Veteran US journalist Barry Wood asks of Zimbabwe: Transition to What?

IMG_0379Barry Wood is one of those top flight global journalists who just loves South Africa. He is en route to the country once more at the end of the month, basing himself in the new national capital of capital, Stellenbosch. We have engaged over the years and apart from our passion for financial journalism share other interests – including Davos (he has attended 12 times), Warren Buffett’s Berkshire Hathaway AGM in Omaha (we were there together last year) and radio, where he worked for Voice of America for over 20 years. In this excellent piece, Barry has a look at the Zimbabwean economy after the flawed Election that returned the soon to be 90 year old Robert Mugabe to absolute power. – AH

 By Barry D. Wood*

Zimbabwe is entering an unsteady transition politically and economically.  Robert Mugabe, its sole leader since independence in 1980, turns 90 on February 21st.  He can’t live forever.  Who will follow Mugabe and what course will his successors steer?

After four years of gradual improvement, the economy is again deteriorating.  Money is in short supply. Workers are losing jobs.  Government is starved of tax revenue because exports are falling and business activity has slowed. The country remains cut off from official lenders like the World Bank and the International Monetary Fund.

Six months after Mugabe’s flawed electoral victory, uncertainty reigns. Zanu PF is in complete charge.  There’s a new finance minister and central bank governor. Acting central bank chief Charity Dhliwayo says the economy faces a severe liquidity crunch and that local industry can’t obtain credit.

Because of the cash shortage Dhliwayo is allowing four additional currencies—principally the Chinese yuan and Indian rupee—to freely circulate. They join the US dollar and the South African rand, the euro, British pound, and Botswana pula as legal tender.  Pity the poor clerks who have to calculate prices.

In the aftermath of the July election Tendai Biti, finance minister in the coalition government, is out, replaced by Mugabe loyalist Patrick Chinamasa. The new finance minister recently went to China where he hoped to obtain money for the government’s ambitious development plan.  Rebuffed, he returned empty handed.

Ex-minister Biti worries that without meaningful exports and domestic production, “the liquidity crisis is so bad that echoes of 2008 are beckoning.”  He says if the cash squeeze persists the government may resort to printing money, i.e. bringing back the discredited Zim dollar that he discarded upon taking office in 2009.

Deterred by the government’s indigenization program, foreign investors are staying away. Corruption has reached exorbitant levels even by Zimbabwe diminished standards. People are outraged by revelations of obscenely inflated salaries and theft within state owned enterprises.

But amid all this distress there are hopeful signs for Zimbabwe’s long-suffering people. The European Union is poised to lift most remaining sanctions, an action likely to boost aid flows.  To their credit, Chinamasa and Mugabe are sticking with the IMF’s staff monitored program designed to impose financial discipline, boost confidence and lay a foundation for sustained growth. That program, promulgated by Biti, is still in place and runs until June.  An IMF team will visit Harare in late March to assess progress.  If the government holds to the program there could be a rapprochement with multi-lateral lenders and eventual action to clear the arrears that have long blocked Zimbabwe’s access to official financing.

During the relative stability that followed the taming of hyperinflation, Zimbabwe’s economy grew rapidly, albeit from an horrendously depressed level.  From 2009 to 2012, Zimbabwe registered 11% annual growth, the fastest in sub-Saharan Africa. Last year growth slowed to 3%, in large part because of the decline in commodity prices and depreciation of the rand against the US dollar. South Africa is Zimbabwe’s biggest trading partner and domestic producers are finding it increasingly difficult to compete with South Africa products. Growth for 2014 is unlikely to exceed 3%.

Since Zimbabwe is a virtual treasure chest of raw materials, foreign companies are eager to join Chinese firms in regaining a foothold in the country.  Over the next six months they’ll be watching policy pronouncements and economic conditions in Zimbabwe very carefully.

* Barry D. Wood is a columnist and Washington-based commentator on markets and the economy for RTHK in Hong Kong. His focus is globalization and how it impacts people. He contributes to marketwatch.com and USA Today and more than two-decades was chief economics correspondent at Voice of America, reporting from over 60 countries on five continents. 

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