ZIMBABWE is struggling again with an economic crisis. Although an oil importer, the country has been hurt by falling gold and platinum prices. After three years of double-digit economic growth in 2010-2012, following the abandonment of the Zimbabwean dollar in favour of foreign currencies, the country’s economy and finances are deteriorating fast, battered by China’s economic slowdown and a strong U.S. dollar.
However, the roots of Zimbabwe’s current troubles go deeper. Agriculture, once the backbone of the country’s economy and its main export earner, slumped following the violent land grabs of President Robert Mugabe’s land reform which forcibly redistributed 7 million hectares. While commercial agriculture has slowly recovered in recent years, adverse weather conditions in 2015-2016 have compromised crop supplies and left more than 2.4 million Zimbabweans in need of food aid.
For the past two decades, the country also underwent deindustrialisation, caused by policy errors, deteriorating infrastructure (especially power shortages), low foreign investment and restricted access to international funding. The crucial mining industry has been hamstrung by high royalty rates, corruption and uncertainty created by the controversial indigenisation law, compromising development of the country’s vast mineral resources.
After two decades of producing less and spending more, the country’s foreign debt is rising, its annual foreign trade deficit has reached $3.3 billion and domestic borrowing costs are twice the regional average. The financial crunch is aggravated by the enormous weight of Zimbabwe’s informal economy: according to data from the International Crisis Group, only 700,000 are officially employed in a population of 13 million. Tight liquidity and plummeting business and consumer confidence is ravaging the domestic banking system, which has stopped making payments in U.S. dollars.
When Mugabe formulated his Look East policy back in 2005, Eurasia – and particularly China – was seen as the substitute for Western investors and “Western-dominated” financial institutions. More than a decade later, despite Beijing’s investments in mining and infrastructure and Moscow’s public esteem for the Mugabe regime, this strategy has not yielded significant benefits for Zimbabwe’s economy or materially improved the lives of ordinary people.Advertisement
With the country again in dire straits, Finance Minister Patrick Chinamasa has committed to reengage with Western donors and has completed a 15-month reform program monitored by the International Monetary Fund (IMF). The government is seemingly doing its best to comply with the IMF’s requirements, including formulating a strategy to clear $1.8 billion in arrears to international donors, as a precondition to accessing financial support as agreed at the 2015 annual IMF-World Bank meeting in Lima, Peru.
However, Chinamasa faces an uphill battle to get back into the multilaterals’ good graces. Firstly, the IMF has already warned Zimbabwe that besides clearing its arrears, it will have to implement significant reforms. This includes slashing the country’s unsustainable public wage bill, which consumes more than 75 percent of Treasury revenue and has long been growing faster than the economy.
It also means clarifying its controversial indigenisation policy, which has scared off foreign investors and led to major capital flight in agriculture, mining and banking. The IMF is also keeping close tabs on government expenditure and borrowing, particularly after recent revelations that Mozambique had failed to disclosed more than $1 billion in government debt.
Secondly, full reengagement will take much more than economic restructuring – it will require political reform. Restoring relations with Washington will be crucial, because the United States still has veto power over important decisions taken by the IMF executive board.
The U.S.’s tough position on Zimbabwe – including the restrictive provisions imposed by the Zimbabwe Democracy and Economic Recovery Act (ZDERA) – is not expected to change soon, and especially not during an American election year. So long as President Mugabe remains in power, Harare will not get any love from Hillary Clinton or Donald Trump. Clinton was, in fact, the co-author of ZDERA back in 2001.
The most blatant obstacle to economic reform is political uncertainty, which can be expected to continue as long as the 92-year Mugabe is around. Indeed, the hidden power struggle around the aging president has exposed reformers to attack from Mugabe loyalists.
Chinamasa, for example, while enjoying backing from Vice President Emmerson Mnangagwa (seen by many as President Mugabe’s successor), has been heavily criticized by hardliners from the ruling Zanu PF party. They accuse the finance minister of representing foreign interests, since he defends a lower public wage bill and revising the indigenisation law, including paying compensation to evicted white farmers.
The 2008 Indigenisation and Economic Empowerment Act has been a rallying cry of Zanu PF rule. According to the law, at least 51 percent of foreign companies with assets of more than $500,000 must be owned by black Zimbabweans. This constitutes a major challenge for foreign companies operating in the country, particularly those in the capital-intensive mining and banking sectors.
Representing Zanu PF’s hardliners, Youth Development, Indigenisation and Empowerment Minister Patrick Zhuwao – who is also a nephew of Mugabe – recently threatened to annul the business licenses of all non-complying firms, allegedly after companies refused to pay a 10 percent empowerment levy.
The good news for foreign businesses still operating in Zimbabwe is that Minister Zhuwao’s bluster did not please influential domestic interest groups, including the Zimbabwe Congress of Trade Unions and the Zimbabwe National Liberation War Veterans Association.
Zhuwao was heavily criticised by Finance Minister Chinamasa and Vice President Mnangagwa, before President Mugabe himself stepped in to disavow the threat. The incident is telling because it reveals a basic rift within the ruling party, which corresponds to two alternative succession paths.
While still a taboo within Zanu PF, the question of who succeeds Mugabe is the consuming question for Zimbabwe’s future. Despite his enormous power as a national symbol, especially in maintaining cohesion within the ruling party, it has become evident that the president is gradually losing his grip. Images of the increasingly frail Mugabe stumbling or nodding off at official events have become painfully frequent.
By his own declarations and an official party endorsement of his candidacy for reelection in 2018 (when he will be 94), the president fully intends to stay in office “until God says come.” Although his control over executive decisions is lapsing, Mugabe still has a final word on major decisions, including the indigenisation law. This means that no significant economic reforms can be expected in the short to medium term, forcing investors and international creditors – just like President Mugabe’s would-be successors – to adopt a wait-and-see strategy.
Vice President Mnangagwa, Finance Minister Chinamasa and other reformers will keep trying to stave off economic collapse, with limited room for maneuver. At the same time, internal divisions within Zanu PF will continue to deepen as they have since Vice President Joice Mujuru, long considered a likely successor to Mugabe, was expelled from the party in 2015. The power struggle is now focused between the Generation 40 (G40) faction led by Mugabe’s wife Grace and Mnangagwa’s “team Lacoste.”
It is possible to imagine three main trajectories for a post-Mugabe Zimbabwe: 1) a limited political opening and gradual economic reform; 2) political continuity accompanied by economic collapse; and 3) accelerated political change.
Mnangagwa and reform
Allies of Emmerson Mnangagwa, tapped by many inside and outside the ruling party as the heir apparent, have been cautiously suggesting that Mugabe could resign, saying the president “should be allowed to rest.”
Mnangagwa, as a key ally of Finance Minister Chinamasa in his efforts to clear debt arrears and regain the confidence of foreign investors and donors, is well aware that President Mugabe and his entourage are a major obstacle to painful but necessary economic reforms, and are likely to become even more so as the 2018 elections draw near.
In the succession struggle, Mnangagwa has significant advantages. As a liberation war hero and former head of the country’s Ministry of State Security, Ministry of Defence and Central Intelligence Organisation, he is the favourite among the army, the security forces and powerful veterans’ organisations. His political credentials, both within Zanu PF and as a former minister of justice and parliamentary speaker, are also strong. Since 2014, Mnangagwa has captured Zanu PF’s reformist wing with his performance as vice president and his reputation for pragmatism and political realism.
Both his international connections and his links with the security forces make Mnangagwa the best bet for an orderly transition. He would have to tread carefully between the need for an economic and political opening to appease the international community and the domestic opposition, while at the same time retaining the allegiance of Zanu PF insiders.
Even if he succeeds in this balancing act, Zimbabwe’s medium-term economic outlook is challenging. But if Mnangagwa can get sanctions lifted and restore access to international funding, he could begin to unleash the country’s potential. Zimbabwe has extremely favourable demographics, one of Africa’s highest literacy rates (83.6 percent according to United Nations data), highly fertile farmland and the world’s second largest reserves of platinum and chrome.
G40 and meltdown
A less likely, but still possible scenario is a protracted power struggle within the ruling party, ending with the victory of Grace Mugabe’s G40. While not popular among the security forces, this group has won over the party’s younger generation.
The G40 chafes at Mnangagwa’s ascension and favours a more radical interpretation and application of the indigenisation law. Ideologically, the faction is closer to President Mugabe. One of its leading figures is first lady Grace Mugabe, who recently earned a seat on the Zanu PF’s politburo as leader of the party women’s league. Other faction leaders include Zhuwao, Zanu PF political commissar Saviour Kasukuwere and Higher Education Minister Jonathan Moyo.
Grace Mugabe was responsible for engineering Joice Mujuru’s expulsion from Zanu PF. Although most people in Zimbabwe, including her colleagues in the G40, do not believe that she could win a general election, the rise of the first lady could be seen as a useful strategy to preserve interest groups and patronage networks.
Recently, the G40 suffered a reverse when President Mugabe censured the overzealous Minister Zhuwao. Nevertheless, the faction remains powerful within the Zanu PF party apparatus, as shown when it succeeded in getting one of Mnangagwa’s key allies – Christopher Mutsvangwa – fired from his post as minister of war veterans.
The G40’s key weakness is the lack of support among the security forces – which may act as arbiters in the succession process – and the declining popularity of the ruling party. Contributing to the latter trend have been corruption scandals and high living among the Harare elite, including Grace Mugabe. This makes the G40 less likely to produce a successor to the president. Were this to happen, however, Zimbabwe’s reengagement with the West would be compromised and indigenisation strengthened, triggering more capital flight.
Under a third scenario, the ruling party would simply implode after Mugabe leaves the scene. While it might still nominally control state institutions, the party’s popularity and power would crumble, especially in urban areas, amid a violent internal struggle and economic collapse.
The chief obstacle to this scenario is that with the next general elections just two years away, the opposition seems incapable of mounting a serious challenge to Zanu PF.
The Movement for Democratic Change (MDC-T) under Morgan Tsvangirai managed to lead thousands of demonstrators on the streets of Harare in April 2016 – the first major anti-government protest in nearly a decade. Still, the party has been weakened by internal divisions, a lack of resources and Tsvangirai’s own uninspiring performance as prime minister of Zimbabwe’s national unity government in 2009-2013.
Joice Mujuru – the former vice president and liberation war hero, like Mnangagwa – keeps chipping away at Zanu PF at the head of her new People First Party. For now, her appeal does not appear wide enough to achieve a game-changing result in the general elections. Mujuru is still too closely associated with the ruling party and its bankrupt policies, which probably limits her appeal to disappointed Zanu PF militants.
With the opposition unready, the country could descend into chaos and violence if the ruling party falls apart. Perhaps the only way to avoid this worst case would be the formation of a broad opposition coalition, including the MDC-T, People First and Tendai Biti’s People’s Democratic Party (PDP).
The next two years will be difficult for Zimbabwe. There will be little relief for the economy until the political future is clarified. With investors and donors sidelined, unemployment will stay high, food prices will rise and nearly half the rural population may need food aid next year. The crisis in neighbouring South Africa – an important migration destination and source of remittances – will hit ordinary Zimbabweans hard, further eroding support for Zanu PF in its rural strongholds.
An opposition coalition could mobilise and channel popular discontent against the regime, possibly averting a scenario of escalating violence. This benign outcome would increase political uncertainty in the medium term, even as it lays the groundwork for a stronger civil society and more durable institutions in Zimbabwe over the long term.
Source: Geopolitical Intelligence Service