President Emmerson Mnangagwa’s inaugural address contains something for everyone but it is always much more difficult to implement promises than to make them.
Investors, local and foreign will take comfort from his remarks, but that does not mean that they will invest until they have the words backed up by actions.
There will be some unhappiness in business at his re-affirmation of command agriculture, while those farming organisations who were hoping that white farmers will be encouraged to go back to their properties will have been disappointed by his statement of the obvious – that there can be no going back on land resettlement.
The promise to pay compensation to dispossessed farmers will be welcomed, but this is not the first time this has been said.
The devil in the detail
The small print is crucial. Will the compensation be for improvements only and not the land? How will the compensation be paid and by whom? Certainly not the government of Zimbabwe which does not have the money and has many other – more pressing – priorities.
There are question marks too over some of the other promises? How is Mr Mnangagwa going to resolve the liquidity crisis so that depositors can access their cash and savings? There are only two viable options – a loan from abroad and/or printing more money locally, thereby ensuring that inflation will be even higher than it is certain to be anyway.
How soon will foreign assistance become available? It seems unlikely that bilateral donors will offer much help – other than humanitarian assistance or funds for the elections – until free and fair polls have been held, which means the final quarter of 2018.
The IMF and World Bank will not move until the $1.8 billion in arrears have been cleared. The clumsy existing Lima programme for arrears clearance – which has many drawbacks, not least that its reliance on yet more borrowing by a debt-distressed country – is stuck in the sand. Mugabe’s exit may make lenders more willing to pay for the arrears clearance, but at what cost?
A credible policy to attract foreign investment requires not just clarification of the indigenisation law but its repeal and replacement by something more investor-friendly.
No quick fix
Above all four hard facts must be acknowledged.
First, there are no quick fixes for the Zimbabwe economic crisis. Decades of under-investment and inappropriate policies are responsible for the current situation. On average, says the IMF in its most recent report on Zimbabwe (July 2017) it takes a decade for a fragile economy (like Zimbabwe) to overcome its fragility. Those in the investment commentariat need to take such comments into account.Advertisement
Second, the economic pain that Zimbabwe is likely to experience in 2018 is already programmed into the system. According to US academic, Professor Steve Hanke, Zimbabwe can expect inflation of over 200% over the next two years. Hanke, who hails from the eccentric end of the profession may be unduly pessimistic and more sanguine local economists hope that it can be kept to 50%, but it is hardly a positive omen for an administration going into elections in the second half of 2018.
Thirdly, will the new administration be prepared – or able – to implement the tough austerity measures necessary to stabilise the economy in the run-up to elections? The smart money says no. A wage freeze, cancellation of bonuses, job layoffs in the public service including the military, higher utility tariffs to restore viability to the parastatals, and spending cuts across the public sector are not measures any government would wish to implement ahead of elections.
Finally, there is the employment problem. President Mnangagwa says the key is agriculture. Look elsewhere in emerging markets and you see that agriculture sheds jobs which are created, mostly these days, in services and some in industry. If agriculture is to competitive internationally, especially in a country like Zimbabwe vulnerable to climate change, it must raise productivity, which usually, means fewer not more farm jobs.