eBusiness Weekly
Zimbabwe’s debt burden is very large, a total of US$17,5 billion with US$14 billion owed to foreign creditors and US$3,5 billion, or its equivalent, owed in domestic debt.
This has to be sorted out, and while there are growing opportunities and growing support for external assistance on this, according to our chosen champion African Development Bank president Dr Akinwumi Adesina, who is pushing hard to start clearing the logjams, it is not going to be easy for Zimbabwe or anyone else, just necessary so Zimbabwe can take its place in Africa and Africa can take its place in the world.
The stakes are large, but so is the effort that will be required and required particularly by Zimbabwe.
While sanctions have played a major role, the sanctions were piled on top of several bad decisions and a lack of seriousness by Zimbabwe, its authorities and its business community during the 1990s, when a lot of the external debt we borrowed was first contracted and a lot was subsequently wasted.
The sterling efforts made over the last five years since President Mnangagwa took office, and especially since he won his own mandate as President and was able to put in place a Cabinet and senior administration that was competent, realistic and determined, and those people needed to be backed by their President when they started taking the correct path towards fiscal discipline and a reasonably effective monetary policy.
Most of the mess arose because there was a lack of determination at the top to accept discipline and very little, if any, came from a lack of knowledge of what should be done and even how it should be done.
To take just one example, Dr Bernard Chidzero as Minister of Finance was exceptionally well qualified, and was backed by that first generation of Zimbabwean economists who had been rising in the post-independence ranks of his Ministry and now occupied the top levels. No one ever claimed they were ignorant, only that they were outvoted by their political master.
Between them, and in consultation, they developed the Economic Structural Adjustment Programme to open up the Zimbabwean economy and put it back on the path to rapid growth.
There had been a major burst of growth initiated by the switch at UDI to a closed and highly controlled economy, owing far more to Eastern Europe than to the general pro-growth strategies of the west. This meant that local industry was able to grow from the reasonable base inherited from the defunct Federation of Rhodesia and Nyasaland.
A lot of dividends were retained, rather than sent out and a fair amount of foreign debt was repudiated by Ian Smith and had to be accepted by Britain as colonial guarantor. That helped build up the capital capacity.
As with all such economies, growth rates were high at the beginning, especially with decisions to squeeze the majority of the population while reserving a reasonable degree of prosperity for the two to three percent white minority. This meant that the local investment funds, and retained funds, were adequate for much of the expansion.
The same elements of a closed and controlled economy were retained at independence, when books could now be opened and normal trade without surcharges paid for imports and discounts offered for exports, so there was even more growth.
The actual liberation war fighting caused very little economic destruction. Infrastructure was largely preserved, and the network of war roads in the border areas even enhanced it. The liberation armies in their economic strategies largely worked on isolating ever more areas of Rhodesia, where they assumed large elements of control in these liberated areas.
But when they won and peace came, putting the bits back together was fairly simple since the bits were already there.
Independence also saw the incredible revolution in social infrastructure, universal 11-years of education for children plus an expansion in technical and university education, important when we remember that the then single University of Zimbabwe had only around 1000 students and had only just achieved a black majority.
While the continued command and control of the economy did sustain some growth, as with so many of these systems it also started creating ever more stresses, principally a stress on expansion with very little spent on replacement of equipment and machinery.
This was accompanied, in the Rhodesian-Zimbabwean case, with still a high element of tertiary processing and packing rather than primary and even secondary production.
It was still the colonial economy, just larger, and regrettably had retained far too much of the artificial inequalities, not now on race but still on what can perhaps be described as “white jobs” for a few, albeit a far better educated few, and “black jobs” for the many.
ESAP was a serious effort to leap out of the growing swamp into a production and export directed economy, with backing from the World Bank and International Monetary Fund plus a fair amount of support elsewhere.
There was still the weird land ownership system, and the determination by the white farmers to expand their holdings as some left, rather than work out ways to create a highly functioning more normal private sector with a far larger number of far smaller private farms. That blew up later.
While ESAP did start delivering, there were too many in the private sector who saw themselves as protected species, who wanted the gains without the sweat, in other words guaranteed markets for second rate and overpriced products, thus opening the doors to consumer imports, now becoming possible. There was a lot of backing off, both in some official circles and many business circles, so the final result was we spent the money without getting the gains.
Hyperinflation and then dollarisation did the structural adjustment, by between them wiping out the inefficient and padded businesses then so dominant, but we could have gritted our teeth and done it properly much earlier. Now we need to pay.
Land reform itself was far more revolutionary, looking at the long-term gains rather than the short-term output and in many ways was done a lot better than ESAP.
Admittedly with people like President Mnangagwa and his present financial advisors running the show, plus Air Chief Marshal Perrence Shiri doing the details, we could have converted the end of the political logjam into a deal, which largely followed that of the World Bank advisors on how to calculate the value of improvements.
But unlike a lot of the rest of the private sector land reform did eventually open out agriculture, although it took the Second Republic to figure out corruption-free financing and rapidly rising output; that shoved in almost 20 years earlier, or even better starting at a fast clip in the 1990s, would have been almost heaven.
The land-owner deal should now remove all sanctions. The debt to those who invested in land improvements is acknowledged, and the land-owner debt is just included in the US$17,5 billion, and not that large an element. It will be sorted out in the rest.
Dr Adesina since he accepted the need for external help for Zimbabwe to break its debt logjams, and agreed he was a suitable person to push this process with retired President Joaquim Chissano providing some heavyweight diplomatic and political support, has both explained to Zimbabweans that we need to be exceptionally serious about the whole matter, and that regardless of the sort of support we get, and he hopes it is reasonable, we are still going to have to do the heavy lifting.
External support may be necessary, but it will certainly not be sufficient. Two recent moves by the Zimbabwean authorities have shown the grit that is developing.
First the Finance Ministry has taken over the external debt and will be using the 25 percent of surrendered exports to fund that debt. That is a huge commitment and a huge percentage.
The latest move by President Mnangagwa to impose the 1 percent charge on all foreign payments is yet another de facto tax, although it is done under the Exchange Control Act so it is not a tax legally but a control measure.
The net result is that importers understand that cheap imports are not an entitlement, and there is a new direct flow of income going into the debt sinking funds.
This upgrades our credentials, as well as having some gains in exchange control matters, as our creditors can start seeing our level of seriousness, a level that Dr Adesina stresses must be a very serious levels as he helps put together the debt rescheduling and debt relief measures we can reasonably hope to get, in a non-failed state like Zimbabwe mostly rescheduling rather than relief.
