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Zimbabwe: The great game-changer

By Frank Chikowore and Patrick Smith in Harare
Posted on Friday, 29 June 2018 11:30

First the security men, maybe ten of them, dark suits, translucent earpieces and eagle-eyed, case the joint. One raises a hand in a thumbs up gesture. Andrew, the proprietor of this upscale bar and restaurant on the outskirts of Harare, looks relaxed.

Minutes later, a delegation arrives, a mixture of suits and designer jeans. In their midst is General Constantino Chiwenga, the man whose public warning last November to President Robert Mugabe to stop a purge of the ruling party triggered the ousting of the veteran leader.

Six months later Chiwenga is vice-­president, having traded his khaki uniform for a well-cut suit. Now he is throwing himself into politics after a lifetime in the military. Would he mind talking to a team of journalists from The Africa Report? “Draw up a chair,” he gestures.

The conversation moves swiftly from a comparison between Zimbabwe’s and Malaysia’s nonagenarian leaders to the significance of the ending of presidential terms limits in China. Under the old political system disrupting the vice-president’s evening would have been a court martial offence. But it says much about the new climate as generals such as Chiwenga and foreign minister Sibusiso Moyo (see page 50) move into civilian politics. Are they serious about a commitment to free elections?

Suspension of belief

Or are they the power behind President Emmerson Mnangagwa’s throne? And are they starting a new condominium between the generals and the politicians, as opposition activists claim? There is much in Zimbabwe’s current political interlude that requires a suspension of disbelief.

“I just know that the Zimbabwe African National Union-Patriotic Front (ZANU-PF) will win the elections,” insists a government insider. “What I don’t know is how they will do it.”

A dapper businessman in the Explorer’s Club bar at the Meikles Hotel raises his eyebrows about the subject of elections: “Do you really think these generals who risked their lives getting rid of Mugabe last November will give up power after elections?”

Others are hedging their bets as the opposition Movement for Democratic Change (MDC) Alliance campaign gathers momentum (see page 48). A veteran investment banker draws a graph on a whiteboard indicating likely scen­arios. Towards the bottom of the graph, meaning the least likely, is the ‘military ZANU-PF’ option, meaning the ruling party wins elections at any cost and damns the consequences.

He assigns more probability to ‘Clean ZANU’, an internationally accepted victory for the ruling party, but slightly less weight for a straight electoral victory by the opposition MDC Alliance. His most likely scenario is now a power-sharing arrangement between ZANU-PF and the MDC Alliance. Some are convinced that talks on such a deal are already under way, though both sides assiduously deny it.

From the start of the military’s ‘Operation Restore Legacy’, which replaced Mugabe with Mnangagwa, the bargain was credible elections in exchange for the normalisation of economic and diplomatic relations. That is the link between Mnangagwa’s twin mantras: “The voice of the people is the voice of God” and “Zimbabwe is open for business”.

The commercial side of the equation is working. Investors of varying degrees of credibility are promising to launch billions of dollars of mining, energy and infrastructure projects. Britain, which for years marshalled opposition to Mugabe’s government, has turned 180 degrees and become an international cheerleader for the new regime.

After Britain’s foreign minister, Boris Johnson, promised diplomatic and economic backing, Zimbabwe reapplied to join the Commonwealth and invited a flotilla of European and US organisations to monitor elections due by the end of August. Britain’s Commonwealth Development Corporation and Standard Chartered Bank announced a $100m loan facility for Zimbabwean companies in May.

Across the border

South African bankers are reassessing business in their northern neighbour. Caleb Dengu, managing director of CDF Trust investment advisers, reports a surge of new projects over the past six months. “Some are in mining, some in energy and infrastructure. One of the biggest is a $300m modernisation of the Beitbridge border post between Zimbabwe and South Africa.”

It is a public-private partnership deal, says Dengu. His consortium has got an 18-year concession to run the border post, one of the busiest in Africa. Each year some $24bn worth of goods passes through the Beitbridge border.

The biggest deal, worth hundreds of millions, on Dengu’s drawing board is another concession project, with the China Railway Group, to build a 32km line from Chitungwiza to Harare with a loop to the international airport. He is also advising on solar power systems for some of the new mining projects.

Politics is still blocking many of these projects, says Dengu. A government with full legitimacy is needed to get inter­national backing and take tough de­cisions on currency and foreign exchange. None of the options are good, he warns.

Who foots the bill?

Under the present combination of US dollar and Zimbabwean bond notes – which now trade for a discount of up to 50% in their dollar value – there is a chronic shortage of foreign exchange. Private companies have also been crowded out of the credit market.

But a massive devaluation of the Zimbabwe bond note as a route to reestablishing a national currency could be ruinous, says Dengu: “Depositors had already lost billions when we abandoned the Zimbabwe dollar.”

He favours joining the rand currency zone as the least disruptive and commercially most logical strategy. Alongside the currency change, most businesses predict a wholesale restructuring of the public sector.

Finance minister Patrick Chinamasa’s 2018 budget, finally passed in March, aims to cut the budget deficit to $767m, or 3.5% of gross domestic product, compared with at least $1.7bn and 9.6% last year. That ambitious goal is premised on boosting state revenue by 17% and pegging all increases in state spending at 4%.

There are no signs that cuts of that level are being made. In May, the government promised to raise civil servants’ salaries by 15%, a not too subtle piece of electioneering. This followed a confrontation with health workers over pay and conditions. At one point, vice-president Chiwenga tried to sack 10,000 striking nurses.

Across the board, there is agreement that the economy needs far-reaching structural reforms. The debate is over who pays for it. Some local economists are arguing for a return to tough International Monetary Fund-backed structural adjustment programmes. Most predict sharp cuts to the 500,000-strong public sector workforce, whichever party wins the elections.

To date, the government has been financing its twin deficits – budget and trade – by creating electronic money. In a thriving economy, increases in money supply should be in line with economic growth. Bankers estimate that last year Zimbabwe’s economy grew by 3.7% and the money supply grew by 43% ($2.5bn).

To finance this system, the government has been monetising its debt. That is, it borrows to pay the spending it cannot finance through revenue. And when its debts mature, it repays them by borrowing more, creating more electronic money.

Monetary union

All this amounts to a national Ponzi scheme according to Tendai Biti, a former finance minister and an economic adviser to the MDC. “They’ve been creating money supply through the use of bond notes, which are not backed by the Real-Time Gross Settlement system and capital inflows. So the most common form of money in Zimbabwe is bank transfers or a card.”

Without tough counter-measures, a new crisis is brewing, argues Biti. “When payday comes, the government credits the accounts of the civil servants but without any value. The domestic debt is now almost as big as the sovereign debt.”

Biti calls for a return to cash budgeting, which presages a tough restructuring of the state: “We can’t spend what we don’t have.” And he argues that talk of resuscitating the Zimbabwe dollar is impractical in the short term: “We are going to have to maintain the multiple currency regime. Whether it’s going to be the Southern African Development Community or the Common Market for Eastern and Southern Africa, our future is joining a monetary union.”

For all that, Biti is optimistic, citing the country’s well educated workforce, resourceful entrepreneurs and the value of its gold, diamond, nickel and lithium reserves. There is a serious prospect of growing a $100bn economy over the next five years, he says. Economic policy is evidently going to be a key part in the remainder of the election campaign.

Yet, in a rare moment of consensus, Biti, Chinamasa and the International Monetary Fund agree that if Zimbabwe’s elections are credible and the government starts making structural reforms, the upsurge of international interest could trigger the financing, investment and debt relief needed to rebuild the national economy and return the country to regional stardom.

This article first appeared in our June 2018 print edtion of The Africa Report magazine

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