Returning From The Cold: Zimbabwe’s Chance for a New Beginning
Zimbabwe is coming in from the cold. After 37 years of mismanagement and decline under Robert Mugabe, the population of the former breadbasket of Africa had enough, and ousted its leader in November 2017. While in many respects the bloodless coup was simply a re-organization and consolidation of power in the ruling Zimbabwe African National Union-Patriotic Front (ZANU-PF), Zimbabwe now has the opportunity to shed its pariah status and re-engineer its future. This will not be an easy task as cronyism, corruption, and maladministration have become so commonplace that any move towards just governance will seem radical and viewed (at least by some) as a betrayal.Despite being loyal to the ZANU-PF party for decades, President Emmerson Mnangagwa realizes the importance of securing international support — and capital — and is desperately trying to distance his administration from the ineptitude and irresponsibility under his predecessor which drove the economy into perpetual crisis mode — highlighted by unsustainable debts and deficits, a hyperinflation rate which reached 500 billion percent in 2008 and unemployment often running as high as 85 percent. This has played well inside the country and solidified the party's position as the clear frontrunner in the elections scheduled for 2018.
Thus far, the Mnangagwa Administration has been conciliatory in tone and willing to shift the direction of the country towards a self-proclaimed "new economic order." The international community's response to this new direction has largely remained muted, but cautiously optimistic. The future is still unclear.
What is clear, however, is that the Mnangagwa Administration is attempting to rectify some of the ills of the past. Foremost among these is the admission that the economy is collapsed, and that it is not solely (or even principally) the result of international sanctions. The recent budget statement acknowledges the government's role in mismanaging the economy by referring to "declining domestic and foreign investor confidence levels, against the background of policy inconsistencies in an uncertain and uncompetitive business environment," and "entrenched weaknesses and indiscipline in the public finance [and fiscal] management," as the main causes of the country's financial collapse. Moreover, the administration's budget calls for a "paradigm shift in the way we do business and manage our economy, public enterprises and finances," in order to "restor[e] discipline [and] foster a stronger culture of implementation."
In short, the Mnangagwa Administration has announced that business as usual cannot continue if the country is to survive, much less thrive.
Pursuing Economic Revitalization
The government must start by curtailing the cripplingly high levels of debt, namely by stemming the use of treasury bills and the Reserve Bank's overdraft to fund the ever-growing deficit. Once finances are brought under control, Zimbabwe can return to international markets for funding. Likewise, Zimbabwe must cut public spending and slash government entitlements and pensions. These measures may not be well-received by the electorate, but the nation is hemorrhaging money and is in desperate need of reform. Now is the time to expend some of the goodwill on unpopular but necessary fiscal policy measures while the population is still celebrating Mugabe's downfall.
Zimbabwe will also require a large inflow of capital in order to achieve stability and sustained economic growth. The administration recognizes this need, and is jettisoning the dogmatic state-led positions of the previous regime and embracing a more market-based approach to economic management where individuals and businesses decide where to invest and lead in the creation of the economy. Most notably, the new administration replaced Mugabe's "hard" indigenisation of local industries with a softer version, which requires 51 percent local ownership in only a few extractive industries (e.g. diamond and platinum), and full local ownership (with some exceptions) in fifteen select sectors. This loosening of the economy is clearly designed both to reduce cronyism and corruption within the country but also to attract foreign capital.
The Mnangagwa Administration understands that the country is a "high risk" investment destination, with a history of expropriating private property without compensation, of failing to settle claims adjudicated through the World Bank's investor-state mechanism, and with public and external debt levels which the International Monetary Fund's latest debt sustainability analysis calls "unsustainable." For these reasons, Mnangagwa is prioritizing the issue of capital and seeking to find ways to court foreign (and local) investors.
Providing security to the agricultural industry is the logical starting place. The Mugabe Administration's policy of redistributing land from white farmers to the previously marginalized 'indigenous' black Zimbabweans decimated the economy and must change. While laudable in its objective and initially funded by Britain, land redistribution became a symbol of corruption, cronyism, racism, and mismanagement. Designed to be an orderly transition, Britain ceased funding the transition in 1997 and in 2000 Mugabe began forcibly evicting farmers without compensation. Instead of assisting the people and furthering economic development, once fertile land became dormant, and agricultural production and exports plummeted. Economic crisis soon followed. The agricultural situation became so bad that by 2011, maize production declined by 79 percent, wheat by 90 percent, soya beans by 66 percent, fresh produce by 61 percent, dairy by 59 percent, and coffee by 92 percent. Most worrying, tobacco (which accounts for 60 percent of agricultural output) declined by nearly 80 percent by 2009 before slightly recovering.
The government has indicated that it will compensate farmers who have had their land confiscated, and some previously expropriated (and now largely asset-stripped and dormant) farms have returned to their former owners. What this shows is that Mnangagwa is taking the issue seriously and looking at reinvigorate agricultural production. This is an essential step to restoring confidence in the nation to the outside world.
The government has also indicated it will respect its Bilateral Investment Treaties (BITs). Zimbabwe has signed over 50 BITs, but many have never come into force. In order to fully return to the international community, Zimbabwe must provide protection and security to investors by ratifying those outstanding agreements and negotiating new agreements with potential partner countries. Similarly, Zimbabwe must expand markets for its crops and industrial output by negotiating more Free Trade Agreements (FTAs). The benefit of these agreements accrues not only to investors and traders, but to Zimbabwe as it initiates domestic reforms and transforms the economy. They also demonstrate a willingness to be constrained by the rule of law, and offer more certain and stable market access opportunities than the mere promises of a new government.
Zimbabwe has an opportunity to radically alter its future prospects. The momentum of the new administration could easily be derailed by former Mugabe loyalists still in government and those who otherwise benefited from the graft, fiscal profligacy, and mismanagement of the former regime. Likewise, the new regime could prioritize party stability over rule of law and human rights. There is also a risk that the population may not be willing to depart from a populist government that always delivers something in times of need. Zimbabwe's return from the cold may prove temporary.
But now is not the time for pessimism. The old regime is gone and the new regime is signalling its intentions to forge a new path based on fiscal responsibility and market-based principles. This is a welcomed change and the future, while not clear, at least has the possibility to be bright.
Bryan Mercurio is Professor, Associate Dean (Research) and Vice Chancellor's Outstanding Fellow of the Faculty of Law, The Chinese University of Hong Kong. He has authored over 100 publications, including the well-regarded World Trade Law (3rd ed, 2018, Bloomsbury Publishing).
About the Author
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