Role of the international 'Good Samaritans' in Zimbabwe's economic revival

IN MY previous article, ‘The Herculean task of reviving the Zimbabwean economy’ I looked at how the new finance minister could establish an internal framework for the revival of the Zimbabwean economy.

The central theme of that article was that the first task of the new Finance Minister should be to manage the drafting of a consultative and carefully considered economic recovery plan before entertaining or accepting any economic recovery package from the international community.

By coincidence or by design, reports suggest that Prime Minister designate Morgan Tsvangirai has started consultations with various economic and social groupings to get their views on reconstruction and recovery.

That article flooded my mailbox with mixed reviews; a number of observers (most of them international) believed that my position was flawed because it did not recognise the importance of international financial Institutions (IFIs) such as the World Bank or the IMF in Zimbabwe’s reconstruction.

On the contrary, I believe that the Bretton Woods institutions have an important role in aiding the stabilisation of macroeconomic fundamentals and Zimbabwe’s integration into the world economy.

However, the process and framework for recovery has to be designed and owned by Zimbabweans. In particular, the impact of the previous structural adjustment programme on the Zimbabwean economy has to be analysed and contextualised.

The problem with the level of deterioration of our economy is that any package is a good package and the need for a risk assessment of any such package on the future health of the economy may not be considered as important.

The country may be forced into the hands of the usual ‘Good Samaritans’ all with the ‘well intentioned aim of arriving at solutions for the Zimbabwean economic crisis’.

When it comes to solving Africa’s problems, or prescribing solutions for Zimbabwe, the ‘Good Samaritans' are limitless and in most areas, the Europeans are the ‘experts’.

This article briefly argues that IFIs contributed to Zimbabwe’s financial crisis therefore any new recovery package has to be guided by a well thought out economic agenda which is neither ‘one size fits all’ nor prescriptive.

Since choices are limited, it appears inevitable that the new government (whenever it is formed) will be offered a stabilisation package by the IMF. For this to have an impact on economic turnaround, the government will have to consider the contribution of previous IMF policies to the current economic crisis.

In a previous paper entitled Barbarians within the gates -- Zimbabwe’s economic ruin and the making of the world’s worst economy, I argued that although mostly self afflicted, the causes of the Zimbabwean economic crisis are as complex as they are multidimensional.

Among the many other possible causes of the crisis I explored, I argued that the Structural Adjustment Programmes (SAPs) by IMF and the subsequent withdrawal of foreign aid contributed to an accelerated decline of the economy.

Empirical evidence suggests that the Zimbabwean economy started showing signs of slowing down back in 1997 after the government abandoned the IMF guided Structural Adjustment Programme mid-way. Prior to ESAP, Zimbabwe had a fairly developed economy compared to other African countries. The economic strategy was fairly interventionist, aimed at guiding growth with equity with a socialist leaning. This approach managed to support high rates of economic growth with GDP averaging 7.5 % between 1965 and 1975.

Other cynical observers suggest that economic growth was highest under Ian Smith than it has ever been under President Robert Mugabe or after 1980. Reforms in Zimbabwe were introduced in the context of high inflation and slowing GDP growth rates between 1980 and 1989 which averaged 3.5 %. This slow growth put the government under pressure to deliver on some of its election promises of economic growth, job creation and delivery of social services to a previously marginalised population.

Although poor export performance and the lack of meaningful foreign investment resulted in serious shortages of foreign currency before the implementation of ESAP, controls on imports and capital reparation protected the domestic industry and the balance of payments deficit.

Interest rate controls kept domestic liquidity cheap to finance budget deficits and service debts. Trade Liberalisation was predicted to create high and sustainable levels of export growth and opening the country to external competition, earning the country foreign currency and increasing productivity.

The results of SAP reforms in Zimbabwe where as disastrous as they were in many parts Sub Saharan Africa where evidence suggests that SAPs have impoverished people and increased inequality in a number of ways. Zimbabwe suffered negative effects as a result of SAPs.

The prescriptive World Bank model was firmly based on the orthodox neoclassical view of economics – particularly the efficiency of free markets and the benefits of international trade and competition. As a result of Zimbabwe’s relatively strong and varied economy, the World Bank considered it a place where they could implement SAPs more effectively and easily compared to other African countries.

The free market theory of the SAPs failed in practise. Between 1991 to 1996, compared to the 1980s, average real GDP growth fell from 4% to 1.7%, average inflation rose from 15% to 25%, interest rates trebled, the percentage of people living below the poverty line rose from 50% to 75%.

Under SAPs, Zimbabwe also suffered what has been described as ‘deindustrialisation’. This was evident in several key manufacturing sectors, like textiles, which saw a 61 percent contraction from 1990, when SAPs were implemented to 1995.

The programmes also prioritised market forces over government expenditure for social services to the poor leading to the reduction of such services previously offered by the government when it came to power in 1980. Healthcare expenditure dropped 30 percent after the implementation of SAPs.

Implementing SAP reforms required US$3.5 billion in new foreign loans over five years. This was in addition to the existing debt of US$2.5billion. Even worse, during the 1992/93 fiscal year, interest payment on both foreign and domestic debt increased 15% more than projected due to the interest and exchange rate volatility (World Bank 1995). Although this was a result of the reforms programme.

Approximately twenty five percent of the public workers were laid off, unemployment reached 50% in 1997 and 75% in 2001. By 1999, an estimated 68% of the population was living on less than US$2 a day. Manufacturing production fell more than 20% between 1991 and 2000.

These social costs created serious public backlashes and produced the ‘IMF Riots’, including the 1993/5 bread riots in Harare. Public workers went on strike in 1996, followed by numerous other trade union organised strikes in 1997. The public unrest and the growing power of trade unions, particularly the Zimbabwe Congress of Trade Union (ZCTU) led to the formation of the Movement for Democratic change (MDC), the largest opposition party in Zimbabwe.

The IMF riots became the turning point for the government faced with the real threat of losing power. It was then that the government started to believe that the IMF policies were intended to bring about regime change and not assist the developmental process of the country.

Based on the growth statistics under SAPs, the government’s position that SAPs ignited the Zimbabwean economic crisis is not without its merits. The government’s reaction to Black Friday and the growing economic crisis was to blame external strangulation caused by SAPs and immediately announced a return to interventionist and dirigist policies by imposing price freezes on staple goods, tariffs on luxury imports and a regulated management of foreign exchange.

Among other things, the failure of SAPs in Zimbabwe and the government’s abandonment of the reform process ignited the Zimbabwean crisis. Foreign aid that the country received as part of the reform process strengthened the Zimbabwean dollar and increased imports. Zimbabwe’s withdrawal from the programme and the return to interventionism which coincided with the DRC war and the land grab sent negative signals to the international community resulting in investors pulling out of the country.

Despite these previous failures, an aid package now may have advantages that the 1991 programme didn’t have. Firstly, there is no shock therapy. A reform package now is unlikely to cause as much public outrage as before. This is because economic fundamentals are already at rock bottom, it is unlikely the people will experience any further ‘pain’ often associated with adjustments.

Secondly, there just aren’t that many choices available. An IMF package will be important in the restoration of international investor confidence and the country’s integration into the world economy.

Lastly, the agreement between the two main political parties may mean there are fewer chances of short-term political positions such as those that resulted in the abandonment of the programme in 1997 on the basis of political survivalism. Whatever the case, an IMF package will have to be accepted on the basis of aiding a localised economic revival plan, drawn up from the concerted efforts of Zimbabweans.

Lance Mambondiani is an Investment Executive at Coronation Financial. The view expressed in this articles are personal and do not necessarily reflect the position of Coronation Financial. To join the discussion on this article visit Lance blog or his facebook discussion forum. Lance can also be reached at coronation.uk@btinternet.com
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