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IMF team jets in amid indigenisation thaw
05/11/2013 00:00:00
by Tony Hawkins I FT.com
 
 
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AN International Monetary Fund team will begin talks with local officials on Wednesday amid signs that President Robert Mugabe could take a more accommodating approach to the ownership of foreign companies.

It is the first visit by an IMF team since Mugabe and his Zanu PF party won the disputed July 31 election with a mandate to kick-start the flagging economy and pledges to push ahead with controversial indigenisation policies.

Under the programme, which has been blamed for stymieing much-needed investment into the country, Zanu PF said all foreign companies operating in the country should be at least 51 percent owned by black Zimbabweans.

But the IMF’s team will be encouraged by some recent developments, including the announcement that the indigenisation agreement with South African-owned Zimplats, the platinum miner and the country’s largest foreign investor, will be reviewed.

Francis Nhema, the recently appointed indigenisation minister, is also allowing a South African company to buy all the shares in Cairns Holdings, a food manufacturer, in a deal that contravenes previous demands for the immediate localisation of industrial groups.

Meanwhile, Patrick Chinamasa, the finance minister, has sought to allay concern that the government will look to reintroduce a local currency by promising to maintain the so-called multicurrency regime, effectively dollarisation, for the next five years.

The adoption of the US dollar in 2009 as the main currency was critical in helping reduce hyperinflation and bringing some stability to a collapsed economy.

However, the government and IMF are still not likely to find it easy to reach an agreement on budgetary issues, given Zanu PF’s expansionist election campaign manifesto that included a commitment to raise civil service salaries.

The IMF in June approved a “staff monitored programme”, an informal agreement to monitor the government’s economic programme but that does not involve financial assistance.

It was Zimbabwe’s first agreement with the IMF in more than a decade and successful implementation will be important in helping the country re-engage with the international community and deal with its large debt burden.

The agreement was reached when a unity government that included Zanu PF and the opposition Movement for Democratic Change was in power, with the MDC holding the important finance portfolio. Whether Zanu PF can maintain relations with the IMF will be a test of its economic management.



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The fund is expected to push for cuts in the public service wage bill – the second largest as a percentage of gross domestic product in sub-Saharan Africa, at 16 per cent of GDP compared with an average of 7.5 per cent – as well as full transparency in the treatment of revenues from the controversial Marange diamond fields.

Indeed, one of the conditions of the IMF programme was that a full statement of diamond finances be published by mid-2013. The government will argue it was impossible to meet this deadline because of the election and change of government.

Tendai Biti, the former finance minister and senior MDC official, said the economy was “too small for the governing party’s ambitions”.

He predicted that in the short term, Zanu PF “will resort to toxic debt from all angles and dubious corners at usurious rates of interest”.

Chinamasa, the finance minister, last week told a pre-budget seminar that without financial assistance from the IMF, the African Development Bank and bilateral donors, it would not be possible to clear outstanding arrears to the multilateral institutions.

In its search for offshore financing, Zimbabwe has turned to China and other countries in the hope that this will give temporary relief as what are likely to be difficult negotiations with the fund continue.


 
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