Thursday, April 1, 2010

The Zimbabwean Economy - John Robertson

Update at the end of the First Quarter 2010

The extent to which the Zimbabwe government’s obsessive preoccupation with politics totally prohibits sensible discussion on its economic needs became very much more obvious with the launch of the Indigenisation and Economic Empowerment regulations.

Government’s recent actions can be taken as evidence that the senior party officials believe they have the right to achieve political ends by forcing changes of ownership of the assets of others. Their approach seems to be that, as they have the authority to pass Acts of Parliament that formalise their claims to these powers, they have every right to use this authority to rearrange the economic landscape to suit their needs.

They obviously feel that acquiring productive assets that way is much easier than working for them, but more to the point, they feel they are properly responding to their conviction that they are in power to exercise power, not to share power with markets.

With such powers at their disposal, they feel they can help supporters avoid the need to pit their wits against market forces to acquire such assets for themselves. Supporters will therefore increase in number, encouraged by their hopes that they can become shareholders of important companies without having to contend with normal business risks.

By enacting, and now giving teeth to the Indigenisation and Economic Empowerment Act, the politicians are now confirming their belief that government has the right to force every company, whether it exists already or has yet to be started, to relinquish control to indigenous Zimbabweans.

Because of his efforts, the Minister of Indigenisation has claimed that Zimbabwe’s indigenous people will soon become much better off. Some among them might have even accepted his public pronouncements as an invitation to sit and wait to be empowered and enriched.

However, my own belief is that very nearly all Zimbabweans are not fooled by claims that “indigenisation” and “economic empowerment” policies have been designed to bring advantages to the masses. From their responses all over the country, the bulk of the population has shown that they are fully aware of the real purpose of the policies: it is to score electioneering points, partly by promising the undeliverable “enrichment”, but more importantly by achieving the disempowerment of all those whose influence is thought likely to be used in support of politicians who are opposed to the policies of Zanu PF.

This brings the topic back to markets. In true democracies, different politicians try to market their different ideas and each tries to persuade the electorate that theirs are most worthy of support. In a democratic society, the electorate is free to choose the politician whose ideas they like the best, just as, when they are out shopping, the same people are free to choose between competing suppliers of baked beans or bath soap.

But in Zimbabwe, some politicians would rather use force than good arguments to win or reclaim support, specially when they do not have good arguments to offer and when their track record ranks among the worst in history.

In undemocratic societies, very forceful attempts are made to persuade the population that dominant politicians have a right to claim the people’s devotion, loyalty and obedience, and Zimbabwe’s leadership has often admitted turning to North Korea for guidance and inspiration. However, having failed to achieve the devotion or loyalty of Zimbabwe’s business sector, Zanu PF has decided to settle for its obedience. This it plans to extract by stripping the business owners of their powers to control their companies and by threatening them and all their directors with five-year jail sentences for any show of resistance.

The serious implications this move will have on the economy need to become part of the ongoing debate. Already, companies have started reporting more serious isolation from the investment flows needed to rebuild capacity, so the hoped-for arrest of the economic decline and the desperately needed recovery of the productive sectors appear to have become almost immediate casualties.

In the mining industry, major investment plans affecting platinum production have been put on hold and, for businesses in all sectors, production and service delivery remains severely affected by power cuts, badly maintained roads, erratic telecommunications and wage demands that are beyond the means of employers.

Companies in every sector have need of larger amounts of bank credit than they can find and they need it at more manageable interest rates than those now being charged, but the already slow inflows to the banks, whether in the form of equity capital or lines of credit, have been further discouraged by government’s indigenisation plans.

This Act means that equity capital is now unlikely to flow into any business sector and the already reduced earnings of export companies now seem far less likely to recover. So Zimbabwe’s ability to service debt will not recover either and new loans will remain out of the question. These, in turn, will keep the capital account funding needed to restore electricity supplies, water supplies, railways and roads well beyond the country’s reach.

A less obvious effect of government’s move will be the resentment that will be felt by current technical and financial personnel whose career paths will become far less promising. Unless government assures the population soon that far-reaching amendments to the legislation will be accepted, thousands of people will essential skills, all of whom can so easily find work elsewhere, will soon start making plans to emigrate.

The Minister of Indigenisation, Saviour Kasukuwere, has addressed well-attended meetings in many centres in the past few weeks. The audiences hoped to hear that their concerns had been noted and that amendments to at least clarify definitions and remove conflicts between the Act and the Gazetted regulations would be accepted.

However, the Minister used the meetings only to inform the public that no deviations from the legislation would be considered. And at a meeting on Friday, March 26 in Harare, before saying anything at all to the participants, the Minister walked out in protest against criticisms being expressed by one of the presenters, Prof Tony Hawkins.

Minister Kasukuwere’s accusations, as quoted in the Press, said Prof Hawkins was “blatantly racist and against the empowerment of the black majority in Zimbabwe”, arguing that this was because he had “likened the Indigenisation and Empowerment Act to apartheid law.”

In fact, Prof Hawkins has done more to empower indigenous Zimbabweans than perhaps any other person in the country, having spent the past 48 years lecturing to thousands of economics and business studies students. It is also a fact that he used the word “apartheid” to describe the Zimbabwe government’s decision to have indigenous and non-indigenous people function under different laws. As the Minister chose to walk out, he was not able to offer the meeting a better word to describe officially imposed laws of this nature.

If the Press reports accurately reflect the Minister’s comments, he went on to become increasingly extravagant with his accusations, accusing Prof Hawkins of making racist and backward statements and of being interested only in protecting the interests of white people. He also accused the conference organisers of choosing “a racist stance” for a meeting that was meant to be interactive and informative.

Again, the facts contradict the accusations. As he had been asked to speak on “The Economics of Indigenisation”, Prof Hawkins built an argument that fully justified his conclusion that indigenisation is not an economic concept and therefore it could not be subjected to economic analysis. However, he said, it is a political concept, and he noted that in Africa, “Politics trumps economics”. Issues of race did not feature in his analysis and neither did they feature in the planning, administration, programme or any other part of the conference.

As for the questions the delegates could not put to the Minister or his officials on the prospects of amendments, Minister Kasukuwere offered those answers to the Press: he said government was going ahead and would not be deterred as it was “part of its broad agenda to uplift the status of the majority”.

The Affirmative Action Group secretary-general, Mr Tafadzwa Musarara, said officials from his organisation also walked out of the meeting in solidarity with the Minister, so they, too, did not present their paper. However, it was made available to delegates.

Under the heading, “Empowerment, my Divine Rights Restored”, Mr Musarara’s paper argued that no white Zimbabwean could ever qualify to be described as indigenous. By implication, therefore, no white person could hope to gain advantage – or protection – from the Act.

But, as Mr Musarara explained to the Press, “We walked out in solidarity with the Minister because we realised that it was a racist convention.”


Zimbabwe’s needs

The promulgation of this law, the government’s decision to back it up with very harsh regulations and the tangled, shallow justifications offered can be described as perhaps the most inappropriate set of measures that could have been conjured up, short of a decision to simply nationalise everything in the country.

If this package is the result of an entirely deliberate set of decisions, the only explanations have to be that the people exercising authority in Zimbabwe are determined either to prevent any recovery from taking hold, or to ensure that any recovery that does take place will be entirely under their control.

The rationalisation of either explanation might best be a simple statement that the dominant political party’s officials have no intention of ever surrendering power, and they see their own requirements as far more important than the requirements of about twelve million Zimbabweans.

In that context, economic success that empowers the people could also strengthen their resolve to break free of government’s controls, so government is fearful of the possible political repercussions of an economic recovery.

This graph is one of the many illustrations of how serious the situation has become for the Zimbabwean population. Formal employment levels have fallen considerably in recent years and have badly affected the quality of life for the entire population.

Initially the fall shown was the result of the evictions of labour from commercial farms after the acceleration of the land reform programme in 2000, but with falling agricultural inputs, job losses were immediately felt in manufacturing and the service sector industries.

Even mining and tourism were affected when government began to fix the Zimbabwe dollar exchange rates. These soon made mineral exports unviable and turned Zimbabwe into the world’s most expensive tourist destination.

Various estimates of the extent of unemployment have been made, most of them placing the figure at between 65% and 70%, but the basis for the estimates are subject to many interpretations of the numbers, particularly in respect of definitions of contract employment, under-employment and informal sector employment.

However, estimates of actual formal employment numbers suggest that the 2009 total matched the figure from forty years ago. As Zimbabwe’s population has more than doubled since 1970, this decline is twice as bad as it looks in the graph. The social repercussions have been enormous, ranging from the generation of shantytowns and widespread destitution to mass emigration.

The forced closure about 4 500 large-scale farming companies caused not only the major loss of jobs, but also the loss of school places for many hundreds of thousands of children. As tax revenues fell, educational standards soon fell almost elsewhere else in the country and the quality of health services also became a casualty of government’s destructive policies.

These not only affected production, employment and economic growth; they soon also affected government’s tax base and they undermined the traditional social security network, best described as a deeply-seated tradition of generous support for members of employed people’s extended families. Now, those with formal employment and responsibilities to their extended families have to provide for many more young people than they can manage.

Family members working abroad do carry part of this load, but the extent and dependability of this support is impossible to assess. Only by attracting flows of investment capital can the needed local employment be increased, but the discouragement to new investors that will be caused by the Indigenisation and Economic Empowerment Act will make an already very bad employment growth situation considerably worse.

If the authorities show they have learned nothing from the economy’s experiences from the damage done to agriculture, and they go ahead with their plans for the take-over of 51% of all shares in the business sector, the confidence of potential investors who might have been planning to develop opportunities will be very severely damaged, if not destroyed.

As happened with the commercial farms, the workers will suffer badly from the destruction of capacity that will follow and a hidden statistic will be the unknown number of jobs that never come into existence.

Government repeatedly refers to claims that capacity utilisation has improved from less than 10% to more than 40%, which, to the officials, is conclusive proof that the economy is recovering. However, the evidence that this improvement has taken place is challenged by the few production statistics released and is challenged further by indications that new declines in output have been recorded in the first quarter of 2010.

The policies needed to remove the uncertainties and to restore the confidence of investors call for nothing more complicated than government’s commitment to respect property rights, with property defined to include, not only land, but savings, bank balances, securities, company shares and intellectual property.

The empowerment actually needed by the country would be promoted by respect for bankable property rights and this respect would draw from the local as well as foreign investors the initiative needed to build upon the country’s productive capacity. The “empowerment” described in the contentious Act will bring about nothing more than the change of ownership of what is left of the productive capacity created in the past, the bulk of which has been damaged or destroyed by the attacks on property rights.

The reason why that attack was carried out is simple: property rights empower people and Zanu PF has no intention of sharing power with anyone.


1 comment:

  1. hello profesoor

    could you please send me an email with your email adress as i am going to have a couple of question regarding zimbabwes economy

    my email is
    thank you