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Plain talk about the Zimbabwean economy

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US ambassador Christopher Dell has been called a "pervert" by the state-run Herald newspaper. The state media says he will be summoned to meet President Robert Mugabe this week, and may face expulsion. The government's indignation comes from a blistering speech delivered by the ambassador at the Africa University in Mutare on November 2, 2005. We have reproduced the speech below:

Honorable Governor Tinaye Chigudu, Honorable Mutare Councillor Norman Togara, Captains of Industry, distinguished guests, and Vice Chancellor Murapa,

It is an honor to be here with you today. Vice Chancellor Murapa, allow me first of all to thank you, the students, faculty, and staff of Africa University for your generosity in coming to the aid of the victims of Hurricane Katrina. Your donation of bedding destined for 15,000 people in Zimbabwe to New Orleans where many Americans were in desperate need in a time of crisis was greatly appreciated.

We in government appreciate the efforts made by Americans and Zimbabweans of faith to help their fellow mankind in a time of need. The gesture was emblematic of the spirit that made the founding of Africa University possible, and which brings 300 American volunteers a year to Mutare to work on charitable projects. I salute this distinguished institution and the fine work you are carrying out.

Since 1992, the US Embassy and Africa University have maintained a close relationship in furthering higher education in Zimbabwe and Africa.

We have supported the Institute of Peace, Leadership and Governance in its work developing professionals dedicated to spreading peace and democracy throughout Africa. I commend your efforts and wish you success as you continue to develop the Institute’s programs. As a leading institution of higher education in Zimbabwe and Africa, it is only fitting that straight talk about the Zimbabwean economy begins here.

Ladies and Gentlemen, no issue today is more important to the future of Zimbabwe nor has the potential to harm the region than the growing collapse of the Zimbabwe economy. Not too long ago, Zimbabwe had a vibrant and diversified economy. It was a land of great hope and optimism in Africa. It had a leadership role on the continent and was a symbol for the rest of the world of what Africa could become. Today, as you know, it is a country in deep crisis. I know of no other example in the world of an economy that, in times of peace, has contracted so precipitously in the course of six years.

The facts and figures will be familiar to you. I’ll mention them only briefly: Real GDP fell by almost 30 percent from 1997 to 2003, and the trend has continued through 2005. Inflation is at least in the mid-triple digits and clearly on the rise. If the government continues to print money to meet its obligations it could well drive inflation into quadruple digits by year’s end. Manufacturing has shrunk by 51% since 1997 and exports have fallen by half in the past four years. Almost every major economic indicator has declined significantly since 2001. The investment and operating environment is dismal. Foreign direct investment has evaporated from US$444 million in 1998 to US$9 million in 2004.

Agricultural production – the mainstay of the economy - has collapsed under violent implementation of a necessary but badly thought through land reform. The government, or officials of government acting on their own authority, have continued to expropriate commercial farms without compensation and to distribute these farms in a non-transparent manner to ruling party insiders even though it formally declared the end of the process earlier this year. Not only the commercial farm owners have been affected. This misguided and ill-fated land grab also displaced over a million farm workers and their family members.

The human cost of Zimbabwe’s economic crisis has been extraordinarily high. The estimated proportion of the population living below the official poverty line has more than doubled since mid-1990s - it is now about 80 percent of the population. At least half the country faces food shortages. The country’s human development indicators, once the envy of Sub-Saharan Africa, have sunk to the lowest fifth percentile in the world. Well over a quarter of the population has fled the country according to the last national census

It was more than dismaying to read a paper published in July by the Center for Global Development in Washington on the Costs and Causes of Zimbabwe’s Crisis. It estimated that Zimbabwe’s economic crisis has set the country back more than half a century. The paper calculated that the purchasing power of the average Zimbabwean in 2005 had fallen back to the same level as in 1953 when the Confederation of Rhodesia and Nyasaland was established. That’s an astonishing reversal of 52 years of progress in only a half dozen years.

The flood of economic bad news has been continuous. Most recently, the World Economic Forum published its assessment of the state of Zimbabwe’s competitiveness. Alarmingly, it ranked Zimbabwe as the least competitive of all 117 economies studied.

The facts and figures are bleak. I pose the question: What has caused Zimbabwe’s unprecedented economic descent?

The government’s official position has been that the economic collapse is the result of drought and sanctions imposed by unfriendly western nations.

Let’s look at these assertions one at a time.

On the face of it, it seems possible that drought could account for Zimbabwe’s precipitous fall in output, especially since so much of the economy is based on rain-fed agriculture and the region faces a regular cycle of varying rainfall. This explanation, however, does not hold up well under scrutiny.

The Cato Institute in Washington recently published an insightful paper on the collapse of Zimbabwe’s economy. I understand the paper is being widely discussed in business and academic circles in Zimbabwe. The author, economist Craig Richardson, shows that the “drought” of 2000/01 was less severe than at least 12 other recent low rainfall periods. Richardson studied the correlation between GDP growth rates and rainfall since 1985 based on data provided by Zimbabwe’s Meteorological Services Department from all 93 rainfall stations in the country. He found that the historically close correlation of GDP with rainfall cycle no longer holds after 1999. Since 1999, when rainfall has recovered, the Zimbabwean economy nevertheless has continued to decline.

The Center for Global Development paper I referred to earlier carries the rainfall analysis one step further. It notes that rainfall patterns are regional, yet Zimbabwe’s decline in maize production over the past five years has been dramatically greater than Zambia’s or Malawi’s. In fact, Zambia’s maize production actually increased after 2002.

Ladies and gentlemen, I don’t pretend to be an agronomist, but I do know that Zimbabwe has experienced cycles of drought since time immemorial. Its agricultural sector adapted to the conditions and built impressive irrigation systems and dense networks of dams. As challenging as the conditions are when rainfall is below average, let’s put the drought defense to rest. Under scrutiny, it doesn’t sufficiently account for Zimbabwe’s economic collapse.

Let’s also set the record straight on sanctions.

The Zimbabwe Democracy and Economic Recovery Act of 2001 is the cornerstone of U.S. policy toward Zimbabwe. Under the Act, the United States conditions aid and financing for Zimbabwe on the government’s restoration of the rule of law, the conduct of free and fair elections, placing military and police forces under effective civilian control, and a commitment by the government to an equitable, legal, and transparent land reform program.

Until Zimbabwe meets these conditions, the United States – joined by the European Union and others – will maintain narrowly tailored financial and travel sanctions on ruling-party and government leaders and their families. Sanctions on specific high-level individuals and their families, are the vehicle that the United States and like-minded countries use to signal international disapproval of the way that Zimbabwe’s ruling elite has trampled on democratic freedoms.

The travel and financial sanctions that we have imposed target the highest-level individuals in Zimbabwe. They restrict entry into the United States for senior members of the government, and others who formulate, implement, or benefit from policies that undermine Zimbabwe’s democratic institutions. The financial sanctions prohibit any U.S. person from engaging in any transaction with any person or entity found to be undermining democratic institutions and processes in Zimbabwe.

Let me make it perfectly clear ladies and gentlemen, Zimbabwean firms that are not connected to regime leaders are free to do business with American firms, and American firms are free to invest in Zimbabwe and trade with any individual except those top-level sanctioned officials. The argument that these narrowly targeted sanctions have hurt the larger economy could only be true if the economy as a whole were entirely in the hands of the 86 government and party officials on the list and they controlled all of it. No doubt they have a disproportionate share of Zimbabwe’s economy in their hands, including multiple farm ownership, but not even the most suspicious observer credits the international sanctions with that degree of influence.

There is so much misinformation about sanctions being bandied about that you might be surprised to learn that Zimbabwe actually has a trade surplus with the United States. It exports more goods and services to the U.S. than it imports. U.S. imports from Zimbabwe were US$76.2 million in 2004; our exports amounted to US$47.3 million. The United States ranked fourth in 2004 among the major destinations for Zimbabwe’s exports; the U.K. ranked second. To me this is clear evidence that, despite assertions in the press and by government officials to the contrary, there are no blanket sanctions against doing business in Zimbabwe and the effect of sanctions is confined to the senior people they are meant to hurt.

Back to the original question: What has been the cause of Zimbabwe’s unprecedented economic descent?

The answer is really quite simple, as well as quite shocking: Neither drought nor sanctions are at the root of Zimbabwe’s decline. The Zimbabwe government’s own gross mismanagement of the economy and its corrupt rule has brought on the crisis.

The examples of misguided economic decision making since the 1990s are manifold and well documented. The fiscally reckless, massive, unbudgeted payout to war veterans in 1997 is often cited as the beginning of the economic decline. Zimbabwe’s costly misadventure in the Democratic Republic of Congo followed soon after. It was also during this period that the parallel foreign exchange market emerged.

The government’s policy of land seizures and tolerance for chaotic disruptions on commercial farms led to the collapse in food production. The impact of the farm invasions has extended beyond food security, beyond Zimbabwe’s balance of payments crisis, and beyond the plight of the thousands of individual expropriated farm owners. The land grab has intensified the suffering of Zimbabwe’s most vulnerable segments of society – the rural and urban poor.

Fast-track land reform, still underway, as you know, here in Manicaland, also had the ugly and debilitating side effect of spurring violence, racial mongering, and the destruction of property and livelihoods. Attempts to get the country back on track since the onset of land seizures have been riddled with political favoritism, disregard for transparency and the refusal to admit and correct mistakes. Farm audits and re-audits take place, but the results appear to drop into a black hole. No wrongs are righted; the rule of law is a shamble. Multiple farm ownership by the politically powerful and their families makes a mockery of the government’s official “one man, one farm” policy.

Fiscal probity is nonexistent when the budget deficit hovers in the double-digits. Even at Zimbabwe’s high rate of tax collection, revenue in a contracting economy cannot keep abreast of the country’s public spending. The government’s wage bill, saddled as it also is with ghost workers benefiting from the patronage system, is an astounding 20 percent of GDP. I ask you, are you receiving a level of service commensurate with this outlay?

The Reserve Bank keeps the printing press running and the economy suffers through the ripple effects on the value of the currency and on food and fuel supplies.

Let me share a nugget of information with you that illuminates Zimbabwe’s odd-man-out status in Africa. In 2004, only Angola and Zimbabwe in Sub-Saharan Africa had inflation rates above 20 percent. Angola brought its rate down from 77 percent in 2003 to about 30 percent a year later. I needn’t remind you how far out of control the cost of living is these days in Zimbabwe.

Since I arrived in this country I’ve been struck repeatedly by the extent of the government’s involvement in so many far-reaching aspects of the economy. Its urge to control, control, and control some more puts a stranglehold on economic activity that belongs solidly in the private sector. Where else in the world does a central bank governor formulate sectoral policy? Why do the officials fear unleashing market forces? Do they have so much to lose personally if they were forced to compete on a level playing field with others? Their actions provide the answer to that, I fear. Moreover, it is the certainty of misguided government policies and not/not the effect of limited, targeted sanctions that have discouraged foreign direct investment.

Officials across the government have made an art out of repeatedly uttering throwaway statements about indigenizing industry, without thought to drawing up a plan involving all stakeholders. Let me tell you something: Nothing rattles investor confidence more than the prospect of expropriation. The constitutional amendment striking down the right to redress in the courts for victims of land expropriation sent a shock wave through the community of investors who keep an eye on the climate in Zimbabwe.

Ladies and gentlemen, while the Zimbabwean economy appears to be entrenched in a downward spiral, and the abandonment of sensible economic policy has shut off most foreign aid, scared away most foreign investment, and spurred an alarming rate of brain drain, there is good economic news coming out of other parts of the region. Zambia, for example, once regarded, I understand, as Zimbabwe’s poor cousin, has been reaping the benefits of prudent economic management.

The Zambian government’s commitment to macroeconomic reform has produced a remarkable turnaround. Zambia clearly still faces daunting challenges, but its leadership has implemented sound policy advice, received very deep-cutting debt relief from creditors and the donor community this year, and has put itself on a sustainable growth path. I read recently that real GDP growth projections had been upped to the high single-digits marking a remarkable about face after two decades of decline. Most interestingly, the turnaround is based on strong performance in three pillars of the economy that were once the mainstays of this country’s prosperity: agriculture, tourism and mining. In addition, Zambia’s turnaround has attracted a flood of grants and investment in the country.

Botswana is a further example of a close neighbor where the sound management of natural resource wealth over many years has yielded tangible benefits. Real GDP growth there has averaged nearly 9 percent per annum, and per capita income has risen above US$3,500. Botswana has also made impressive gains with respect to many social indicators.

Last month Reserve Bank Governor presented his Monetary Policy Review Statement for the third quarter. At his presentation to the diplomatic community he called on the assembled ambassadors to do Zimbabwe a favor and portray a positive picture of Zimbabwe to investors at home. I believe Governor Gono has misjudged diplomats’ influence on investors. There are not many governments left in the world that can persuade or direct their business community to invest in a particular country. Investment flows to countries with sound macroeconomic policies, where the rule of law is respected and contracts enforced, to countries that offer a good opportunity for generating a healthy return on investment, to countries that do more than pay lip service to the concept of transparency. In short, to countries with policy predictability.

As an example of the wrong signals being sent by the government of Zimbabwe, I learned recently of the experience of Lazarus Zim, CEO of Anglo American in South Africa. He related a telling story of his investment experience in Zimbabwe. Anglo American, you might know, is a shareholder in Hippo Valley Estates, which is under threat of seizure by the government. Mr. Zim traveled to Zimbabwe to sort out the problem and was told to talk to the new governor of Masvingo province. He approached the governor, pointing out that Hippo Valley Estates had a contractual agreement with the government to farm in Hippo Valley. The governor alleged no knowledge of the agreement. Mr. Zim then produced the contract, which happened to bear the governor’s own signature. To the Anglo American executive’s astonishment, the governor blithely passed off that the contract was “open to re-negotiation”. You can imagine the lesson Mr. Zim took back to Anglo American’s Board from this experience and the consequences it has had on Anglo American’s plans to invest further in mining in Zimbabwe.

When Minister of Transport and Communications Chris Mushohwe suggested to the Annual Congress of the Confederation of Zimbabwe Industries in early September that the government might take over white-owned firms just as it had taken over commercial farms, alarm bells rang at international banks. They asked whether it was time to rein in the lines of credit they had extended to their clients operating in Zimbabwe.

I understand President Mugabe designated 2005 the Year of Investment. Is there no greater irony than bludgeoning property rights under the banner of investment promotion?

Taking another look at economic development in the region: I’m also always keeping an eye on how Mozambique is doing, having served there from 1991-1994. Back then, during the last years of its long civil war, it was a desperately poor country near the bottom of every survey of measures of poverty and suffering. Over the past years, however, Mozambique’s strong commitment to sound macroeconomic policies and structural reform has led to a remarkable improvement in economic performance. During the last decade, real GDP growth averaged 8 percent a year - the highest in Africa. Despite a sharp increase in petroleum prices, inflation has declined to low single digits, driven by lower food prices. Growth in traditional exports is strong. The turnaround has attracted substantial private capital and donor assistance in an outpouring of goodwill toward the country.

Circling the region, I would be remiss if I failed to acknowledge and commend South Africa as an anchor of stability and sound economic management. The economy is growing strongly, inflation is down, public finances have been strengthened and the country’s external position has improved markedly. The Broad Based Black Economic Empowerment program has made advances. The elevation of Lazarus Zim to the top spot at Anglo American is only one example. Furthermore, the South African government’s commitment to basing land reform on well-defined legal principles also appears to be strong.

Ladies and gentlemen, the US Government is committed to fostering economic growth and poverty reduction throughout Africa. In 2000, we took a major step toward this goal by enacting a new law called the African Growth and Opportunity Act, or AGOA. This US law offers tangible incentives for African countries to open their economies, build free markets, and embrace political pluralism. Those countries that adopt free market principles, adhere to the rule of law, and respect human rights are eligible under AGOA to export a wide range of goods to the United States duty free. Because of this generous piece of legislation, US imports from Sub-Saharan Africa, for example, increased by over 50 percent from 2000 to 2004. This jump in trade included a diverse list of products, among them apparel, cut flowers, and processed agricultural goods.

Thirty-seven African nations have met the AGOA criteria and are eligible for the trade incentives. Unfortunately Zimbabwe is not among them. Like Sudan and Somalia and a small number of other countries, bad policies have sidelined this country.

For similar reasons, Zimbabwe has also missed out on President Bush’s Millennium Challenge Account Initiative. The Initiative draws on development lessons learned over the past 50 years to provide assistance to those countries that rule justly, invest in their people and encourage economic freedom. The U.S. Congress provided nearly US$1 billion in funding for this initiative in FY 04 and US$1.5 b in FY 05.

Distinguished guests, let me not leave you with the impression that the United States has forsaken the people of Zimbabwe when need has never been greater. And do not for a moment leave here with the thought that the United States is the enemy of the Zimbabwean people. We support, and will continue to support, civil society, democratically minded groups in Zimbabwe, and the sick and the poor of this country.

Despite the government’s refusal to acknowledge the widespread hunger that its policies have caused - and the grim irony of President Mugabe, who has presided over and led this decline, lecturing the Food and Agriculture Organization was lost on no one - we and other donors are helping to feed over five million Zimbabweans. The United States is prepared to help protect Zimbabwe’s most vulnerable populations from the disastrous consequences of this government’s policies. Since 2002, we have spent $300 million on food assistance for Zimbabwe. While policy makers drive the economy to ruin, the United States has worked to keep Zimbabweans from starving. Unlike the government of Zimbabwe, we will not play politics with food. We remain committed to providing assistance to all who need it based solely on their needs.

Allow me also to take this opportunity to also note that the United States implements the largest HIV/AIDS program in Zimbabwe of any donor in the world. Despite the erosion of Zimbabwe’s formerly excellent health care system, current modest HIV/AIDS programs are having a real impact. HIV prevalence is reliably reported to be falling and the United States is proud to have contributed to that decline.

Ladies and gentlemen, the United States is not alone in its assessment of the dire state of the Zimbabwean economy and the measures needed to put this extraordinarily endowed and profoundly beautiful country back on track. But without decisive and deep cutting policy action, the outlook for the next years is bleak.

Zimbabwe cannot pull itself out of the hole it has dug by itself. It must re-engage with the IMF to get balance of payments support and debt restructuring. Governor Gono noted in his last Monetary Policy Review that the public external debt is now over US$ 4 billion and rising. Zimbabwe cannot service this debt on its own. Paying down its arrears to the IMF, however, is only one of the IMF’s requirements for reengagement. The second requirement is implementation of a comprehensive macroeconomic reform package that will lay the basis for sustained growth, low inflation, and external viability. The policies undertaken by the government today fall well short of what is needed to address the economic deterioration caused, as I said before, by shortsighted and misguided government policies.

In closing, may I say that, for our part, the United States adds a third pre-condition for re-engagement. And it goes beyond the economic realm because a dynamic economy hinges on the government representing the people’s interests. To reiterate my remarks in clarifying the U.S. sanctions policy:

While our humanitarian assistance is generous and you can count on it to remain generous, only when Zimbabwe’s government restores the rule of law, conducts free and fair elections, puts military and police forces under effective civilian control, repeals repressive legislation such as POSA and AIPPA, and commits to an equitable, legal, and transparent land reform program will we support financial support for the government of Zimbabwe.

Ladies and Gentlemen, it is my hope that this speech will begin a series of discussions on the important issues of peace, stability and prosperity in Zimbabwe.

Tinoda kuti Zimbabwe ibudirire zvakare

(ti-no-da ku-ti Zimbabwe i-bu-di-ri-re zva-ka-re)

(We want Zimbabwe to prosper again)

Thank you,

Nda-te-nda, (Shona)

Ngi-ya-bonga, (ngee ya vonga - Ndebele)

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