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Posted on Friday, 27 November 2015 11:00

Zimbabwe Country Profile 2015: Desperation leads to Russian roulette

By The Africa Report

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The year 2015 is unlikely to hold major improvements to the weak Zimbabwean economy.

With institutional and commercial lenders increasingly refusing to bail out his administration, which has proved unable to repay past debts and unwilling to implement deep cuts in public spending, President Robert Mugabe could be looking at ever more desperate stop-gap solutions.

A stark lack of options means that more of these could be along the lines of the latest deal to set up a joint venture with a Russian consortium – which has been promised huge quantities of platinum in return for supplies of military hardware.

Mugabe's Zimbabwe African National Union-Patriotic Front (ZANU-PF) government – its legitimacy in the wake of the disputed July 2013 polls still questioned by opposition parties – has abandoned its post-electoral charm offensive in favour of using force to crush dissent.

After Mugabe turned a deaf ear to repeated calls for fresh elections by opposition leader and former prime minister Morgan Tsvangirai, the Movement for Democratic Change's (MDC) Thokozani Khupe described the situation succinctly: "While they may have rigged the election, they cannot rig the economy."

Budget balancing

In September 2014, the administration was still making appeals to the International Monetary Fund (IMF) for a loan, only to meet a steely insistence that Harare pays off existing arrears. As of June, the country's external debt overhang was $9.9bn, although finance minister Patrick Chinamasa projected that foreign debt would fall to $7.2bn by the end of the year.

The IMF completed a staff-monitored programme in 2014 and started discussions about a new one for 2015. Its focus will be on balancing the budget. Efforts to re-engage with the West seem doomed.

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Mugabe told the UN General Assembly in September that the US and the EU wanted "regime change" through "a diabolical, illegal policy of interference". This outburst ended earlier quiet efforts of deputy foreign affairs minister Christopher Mutsvangwa to try to conciliate the US and Britain.

As if on cue, Russia's foreign minister Sergei Lavrov turned up in Harare for the signing on 16 September 2014 of a rapidly stitched-together deal to set up a $3bn joint venture operation, Great Dyke Investments, with Russian arms conglomerate Rostec and its banking arm Vnesheconombank.

Although exploration has yet to begin at the Darwendale site just north of Harare and it is still far from clear as to whether the investment will include a smelter or refinery, Zimbabwe's mines minister Walter Chidhakwa claimed the mine would produce 250,000oz of platinum per year within three years and that output would peak at 800,000oz in 2023. If true, that would make it by far the country's biggest platinum mine.

The respective shareholdings and other aspects of the arrangements are shrouded in secrecy, but Russia's trade minister Denis Manturov revealed that his country was planning to supply military hardware, helicopters and trucks to Zimbabwe. Moscow may also be asked to go into other ventures in agriculture and manufacturing.

Looking east

Not all of the agriculture sectors have recovered from Zimbabwe's recent economic difficulties. However, tobacco and maize are bright spots. Tobacco production dropped to 45m kg in 2008 but skyrocketed to 205.5m kg in 2014.

Analysts expect record production in 2015. Before the Russian intervention, Mugabe's 'Look East' policy had taken him in August to Beijing to meet China's President Xi Jinping and request a $4bn economic rescue package, only to return almost entirely empty handed.

There is a backlog of outstanding public and private debts to China. The latest Chinese offer to finance a coal mine, a power station and a dam is set to be structured as a countertrade deal, with revenue from the mine being used to repay the loan. The government has also been pleading with South African institutions to help fund collapsing public utilities.

In September, finance minister Chinamasa told a visiting delegation that Zimbabwe was unfairly portrayed as a high-risk country and that it needed to industrialise to help stop the flow of economic refugees into South Africa.

The closure of at least 700 companies in 2014 indeed put many more thousands of Zimbabweans out of work, belying Mugabe's 2013 election promise that he would create more than 2m new jobs. Potential investors complain that the poor business environment is exacerbated by empowerment policies that compel foreign-owned businesses to cede at least 51% of their shares to black Zimbabweans.

Indigenisation minister Francis Nhema promised a review of the policy in order to fit with the country's new economic blueprint, the Zimbabwe Agenda for Sustainable Socio-Economic Transformation.

Another positive spot in the post-electoral economic climate has been the recovery of tourism, which has struggled in recent years but rebounded a little once the 2013 elections were over.

In the third quarter of 2014, the government was estimating growth of 3.1% for the year, sharply down from its earlier forecast of 6.1%. This may be over-optimistic. The African Development Bank listed the main economic challenges as the lack and high cost of capital, power shortages, infrastructure deficits and corruption. Former government chief economist John Masimba Manyanya says the country needs strong public revenue accountability mechanisms and financial governance systems.

Liquidity crunch

The financial sector and newish Reserve Bank of Zimbabwe governor John Mangudya have some difficult moments ahead. In late 2014 the government was operationalising an agency to buy up bad debts, estimated to be higher than two-thirds of certain bank portfolios.

The banking sector suffered from a liquidity crunch and there had been no interbank lending market after the abandonment of the Zimbabwe dollar in 2009. The African Export-Import Bank introduced a $100m interbank facility in 2014.

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Mugabe has called for more value addition on the country's products, including diamonds, so that more jobs can be created. Chinamasa has complained, as did his predecessor, that the majority of revenue from diamond sales has not found its way into state coffers.

In agriculture, farmers say government has reneged on its promises to pay for maize deliveries. New farmers also struggle to find financing as they lack collateral. Meanwhile, a new wave of land invasions has hit the southern region, where many people argue that ZANU-PF's chaotic land grabs that began in 2000 only benefitted Mugabe and his political associates. Infighting in both ZANU-PF and the MDC has tested the strength of both parties' internal democracies.

In ZANU-PF, the entry of Robert's wife Grace Mugabe into politics may alter the balance between the two camps led by justice minister Emmerson Mnangagwa and vice-president Joice Mujuru, rather to the disadvantage of the latter.

However, many in the party believe that neither faction would dare to criticise Grace as long as her husband is still in office because he is the only individual with sufficient authority to prevent the party from falling apart.

Tsvangirai has been severely challenged by the 2014 departure of his former secretary general Tendai Biti to form what he calls the MDC Renewal Team, which plans an inaugural congress in March 2015 to create a larger coalition of opposition forces ahead of the next elections.

Tsvangirai says the way forward is a united front that does not exclude anyone. He demands that key democratic reforms – such as security sector re-alignment and the changing of electoral laws – be implemented before any future elections.

A ZANU-PF dynasty in the making

The Zimbabwe african National Union-Patriotic Front (ZANU-PF) congress set for December 2014 was expected to resolve at least two of the puzzles facing Zimbabwe in 2015.

It would show how much resolve President Robert Mugabe has to cling to power beyond his 91st year and, more revealingly, whether he wants to bequeath a dynasty now that his 49-year-old wife Grace has entered the political fray by being endorsed as the next leader of the ruling party's women's league.

Grace is not just a lover of expensive high fashion and shopping trips around the world – as so often portrayed in foreign media – but something of a street fighter.

"My fist may be small but I shall fill it with stones," she said in her acceptance speech at the women's league conference in April 2014. "I am a bouncer[...]I am a force to be reckoned with."

She has long been determined to demonstrate that she can match the ruthlessness of other ZANU-PF cadres, boasting that when she forced the former owners out of their 1,000ha iron mask Farm at Mazowe in 2002 she "led by example".

In September 2014, her daughter Bona seized a seed maize farm in Goromonzi without following acquisition procedures.



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