Zim economy: From bad to dismal

When Emmerson Mnangagwa unseated former president Robert Mugabe in 2017, the country’s economy was relatively stable. The bond note — the surrogate currency the central bank claimed had the same value as the US dollar — was largely trading at par with its American counterpart on the black market, and prices were settled. In February that year, inflation, for the first time in two years, broke into positive territory.

Fast-forward almost three years, and everything that could go wrong has done so.

Zimbabwe’s currency is in a ditch, trading close to Z$100 to US$1; in May inflation measured at close to 800%; unemployment is at 90%; wages are compressed (teachers and doctors aren’t earning more than $50 a month in real terms); manufacturing capacity utilisation is below 30%; exports are dwindling; and there’s a foreign exchange shortage.

Factoring in the effects of a devastating drought and the Covid-19 national lockdown, finance minister Mthuli Ncube has warned that the economy could contract by 15%-20% for 2019/2020.

In a televised address last week, Mnangagwa said his government is working to fix the problem. "We will defeat the attack and stop the bleeding of our economy," he said. "We will overcome attempts at the destabilisation of our society."

But Harare-based independent economist Victor Bhoroma believes there is little political will to turn things around. On paper, the government has shown some willingness to reform, "especially in trying to deregulate the energy sector, rein in fiscal expenditure, privatise state entities and liberalise the foreign exchange market", he says. In practice, however, any reforms are undermined by the fact that the central bank continues to print money, driving up inflation.

There are other issues too, says Bhoroma. For example, the government is continuing to fund its "command agriculture" import-substitution scheme — "despite its dismal failure in the past three years in improving agriculture productivity. And all efforts to lure investment are being tainted by incessant property rights violations, lack of the rule of law and an unstable economic environment."

Like Bhoroma, other economists point to problems around property rights, the rule of law and depressed agricultural activity (the sector contributes about 17% to GDP).

There is also a lack of transparency around mining prospecting and licensing; small-scale miners have raised concerns that large swathes of land are being reserved for prospecting by the government and those who are politically connected.

To turn things around, Bhoroma argues, there should be a number of governance reforms: the establishment of a credible election framework; adherence to constitutionalism; accountability in resource management; transparency around state tenders and the funding of state entities; and the equitable distribution of resources.

He also says the government needs to put an end to the land tenure issues that have been dogging the agriculture sector since Mugabe seized white-owned farms for redistribution in the 2000s. The new owners were given 99-year leases — but banks have withheld funding for operations and development, citing a lack of title.

"The economy is in bad shape," says Bhoroma, "in auto decline."

In an attempt to rein in inflation, the government last month moved to an electronic currency auction system to determine the price of the Zimbabwe dollar. It has helped to stabilise prices in the past few weeks, says Confederation of Zimbabwe Industries president Sifelani Jabangwe, bringing the black market rate down by about 25%. But it has not been enough to halt the slide.

"[Trading] volumes are about 40% down," says Jabangwe. "This is probably due to the informal sector, which is not operating and employs 70% of the population. Essentially, demand from that group is missing."

The strict lockdown has left many of those who earn a living from the informal sector without a source of income, raising food security concerns. The World Food Programme estimates that 5.3-million of the 9.4-million people who live in rural areas will be food-insecure by next month. And 3.3-million in urban centres are expected to require food aid.

Anna Chitsa, a domestic worker in Harare, says the situation is unbearable. "Life is very difficult now," she tells the FM. "We don’t have money to survive."

Chitsa, who experienced the first round of hyperinflation — from 2005 until the US dollar was adopted in 2009 — says the current crisis is worse. "I think the days of Mugabe were better because he would intervene when prices [went] berserk," she says. "Mnangagwa does not get involved, and that makes it worse."

Professionals are also taking strain. In February, for example, a teacher on the highest pay grade earned a monthly salary of Z$4,600 — close to $50. Though public servants’ salaries were raised by 50% last month, soaring inflation means the increase will make little difference.

"It’s hard to survive at the moment," says Veronica Masosa, an unemployed teacher. "The prices of goods are just too high."

Beyond the land grab

White commercial farmers who lost their land in 2000 could find themselves smiling all the way to the bank after President Emmerson Mnangagwa’s government approved a $3.5bn compensation deal.

Two decades ago then president Robert Mugabe sanctioned the often violent evictions of about 4,500 white farmers and redistributed their land to about 300,000 black families, arguing it was necessary to redress colonial-era land imbalances.

As part of the “open for business” mantra Mnangagwa punted after taking power in November 2017, he said he wanted Zimbabwe, a country notorious for not respecting property rights, to break with its past.

The compensation deal, which was announced last week, is ostensibly part of that plan. As Mnangagwa said on signing the deal in Harare: “The process that has brought us to this event is … a symbol of our commitment to constitutionalism, the respect of the rule of law and property rights.”

Under the deal, farmers will be compensated for infrastructure on their former farms, rather than the land itself.

But there is a catch: Zimbabwe, embroiled in an economic crisis, simply doesn’t have the money. Instead, the government will issue long-term bonds and approach international donors with the farmers to raise funding, according to the agreement.

Commercial Farmers Union director Ben Gilpin would not be drawn on whether he considers the $3.5bn settlement fair.

“I can’t comment,” he tells the FM. “The agreement document just got to the members, and there is a lot of digestion going on. There is no money yet, but we would like to be positive.”

Until 2001, Zimbabwe was a net exporter of maize to Africa, but Mugabe’s land reform programme collapsed the commercial farming sector, leaving it reliant on imports and food aid. In part, says Unisa professor Godwell Nhamo, this was because the new owners of the land lacked access to finance, labour and technical knowledge to run their farms productively.

Efforts to lift production through “command agriculture” — a contract-farming, import-substitution scheme introduced in 2016 — have yielded next to nothing. Primarily, this has been due to a lengthy drought in the region. But corruption could also have played a part. Kuda Tagwirei, a businessman with close links to Mnangagwa, is under investigation by the Zimbabwe Anti-Corruption Commission after $3bn meant to finance the programme disappeared.