It’s the economy stupid!

By Lance Mambondiani

THE recent Zimbabwean elections have generated unprecedented excitement for many stakeholders as a defining moment for the future of Zimbabwe

With the economy in a chronic state of recession, runaway inflation at more than 100 000.00 percent (the highest in the world), a life expectancy of 37 (the lowest in the world), unemployment at 80 percent and persistent shortages of critical supplies, the state of the economy would to a large extent have influenced the decision of a significant number of voters.

Even that ‘common man’ in the remote but ‘infamous’ Uzumba Maramba Pfungwe would have voted not only for their patch of land but for the improvement of their economic circumstances.

It is possible to suggest that for the first time since 1980, Zimbabweans were driven by politics of the stomach; voting on issues of their sustenance than on sentiment.

Politicians are often in the suicidal habit of grossly underestimating the awareness of ordinary voters, especially those in the rural areas and their ability to pierce the veil between rhetoric and substance. When the basic choice is between food on the table and intangible ideals, that debate appears to have been settled by Maslow’s theory of psychology and the hierarchy of needs.

There is no doubt that this watershed election, was about the state of Zimbabwe’s economy as it was about nationalism. The Zanu PF government has often argued the source of the economic crisis as the failure of neo-liberal structural adjustment programmes and later declared and undeclared sanctions by western governments as retribution for land retribution.

The Zimbabwean crisis is, therefore, argued as a bilateral dispute between Britain and Zimbabwe. The government’s approach suggests that Zimbabwean crisis is about defending our sovereignty than it is economic. The opposition and the international community has in turn blamed that government of gross economic mismanagement and ruinous policies such as an ill planned land redistribution exercise, patronage spending in the war veteran pay-outs, involvement in an unbudgeted regional warfare in the DRC and the recent price control policy.

“It’s the Economy Stupid” was a catchphrase popularized during Bill Clinton’s first campaign against President George H.W Bush, who was shackled with a recession in 1992; a year after his acclaimed stewardship of the U.S- led victory in the Persian Gulf. That victory had given Bush the highest presidential approval rating in U.S history. However, given the choice between nationalistic pride and their wallets, the electorate voted with their wallets. Clinton emerged victorious and the markets responded positively to his appointment. From the stock market’s perspective – he proved to be a strong president.

Politics has the uncanny habit of affecting your pocket, whether you vote or not. In the absence of strong institutional frameworks of law and independent regulatory bodies, the outcome of the Presidential and parliamentary elections is naturally the strongest determinant of the country’s policy direction. Collated House of Assembly results from the Zimbabwe Electoral Commission (ZEC) indicated Zanu PF losing its parliamentary majority for the first time in 28 years. The MDC had a slight majority running almost neck and neck, evenly splitting the votes between them.

Although the Presidential elections remain in the balance, it has become evident that Zimbabwe is at a defining moment. The underlying hopes of the millions who voted on March 29, regardless of political dispensation have been that this election will change the economic future of the country, with diverse views on which candidate is better placed to achieve that objective. The official parliamentary results are pointing towards the possibility of a totally new phenomenon on the Zimbabwean political landscape, a ‘hung parliament’. In parliamentary terms, a hung parliament is defined as one in which no one political party has an outright majority. Although a hung parliament is often considered debilitating for a fledging democracy, it may be the best thing for a transitional one.

So would a hung parliament be good enough to resuscitate the Zimbabwean economy and is the current vote split between Zanu PF and the MDC good for the economy? There is every indication that it is. Firstly, a hung parliament will provide the key that Zimbabwean need to bring in reforms. It will add plurality of voices and diverse power centres to the House of Assembly and for the first time in 28 years may become the ignition for reasoned and contested economic policies since independence in 1980.

Secondly and most significantly, the MDC is a relatively new but rapidly growing party. A hung parliament will give the MDC the cautioned experience of government without the irrationality of costly economic mistakes camouflaged by the euphoria for change, as was the case when ZANU came into power in 1980. Left with an overwhelming majority, the danger could be that the MDC would have dug itself into monumental blunders without checks and balances from a strong opposition.

Thirdly, the conversion of Zanu PF into an opposition party in parliament is an indictment on their economic policies which have, if not the causation, failed to address the current economic embarrassment. Undoubtedly, Zanu PF, unused to being an opposition party will try to win back the mandate of the people, hopefully creating parliamentary competitiveness.

It has long been established that elections, partisanship and political uncertainty play an important role in shaping the value and volatility of financial assets. The balance of power in the current outcome is important in trimming any political party’s authority, which in turn is good for economic recovery.

The post election period may present an important window for the incumbent politicians to address policy irrationality for the sake of the ordinary Zimbabweans they claim to represent. With no definitive majority for all parties, economic policies as with any other legislation, will be decided based on coalition building. Although this may prove a challenge to a new government, it may yet become the most important outcome of this election.

Some policies, regulations or enactments such as the controversial price control regulations would not pass through parliament without the necessary scrutiny, as politicians would fear being voted out of office. The dispensability of political cycles is a necessary building block for any progressive society and good for the economy. Choices made by public officials will depend not only on what would be optimal but also on the lobbying interest of their political bases. As such, the allocation of corporate power and privileges will be determined not only by how governments favour their various constituencies but by the fear that a politician will be voted out of office and lose power if they don’t represent the will of the people.

However, since Zimbabwe is not a parliamentary democracy, the outcome of the Presidential election will be important in addressing any economic resuscitation. In the event that the MDC wins the presidency, the party has a window of opportunity to formulate a broad consultative Economic Agenda and a definitive plan for economic recovery.

The MDC has the advantage of novelty and international support. A new government can tap into massive financial support from the international community which has imposed sanctions on the Zanu PF government. An emergency stabilization fund can also be accessed from the IMF to address fiscal imbalances, restore credibility in the monetary system and balance of payments. Without a concise turn-around plan, public euphoria and unreasonable expectations can easily turn into disillusionment and a lightning quick political defeat.

Even if the incumbent President were to be re-elected, the shifting political base will demand a change in policy strategy to address the economic decline and a re-evaluation of people’s concerns. Failure to address policy weaknesses and other fundamental reasons for the economic disaster can only result in further embarrassment. There are a number of actions that a new administration, regardless of its makeup, will need to immediately address to arrest the general economic decline.

Some of these factors have been analysed in a July 2007 report by Adam Smith International entitled 100 Days: An Agenda for Government and Donors in a New Zimbabwe. I believe that these factors, although not exhaustive, will result in the restoration of economic stability for the country and build a platform for sustained growth. The economic factors in need of urgent redress include;

1. Reforming the Exchange Rate regime and unify official exchange rates.
2. Demonstrate commitment to greater fiscal responsibility
3. Restore relations with multi-lateral agencies and an immediate integration into the international community
4. Rebuild and engage the business community in addressing price distortions and supply side fundamentals.
5. Strengthen incentives for foreign investments in Zimbabwe and stimulate the growth of exports.
6. Build a platform for long term agricultural growth
7. Address Inflation
8. Scrap price controls
9. Reviewing the mandate of the RBZ and key policies affecting the financial sector
10. Package reforms within a plan for economic recovery

The current political process has yielded a window of opportunity to address the economic situation in Zimbabwe. Years of hyperinflation have created several classes of asset bubble in most asset classes such as properties and the stock market. Economic bubbles are generally considered to have a negative impact on the economy because they tend to cause misallocation of resources into non-optimal uses.

In addition, the crash which usually follows an economic bubble can lead to a debilitating misallocation of economic resources, and its collapse may cause severe strains on the financial system and destabilize the entire economy. A new administration will have to address the asset bubble problem to avoid importing unforeseen pressure into any economic reform package.

The outcome of the both the Presidential and Parliamentary elections will certainly mark a transition into a different, if not a new political framework for Zimbabwe. For a brief moment, it appears power has shifted back to the people. If that were the case, it is possible that the political process will begin an urgent analysis of the current economic policies.

Lance Mambondiani is an Investment Executive at Coronation Financial. The view expressed in this articles are his personal views and do not necessarily reflect the position of Coronation Financial.

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