Political capital needed for economic revival

Political capital needed for economic revival

• Dr Alex Magaisa: Sanctions, the economy and democratic process

• Dr Alex Magaisa: Zim's civil society needs to reform

• Khanyisela Moyo: Zimbabwe's civil society vital to democracy

• Dr Alex Magaisa: Zim's civil society, and diminishing political space

• Alex Magaisa: The pitfalls of opposition politics in Zimbabwe

• Alex Magaisa: Constitutional amendment spells doom for economy

• Mugabe's critics demand new constitution

• Zimbabwe senate will last only 5 years

• Moyo fights senate constitutional amendment

Dr Alex Magaisa presents the argument that in addition to the much sought after political transformation, it is also necessary to confront the deep-rooted structural deficiencies affecting the Zimbabwean economy whose genesis pre-date the post-2000 chaos. Dr Magaisa scrutinises the IMF’s approach to Zimbabwe and argues that the postponement of the decision to suspend Zimbabwe enables the IMF to maintain useful leverage over Zimbabwe.

By Dr Alex T. Magaisa

THE IMF last week decided to postpone for six months the decision on whether or not to expel Zimbabwe from its membership. I wrote before that decision that regardless of political differences between different groups in the country, the expulsion of Zimbabwe was nothing to advocate for or celebrate because it would simply worsen conditions for the generality of the people.

While media reports indicate that the IMF postponed the decision because Zimbabwe had made some frantic efforts to pay part of the arrears earlier in the week, I think that there is more to it than this explanation provides. In my view, the IMF and other interested parties knew that there were two possibilities: either to postpone the decision and maintain some leverage over Zimbabwe or to expel Zimbabwe and lose that leverage. They knew and rightly so, that by making the last minute payments the Zimbabwe government was in a desperate situation and needs the IMF membership, regardless of rhetoric suggesting otherwise.

Having established this through the threat of expulsion, there was really no incentive for the IMF to expel Zimbabwe at this time and throw away an opportunity to influence change in economic policy and most probably, the political climate. We know what happened to the Commonwealth after suspending Zimbabwe – that body has virtually lost its leverage over the Zimbabwe government and no longer has the capacity to exert formal influence in Zimbabwe through its structures. Sometimes the threat of expulsion or suspension can be more effective than expulsion itself. Thus notwithstanding the reasons proffered, the IMF postponed the decision in order to maintain watch over Zimbabwe and to guide it through threats and conditions out of its present quagmire. It was therefore more prudent not to expel Zimbabwe last week and one hopes that if Zimbabwe can carry out its commitments, perhaps there is light at the end of the tunnel.

The key question therefore centres on the Zimbabwe government’s response to the moratorium that it has been given by the IMF. However, at another level it is also important for the IMF to engage constructively with Zimbabwe so that the mistakes of the past relationship are not repeated. I reiterate the argument that the problem within the political discourse pertaining to Zimbabwe is that in the eagerness to see the back of the ruling party, there is a tendency to turn a blind eye to some of the key factors that are also responsible for the country’s predicament. It seems to me that in the presence of the visible shortcomings of the Zimbabwe government and the ruling party over the last five years, it has been so easy to forget the role of the IMF/World Bank (hereafter “the Bretton Woods Institutions”) and its impact on the economy in the 1990s. A large portion of the thorny problems faced today germinated during the 1990s and have only flourished in recent years as a result of the chaotic and ill-conceived government policies and actions. Unless we tackle those fundamental weaknesses, it is unlikely that economic salvation will be delivered simply by a change of government alone. Alongside advocating for political transformation, there must also be adequate attention towards those fundamental weakness.

For the purpose of this article it is important to recognise multiple and in some cases complex issues that arise from the relationship between the Bretton Woods institutions and Zimbabwe that require critical analysis. It could help us to understand the origin of the debt problem, economic downturn and the political pressure that was met with brute force in the recent years. In this context, I refer to the disastrous Economic Structural Adjustment Programme (ESAP) of the 1990s and highlight the argument that besides the much-desired political transformation, it is necessary to confront the deep-rooted structural deficiencies in our economy.

It is generally believed that though conservative, the economy of Zimbabwe in the 1980s was performing relatively well. Despite the socialist rhetoric of the government, studies show that it actually maintained the economic set-up that had sustained Smith’s Rhodesia in 1970s era of sanctions. The capitalist system prospered with the import-substitution industrial sector to combat the impact of sanctions and the economy was generally cushioned through a protectionist regime. The manufacturing, agricultural and mining sectors were allowed to flourish and the currency was protected by the exchange rate policy that was in place.

But given the changes at the regional and global levels with the end of the Cold War and fall of apartheid in South Africa, the economic policies were considered to be unsustainable. The gospel of free market economics was in vogue and could not be ignored. Therefore, in 1991 Zimbabwe responded to the common call at the time and launched ESAP to liberalise the economy. It was expected that liberalisation would open up the economy to market forces, promote competition and innovation, attract foreign direct investment and create jobs. But Zimbabwe was also advised that these beautiful results would come at a price and many will recall the catchphrase at the time, which advised people that it was “Time to tighten your belts”. People were advised that it would only be for a temporary period, whereafter things would stabilise. I must say that though still in high school at the time and with little knowledge of economics and the wider world, I never quite understood how it would be possible that the hordes of people being made redundant through retrenchments and returning to the rural areas with their chigumuro (redundancy package) would be employed again at some stage especially given the numbers that were being churned out of the education system. Today though I have read and seen the world, I am still to be convinced that this actually works.

As we now know, the beautiful results did not materialise as previously adverstised. In fact as, Saunders wrote in 1996, “While suffering over the last five years proved even more intense, widespread and chronic than the state initially predicted, the pay-offs did not materialise. Five years on, most of the government’s promises remain unfulfilled, while the hardship of the ordinary Zimbabweans seems without end”. Without end indeed, as we now know.

Now, the point here is not to spite the Bretton Woods institutions or to sanitise the policies and actions of the Zimbabwe government over the last five years. It is that in this struggle, we must never forget that there are various factors and actors involved. For a start we should never forget that the chief architects of so-called reforms under ESAP were the Bretton Woods institutions. They are significant players in the global economy but they are not saints either. Under ESAP, the expected foreign direct investment did not materialise and the jobs that were lost through the retrenchments were hardly replaced, leading of course to the increasing levels of unemployment. Zimbabwe opened its markets and products were dumped from everywhere including South Africa, killing companies in the textile sector such as Cone Textiles and related industries.

Of course because it lacks coherent policies and hardly learns from history, the Zimbabwe is today also flooded with cheap Chinese imports, doing further ham to local industry. Nonetheless, given the well-documented origins of the problems under ESAP, it is somewhat astonishing to read simplistic assertions in the media, which seem to attribute the origin of all the problems faced today in Zimbabwe to the most recent chaos since 2000. In fact other than large-scale food shortages arising largely from an ill-conceived and messy land redistribution policy, most of the structural economic problems were already in existence before 2000. The recent chaos has simply exercerbated the situation by reducing international confidence in the country but the roots of the problems go far and deeper.

And it is also during the 1990s period that debt increased in the face of diminishing growth levels and reckless public spending. Some studies indicate that the growing debt was partly caused by ESAP-connected borrowing, which was encouraged by donors and the Bretton Woods institutions. These institutions continued to lend when it may have been prudent to curb the borrowing.

But there was also another problem and this was a key factor in the failure of ESAP- failure of the government to curb excessive spending. The civil service was still overstaffed, bureaucracy remained the order of the day and inefficiencies increased. To satisfy its spending, the government continued to borrow from both the domestic and foreign markets. But another key problem also began to show prominently in the late 1990s.

The failures of ESAP affected the capacity of the government to deliver key social services, create employment for the thousands of school levers and generally satisfy the people’s interests. Retrenchees returned to the rural areas and the value of their packages was eroded over short space of time. The socio-economic hardships resulted in political pressure due to people’s disenchantment. In turn the government began to make reckless and ill-timed concessions to interest groups such as war-veterans who in 1997 were paid massive amounts of money that had not been budgeted. We recall also that in 1998/99 Zimbabwe witnessed the first widespread job stay-aways and sometimes violent demonstrations across the cities.

The government began to waver as far as its debt repayments were concerned and by 1999 the IMF had suspended Zimbabwe from its balance of payments support programme. In short, a relationship that had flowered in 1991 with Zimbabwe’s adoption of the fashionable ESAP began to sour to the point were last week, Zimbabwe was on the brink of expulsion. The Bretton-Woods institutions had thought that unlike other African countries, Zimbabwe would be a beautiful experiment. But it failed. The causes of failure were many and while the government shoulders the bulk of the blame, the thought that the Bretton Woods institutions share some of the responsibility is inescapable.

As we now know, economic failure led to political pressure and demand for political space by civil society and interest groups. Sadly, instead of accommodating demands of civil society, the government decided it was necessary to thwart its claims. Civil society wanted a share in the policy making process. But the government felt threatened and the desire for political survival dictated its conduct rather than opening up its structures for mass participation. And the repression tarnished the country’s profile, worsened the economic conditions and this is where we are today.

What therefore, is to be done?

I have made the brief historical assessment in order to place our current problems into context. My lawyering skills can only allow me to go that far and I suppose better equiped economic historians serve us better. The aim however, is to demonstrate that what we need is more than a simple transformation at the political level. We require a clear identification of the structural deficiencies in the economy, including at the very basic level, a key understanding of the role of the state in the economy. It has not escaped the attention of some observers that the trade unionists now in opposition were some of the staunch opponents of ESAP in the 1990s and did not have kind words for the Bretton-Woods institutions at the time. It would be interesting and useful to get a clear articulation of their position in relation to the economic policies led by these international financial institutions.

In my view, there are various credible criticisms against these bodies but despite that fact, at this stage we are too hamstrung and we cannot dismiss them as unnecessary. In any event, the fact that Zimbabwe made frantic payments demonstrates our desperation and that we need them at this time. Loss of membership would have drastic repercussions, including negative signals to other lending institutions ands investors that we are not creditworthy. It would lead to total breakdown. Our position as a country is such that we need their assistance, though in my view, there is need at a general level of the developing countries acting in concert, to negotiate a more viable relationship with them. The failures of SAPs in the developing world have largely been blamed on the fact that the programmes were not tailored according to prevailing conditions in the respective countries.

There are two key things that are lacking today, which Saunders also identified in 1996: Firstly, government’s lack of political capital to institute reforms and the lack of coherent and consistent policies to implement changes. The shortage of political capital is worse now given the contested election outcomes and the perceived lack of legitimacy in parts of the international community. This is a huge handicap to the government’s attempts turnaround the economy even though it controls parliament. It is difficult to see how in the current global environment the current government can really generate the desired political capital without engaging in some internal organic change of its own. The negative international profile and loss of confidence is directly connected to the character of the current system, regardless of their conviction in the rightness of their actions.

But even besides reclaiming political capital, there is need to address the economic policies and policy-making and implementation generally. One of the key reasons for the failure of the agriculture is that in pursuing the chaotic land redistribution exercise, there was no proper agricultural policy to sustain the new system. Land was simply taken because it was “our land”, without putting into place measures to retain productivity. No wonder there are insufficient inputs, inadequate equipment, lack of capital and five years after the takeovers, once productive land is now lying fallow. Given that in the last 20 years Zimbabwe had experienced severe droughts occasionally, there should have been a policy to promote irrigation and other infrastructure to accompany redistribution. Famine is not simply the result of natural disasters. As the renowned economist Amartya Sen has demonstrated through research in Asia, famine usually arises because on lack of proper planning on the part of the persons in charge. With proper planning, the effects of natural disasters such as drought can be mitigated.

Also, there is too much contradiction at the policy level. Ever since the fall of ESAP, there have been a number of economic blueprints most of which are heard only at the time of launching. There seems to be a celebration of launching policy and not the results of those policies. To what extent does the formulation of policy involve all stakeholders? When policies are put in motion and rescinded soon after, it brings confusion to the market and shows lack of research and consultation. On the one hand someone says no more relations with the West and we look East and on the other hand another key person is saying we need the Western support. The IMF grants Zimbabwe a moratorium and key officials applaud but others emerge with scathing attacks against the same institution. It does not portray the existence of the political will to change things and foster a more productive relationship. As I have stated, there is substance in criticisms against the IMF, but it is necessary to know when and how to articulate it. In any event, such contradictions increase the confusion about the direction the country is taking. It is like a football team in which every time after the striker scores a goal the defenders conspire to score two own goals.

In conclusion, we should not maintain a superficial assessment of Zimbabwe’s economic difficulties in which we see the problems as arising exclusively during the last five years and that simple political change will resolve everything. The economic difficulties have deep-seated roots. It also involves working out a proper relationship with the Bretton Woods institutions. We need to work out the debt, some of which arose during that disastrous ESAP era. But more importantly, the government needs to acquire sufficient political capital, which at present is arguably in short supply making it difficult for it to make any significant changes. It also needs to redefine its approach to policy-making – must involve the people and have coherent, clear and sustainable polices which are properly implemented and regularly reviewed. These are the two key elements for revival that whoever is in charge of the country needs: political capital and coherent policies.
Dr Magaisa is a lawyer specialising in Economic and Financial Services Law. He is also a columnist for the Zimbabwe Independent newspaper. He acknowledges the use of an article by Richard Saunders, written in 1996 entitled Zimbabwe: ESAP’s Fables in Souther Africa Report Archive Vol 11 No. 2. However, he takes all responsibility for the contents of this article. He can be contacted at wamagaisa@yahoo.co.uk
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