Zimbabwe is a shakedown economy where anyone with any form of leverage demands bribes from the next citizen in a position of weakness.
Your fate as Zimbabweans and the power to rescue yourselves is squarely in your hands. Exercise it.
Economies don’t die; they fade away like old soldiers.
Back in the early 90’s my favorite movie was called ‘Nowhere to run’. It starred Jean-Claude Van Damme as Sam Gillen, a convicted robber who escaped jail and was for a while at large, only to later turn himself in to the authorities because there was nowhere to run.
Last August, I put forward a gloomy 2016 prognostication of the economic situation in Zimbabwe found here http://bit.ly/22Gyzvt . I predicted then that the economy of Zimbabwe will be far worse in 2016, and laid out the reasons for that projection. The purpose was not to create a sense of alarm, but to help you prepare and create a plan A, B and C at the individual, household or company level.
At the time, I did not even factor in the ravaging effects of the current drought in the region. Neither did I factor in the disastrous collapse of prices on the commodities markets which strongly affect Zimbabwe because of its reliance on primary and extractive industries.
For example, you may not have heard, but Zimbabwe’s largest ferrochrome producer, Zimasco has now filed for bankruptcy protection by asking to be placed under judicial management. With the collapse of the takeover of Ziscosteel by Essar Holdings at the instigation of government ministers, this means that over the next few years, there won’t be much economic activity in the Midlands region of Zimbabwe.
Travelling from Nigeria to Singapore a few years ago, I read a Nigerian novel – it was strongly recommended by the bookstore at the airport. It was called Things Fall Apart. In that book was a character that had an endless propensity to borrow and not pay back. His name was Unoka.
Living on the edge – purveying a wages and salaries budget
In Bhuddism, there is a belief in the spiritual principle of karma, which refers to the cause and effect link that sometimes happens where an individual’s intent and actions have a bearing on what happens in their future.Advertisement
Chinamasa, Zimbabwe’s minister of finance, used to attack former finance minister Biti back at the time the latter was in charge of the exchequer, the former claiming that there was enough money for the nation to survive. Biti argued before the 2013 elections that Zimbabwe could not afford the elections and was quoted thus;
“We don’t have money for these elections and everyone knows it. It’s a horror movie except that you are not watching the movie, you are part of it.”
In the comfort of the justice ministry then, far from the national purse, Chinamasa retorted;
“He should be more creative. All the money that has been raised, I have been forced to almost act like I am a Minister of Finance to raise resources from elsewhere and tell him that there are monies coming to your treasury (sic) when in fact he should be doing that. … however, there is no problem with our capacity financially or otherwise…”
No sooner had Chinamasa said this than he was given full charge of the finance ministry after his party “won” the elections. It didn’t take long before he sobered up to the reality that the country is broke.
For the last two years or so, at just below the four billion mark on average, Chinamasa realized quickly that resources available for running the nation of roughly fourteen million people are so measly as to equal roughly 10% of Harvard University’s endowment, or equal to the cost of rebuilding One World Trade Centre, a portion of the Twin Towers complex in New York which was destroyed 2001. He quickly learnt that through this appointment, Mugabe had enrolled him into a real school of hard knocks, and must sober up pretty quick.
Nowhere to run as things fall apart
In the 90s, Zimbabwe borrowed a lot of money from the IMF, World Bank, Africa Development Bank and the Paris Club. Like Unoka in the book Things Fall Apart, from 1999 till now the country failed or reneged to pay back. In international markets, that is viewed as rogue behavior. When you do that, you are no different from a scoundrel, and the cost of defaulting is high (look at Greece for example).
In the second half of 1999, the IMF withheld a $193 million loan package to Zimbabwe after questioning the wisdom of its military intervention in the DRC. The IMF, at the time, had concluded that Mugabe’s minister of finance, Herbet Murerwa, had lied by claiming that Zimbabwe’s 10,000 troops in the Congo cost US$3 million a month.
A Financial Times investigation had uncovered an internal government memo which put the cost at US $166 million between January and June. The memo, which the IMF had obtained meant that the government spent some US$27,7 million every month in the DRC jungle. It is important to note that the deployment of troops in the DRC was never approved by Zimbabwe’s parliament at the time, but was done at Mugabe’s whims and caprices. But Zimbabweans being a sheepish lot, no one challenged this destructive move in the courts.
In October 1999, Mugabe travelled to France to make a vain address at the annual UNESCO conference where, after a meeting with Jacques Chirac, he held a press conference and delivered a withering attack on the IMF;
“The IMF should shut up its mouth. Yes, we have spent money in DRC, but we have not died because of that. We continue to be productive.”
You can tell see from this statement that he could not see a few years down the line – no vision. Again in 2007, while in Namibia, Mugabe savaged the IMF, describing it as “nonsense”. He was quoted saying;
“We can help each other among ourselves. When we don’t have that capacity, then we are like economic slaves; we go begging. There are still countries in Africa which go begging for money in order to pay their civil servants, and they got independent in the 1960s.”
Very ironic, isn’t it? When you stay in power for too long, your words come back to bite you, don’t they? This mess took place way before the usual sanctions ruse he uses to explain his epic failures.
Since then, Mugabe has gone around begging. In 2005, Zimbabwe sought a rescue package from South Africa of about US$1 billion. However, the then President of South Africa, Mbeki, tied the loan to a lot of conditions which annoyed Mugabe and the rescue package failed.
At around the same time, Mugabe was seeking a rescue package from China. In mid-2005, he traveled to China, where he returned with nothing more than bilateral trade agreements, including a measly US$6 million enough to cover three months of grain imports to feed the starving multitudes – at that time, many villagers were reported to be eating wild fruits.
Mugabe has gone to China a number of times seeking funding since then. It hasn’t worked out the way he wants – but he got some – a few measly amounts. But here is the juicy part. Like he did with the IMF, World Bank and the Paris Club, he is not paying back the amounts owed! It is trite that when you owe, unless you negotiate, you have to pay back at some point. Anything other than paying back is nothing short of kicking the can down the road.
Chinamasa, having the misfortune of being minister of finance without finance, has learnt the hard lesson that Zimbabwe has come full circle – from the west to the south to the east and now has to go back to the west. It has nowhere to run, just like Sam Gillen in the movie. Without anywhere to run, Chinamasa, cap in hand, went back to the IMF, which prior to his tenure had put Zimbabwe on a staff-monitored program, in spite of his boss previously describing it as “nonsense”.
In a letter, Chinamasa and John Mangudya (central bank governor) wrote to the Lagarde, IMF’s managing director, on 15 September 2015 as follows:
“We thank the International Monetary Fund (IMF) for its continued support of our economic reform programme and valuable technical assistance. This support continues to play a pivotal role in our efforts towards normalizing relations with our creditors and eventually accessing Fund financial resources. … The large external debt burden and the outstanding payment arrears continue to impede Zimbabwe’s access to external finance, hampering its development agenda.
We have stepped up our efforts to reengage with creditors to garner support in resolving our external arrears. We have also continued to make payments to the World Bank (WB), in line with its pari passu requirement, and to the African Development Bank (AfDB) along the same lines. We have also maintained token payments to the European Investment Bank (EIB). As our payment capacity improves, we will increase our payments to all IFIs”.
You can run, but you can’t hide. Now back to square one, Zimbabwe has to report to the IMF. It also must make weekly, monthly and quarterly reports to the Fund. Further to that, Chinamasa presented a debt payment plan to the Fund which was approved at the annual meeting in Peru at the end of 2015.
In that plan, Zimbabwe committed to making debt payments to the Fund, which has left it in this situation where it failed to pay government employees in December 2015. Needless to mention that it had committed to laying off some of them as part of the IMF-monitored program – which did not happen.
While Mugabe tries to run away from his terrible record by dishonestly blaming sanctions and everybody else other than him, the governor of the central bank in Zimbabwe admitted the truth recently when he was quoted by the state media saying;
“Barring all the reasons why we were not paying, we owe people money and the fact of the matter is if we don’t pay, we continue to increase the country risk. We need to know that if we go out to look for money, we will get that money at high interest rates as we have not been paying. The more we don’t pay, the more we increase the country risk.
If you owe someone, there are two choices. The first is to repay or if you are not paying the full amount of money, you need to restructure that debt. So, we are saying, as Zimbabwe, we have been utilising money without repaying both interest and capital and the only way out is to repay.
What we are simply doing is unlocking new money and what we are saying is repay! We are even mortgaging our children! We are paying so that we put a stop to arrears to – at the end of the day – unlock new funding.”
Zimbabwe owes Japan about US$400 million dollars – overdue debt. It owes the top five Paris Club creditor nations (Germany, France, Japan, UK and the US) $2.6 billion. Zimbabwe’s debt is nearly $10 billion. This would not have been a big deal if the economy was big, and if the debt was not overdue.
I have seen some analyst give themselves comfort by expressing this debt as a percentage of GDP. That is mindless and phoney analysis. Since this debt is overdue and must be paid during the year, it must be expressed as a percentage of the projected government revenue since you don’t settle your debt from GDP. Given that Chinamasa projects government revenue for 2016 at $3.8 billion (the actual figures will be far less), this renders the Zimbabwe government technical insolvent. This whole situation took place under Mugabe’s watch.
Escape Artist and the Treasury Bills Plan
Pending payments to the IMF are just part of the reason there is no money to pay government employees, including the critical health sector employees. The other reason is that Mugabe slipped away on holiday to the Far East – far from the troubles at home. It’s a month long vacation. It’s strange for a sitting President anywhere else in the world to go vacationing in another country at all – normal leaders do that after leaving office.
Because Mugabe travels to that long vacation with a large entourage, he has to carry large amounts of cash for himself, his family including in-laws (who strangely have to be funded by the state) and his large entourage. Each time he travels, over and above his large cash requirements, he also gets from the treasury a generous security contingency in cash worth millions.
This money must normally be returned to the treasury after such trips since it’s only backup for the president in case he finds himself in a position where he cannot return home. However, Mugabe over the decades has not returned any of this money, making it a clear route of looting the treasury.
While Mugabe is having fun in the Far East – perhaps in a suite at a private beach somewhere in Asia (he rarely wears anything else other than a suit), hundreds of thousands of government employees went through the year end festivities without salaries – because the government coffers are empty. It sounds like a fictitious tale, but it’s true.
It makes you wonder how these guys sleep well at night. When you lead a nation that defaults on salaries, you are flogging a dead horse, and as Dakota wisdom suggests, when you discover that you are riding a dead horse, the best strategy is to dismount. But somehow the folks in Harare seem to think they will keep pulling magic out of a hat without end.
Since the government is in effect out of pocket, Chinamasa’s plan over the next several months is to pay government employees using cheques. Since there is residual cash in retail stores from consuming households who either don’t pay tax or receive remittances from relatives abroad, the idea is to then force retailers to cash those cheques. The retailers will then be forced to open some treasury bill backed accounts at their banks.
If you don’t know, this effectively means the government is borrowing from retailers to pay civil servants. The thinking is that this will give Mugabe a lifeline he desperately needs, which Chinese President Xi Jinping could not give him during his last visit in December, till such a point as the Bretton Woods Institutions can give budgetary support. In a way, they intend to keep kicking the can down the road.
But as we already know, the government of Zimbabwe is choking with debt right now, which essentially means that this plan is a pyramid scheme. It’s not worth the paper it’s written on and is no better than Bernard Maddoff’s scheme in the US – borrowing from Peter to pay Paul. Pyramid schemes always come tumbling down.
What should they do, you might ask? The best strategy is to throw in the towel and quit. In Japan, that’s what we would expect of our Prime Minister – quit and bow in apology to the people for messing them up.
How would this help, you may ask. It helps in restoring confidence. Zimbabwe under Robert Mugabe has a terrible record as a debtor. It borrows and never pays back, and as I have demonstrated above, Mugabe himself goes around scorning the creditors he owes billions of dollars. Nobody will ever trust a man who is almost 92 with money anyway. Absolutely nobody!
The consequence of choice
One of the things that exercise my mind about the development of the African continent is how the Africans choose their leaders. It’s mind-boggling indeed.
In Zimbabwe, Mugabe was overwhelmingly voted into office in 2013. Even if you argue that the election was rigged, he may have rigged some but not all. It’s mindboggling that normal people would vote into office a grandpa who is 90 years old, and still put up with his wife when she says she will bring him back in a wheelchair, and then expect a better life. I know some pretty smart people who tell me they voted for him.
Mugabe has proved beyond any reasonable doubt that he is clueless about how a modern economy functions. In Zimbabwe’s 2016 budget, his office was allocated US$205 million while the ministry of industry and commerce was allocated a mere pittance of $12 million. One can argue that in the last election, he got many votes from the civil servants who ended the 2015 without a salary. I will argue that they deserve the consequences of their actions.
As a result, Zimbabwe is a shakedown economy where anyone with any form of leverage demands bribes from the next citizen in a position of weakness. The government pretends to pay its employees while they pretend to work.
Good luck in 2016. Your fate as Zimbabweans and the power to rescue yourselves is squarely in your hands. Exercise it.
Ken Yamamoto is a research fellow on Africa at an institute in Tokyo. He researches and travels frequently in Uganda, Kenya, Rwanda and Zimbabwe.
Acknowledgement: I acknowledge the work of J.R. Mailey whose work published by African Arguments.org I referenced in my last op-ed entitled President Xi Jinping’s visit – connect the dots before popping the champagne (http://bit.ly/1RauL24). Mailey has done a lot of work on tracking investments in Africa’s extractive industries. You can contact Ken on email@example.com.