The fledgling signs of rational economic management are still shaky and will need to be followed by more substantial commitment by donors, investors and citizens alike

Despite a promise by the Southern African Development Community (SADC) to help Zimbabwe raise the $8.3bn it requested to fund its Short-Term Economic Recovery Programme (STERP), there are doubts about the credibility of the plan. Big adjustments will be needed to make it work.


At least some cautious optimism has replaced the early desperation. The unity government has performed better than the pessimists predicted. There has even been a sense of shared purpose among MPs of ZANU-PF and the Movement for Democratic Change (MDC), who still considered each other anathema at the beginning of the year. But not even the sight of Prime Minister Morgan Tsvangirai working peacefully with his one-time arch-foe President Robert Mugabe can obscure the enormous economic and political challenges ahead.


The best piece of news is that the official dollarisation of the economy in April has stabilised prices, allowing consumer inflation to fall. In March, the rate fell to -3%. For the first time in nearly a decade, people could start to put together a household budget that would not see its worth eroded overnight by the hyperinflation suffered before the advent of the unity government. But without the necessary foreign capital, the new government’s good intentions will go the way of the Z$500m notes that still litter Harare’s pavements.


Everyday commodities like milk, sugar, mealie-meal, beef – until recently found only on the black market – have been flooding back into the urban supermarkets. But few can buy these without access to significantly more US dollars than the country’s devastated export sector can generate. Local industry bosses estimate that they need at least $1bn in new capital for an initial ten-month period to raise capacity from 10% to above 50%.

Passing round the plate


A UN Development Programme report published in September 2008 estimated that, even with a $5bn ‘kickstart’, Zimbabwe’s economy would take 12 years to reach the same GDP as in 1998. In April, finance minister Tendai Biti said the government urgently needed $2bn in lines of credit and budget support to service debts – more than $1bn is owed to the IMF and African Development Bank (AfDB) – and to pay civil servants within the next few months. To restore a measure of sanity to public finances, Biti slashed the national budget from $1.9bn to $1bn, and South Africa pledged a R500m ($58m) line of credit, renewable depending on how it is used. Another R300m – in R100m tranches – will be provided for budget support. Other new lenders are PTA Bank and the AfDB.


Families still have to be helped through their hardships by remittances from the 4m Zimbabweans working abroad, but the global recession will put the squeeze on their budgets. SADC members, steering their own economies through the commodity-price plunge, will lobby the US and EU to drop sanctions and open the aid floodgates with the help of a cross-party Zimbabwe government delegation. The EU is maybe an easier target than the US, whose ‘Zimbabwe Democracy Act’ still prevents the IMF, in which the US has a veto, from giving crucial balance-of-payments support to help the country reschedule its arrears and access new lending.


Biti has been eager to assert his authority and prove to potential donors that the MDC can exercise real reform within government. Top of his list has been trying to sideline Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono by liberalising the economy and turning off the bank’s foreign currency taps to show to donors that aid inflows would be kept in the banking system and not go towards Grace Mugabe’s shopping trips to the Far East. It helps that the banks are no longer supervised by Gono.


The scrapping of the Zimbabwe dollar was “merely a recognition of economic reality”, said Eric Bloch, an economist and advisor to the RBZ. John Makumbe, politics professor at the University of Zimbabwe, said Gono is “effectively marginalised” by the dollarisation. “He can’t formulate a monetary policy in rand, pula or [US] dollars so what does he do? His wings have been clipped”. Officially the Zim dollar has been suspended for a year, though economists say it could be longer.

Back in production


The government is discussing how to recapitalise Zimbabwe’s ailing – but potentially profitable – parastatal companies, if necessary by bringing in foreign investors. Those under the spotlight include Air Zimbabwe, Cold Storage Company, Tel-One, Zimbabwe Iron and Steel Company and National Rail of Zimbabwe.


If the right policies are implemented and aid starts to flow, then the future will begin to look brighter. Bloch said that companies from the EU, US, Canada, South Africa and Australia are already sounding out projects in mining, agriculture and the manufacturing of primary products. Canada’s Caledonia Mining recently announced it would double gold production from its Zimbabwe mines.


The economy contracted by around 7% in 2008. With the further collapse of agriculture and mining, there was greater dependence on imports, which increased 7.4% in 2008 to just over $2bn, while total exports declined by 14.3% to $1.3bn.


Zimbabwe’s mining sector – boasting abundant reserves of gold, platinum, coal, diamonds, nickel, iron ore, copper and coal-bed methane – should be at the forefront of any recovery. Platinum was the cornerstone of foreign-exchange earnings in 2007, even though production went into decline.


Zimbabwe used to be the third-biggest gold producer in Africa but is now fifth, behind South Africa, Ghana, Tanzania and Mali. Low output means that the country has been suspended from the London Bullion Market Association. According to Standard Bank, last year gold miners only received about 40% of their foreign-exchange earnings and are owed $30m by the RBZ, whose subsidiary Fidelity was (until now) the sole authorised buyer and exporter of gold. Metallon Gold – which accounted for half of national output – shut down five mines last November.


Despite budget measures which now allow mining companies to retain and repatriate their forex earnings, the sector will perform below capacity for the foreseeable future, given shortages of electricity and the global commodities slump. Clarity surrounding the implementation of last year’s Indigenisation and Empowerment Bill will also be needed to entice new investment. Because of human rights abuses in the eastern Chiadzwa diamond fields, the World Federation of Diamond Bourses is poised to ban the trade in rough Zimbabwe diamonds, except those certified by the Kimberley Process.


Farming output has continued to be at low levels, and some 7m people are receiving some form of food aid. Agriculture’s importance goes beyond its role in exports; historically it has also been the largest buyer of services and manufactured products produced locally. Its contraction has severely affected the manufacturing sector, whose output declined by 47% between 1996 and 2006, according to US embassy estimates.


Turbulent times ahead


Farming will continue to be hit by shortages of forex, seeds and fertilisers. Agricultural exports declined 14.1% from $541m in 2007 to $464m in 2008. Tobacco earned $157m in 2007/08; farmers’ groups are agitating to liberalise the tobacco market and be allowed to bypass the central selling floors to deal directly with buyers, but no decision has been made. Also awaited is the promised implementation of a ‘land audit’ that is intended to eliminate multiple farm ownership and free up 2m hectares of land that is currently dormant or under-used. 


Until there are signs of a real upturn, the government’s priority will be to fill the hole in its budget and to avoid unrest in the public sector, including the army and police. Their $100 wage packets are a stopgap while discontent simmers. Teachers have demanded a monthly wage of $2,300, while the Zimbabwe Congress of Trade Unions wants a ‘non-negotiable’ national minimum wage of $454 a month from June. Turbulent times lie ahead.