduring solution (witness Iceland’s swift reaction to the Panama Papers). A life-long and generational educative process.
Zimbabwe is blessed with accomplished human resources steeped in common decency that would respond positively to a change of role model. Now is the time to get the process started. Immediate impact on grand corruption would be investigation and indictment of high profile perpetrators across the political spectrum (witness actions in Brazil now reverberating across Latin America). In parallel would be the mobilisation of civil society to monitor and pursue the delivery of education, health, municipal services and public procurement. Worldwide experience shows citizen engagement as the only durable solution into the medium term.
Bold action to institute a whole new regime of property right protection is a sine qua non if Zimbabwe is: to close out the turmoil of the recent past; and, is serious about attracting significant volumes of new investment. It is also perhaps its most sensitive challenge. Full-scale restoration of property to pre-revolution ownership is not on the cards. A credible system that provides for a transparent framework for decision and concrete action on either restitution or compensation is, however, essential to any meaningful relaunch of economic growth. At a minimum a clear apolitical process would be required to obviate the ongoing mess and give some measure of comfort to past, existing and new investors. A workable solution is tricky, but some inspiration can be gained from the measures taken in post-communist Eastern Europe and the Balkans, both post-communist and former Yugoslavia.
As to Zimbabwe’s indigenisation programme, it has become synonymous with cronyism and asset grab. Nothing to do with building local entrepreneurship and domestic capital focused on innovating and thriving into the future. The word indigenisation should be dropped from the Zimbabwe’s economic lexicon and be replaced by comprehensive policy to promote joint venture and the fair acquisition of intellectual and physical property. The focus should be on the growth of local wealth into the future and not the transfer of dwindling assets to an elite few. There is no lack of example and experience in this regard, notably in East and Southern Asia.
Doubtless there are some measures that can still be taken to strengthen and refocus Zimbabwe’s social safety net and thus alleviate the current stress on those struggling to survive. But let’s face it with Zimbabwe’s highly constrained fiscal position there is limited potential for a public sector or service solution. Moreover Zimbabwe’s revenue to GDP ratio is already high for a low income country indicating little likelihood of further public revenue growth. The only solution is to significantly expand private sector employment. International financial institutions use jargon of ‘high employment costs’ as a constraint to job growth. Simply put the cost of formal employment reflected in heavy regulation, taxes and social contributions is prohibitive – discouraging significant private sector and job growth. It is not an easy recommendation to make but these costs need to go or be dramatically reduced. Not easy to make – because these systems have been built up over time and are often appropriate for middle to high-income economies, along with being darling programmes of international development institutions. Zimbabwe and its supporters need to face the reality of the prevailing circumstances. It needs to rebuild from the basics allowing its citizens the simple opportunity of work.
Bold economic moves to break with the past: Has President Munagagwa the will and stomach to confront and deliver? A more tepid approach like creating special economic zones and tinkering with exchange rate and fiscal regimes will only gnaw at the edges of a solution while Zimbabweans look for another opportunity for change.
- Simon Gray is a retiree from the World Bank recruited from his home country Zimbabwe in 1992. His penultimate assignment (2010 to 2015) was as World Bank Country Director for the Maghreb (Morocco, Algeria, Tunisia, Libya, Malta)
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