First steps to reverse the ruin of the Mugabe era
Indigenisation law softened to attract foreign capital
Zimbabwe’s newly sworn-in administration under President Emmerson Mnangagwa has begun the process of dismantling the key economic instruments used to politically prop up the rule of former president Robert Mugabe, and which brought Africa’s 19thlargest economy to the brink of ruin.
All eyes are on Mnangagwa for the economic direction he will pursue over the next eight months — the time he will hold office before elections next year.
The country desperately needs to attract foreign investment and fresh capital inflows, but is faced with its most biting economic meltdown since the “dollarisation” of the economy in February 2009, which has been characterised by severe cash shortages, company closures, growing unemployment, rising food prices and debt of $7-billion (R95-billion) owed to western lenders.
The expectation of ordinary members of the public and of private-sector players is that Mnangagwa will be able to stave off an economic collapse and implement deep economic reforms, which would render the country attractive once again to foreign investors who ditched it after Mugabe’s pursuit of hardline economic policies such as the land invasions of 2000.
Batanai Matsika, managing partner at Chariots Capital Partners, said in a note this week that the arrival of Mnangagwa as president and his promise to create jobs had “ignited a level of excitement” among locals and in the international community.
“However, it would be imprudent if we did not point out that extreme economic risks still exist and continue to hamper the potential for much expected explosive growth in Zimbabwe,” Matsika said.
In the first show of its hand by the new administration, designed to attract foreign investment and capital inflows, new Finance Minister Patrick Chinamasa on Thursday announced a $5.1-billion budget to parliament that proposes amendments to the 51% indigenisation law so that it applies only to diamond and platinum mining.
The indigenisation law was the cornerstone of Mugabe’s victories in the past two elections, in 2008 and 2013.
Zimbabwe holds about a quarter of the global supply of diamonds at its Marange diamond fields and has the second-largest platinum reserves after South Africa.
“The proposed amendments will confine the 51/49 indigenisation threshold to only two minerals, diamond and platinum, in the extractive sector,” Chinamasa said.
“The 51/49 threshold will not apply to the rest of the extractive sector, nor will it apply to the other sectors of the economy, which will be open to any investor regardless of nationality.”
The 51% indigenisation law had applied to other economic sectors such as banking and was the source of clashes among ministers over attempts to take over foreign-owned banks. South African banks that have a presence in Zimbabwe include Nedbank, through its MBCA unit, and Standard Bank, through Stanbic.
Chinamasa said the budget — the first after Mugabe’s resignation last month — would send a signal to the investment community that “Zimbabwe is open for business. The unsatisfactory performance of the economy is being underpinned by declining domestic and foreign investor confidence levels, against the background of policy inconsistencies in an uncertain and uncompetitive business environment.
“The budget focuses on consolidating the fiscus in order to restore and maintain macroeconomic stability,” he said.
The raft of economic reforms which Chinamasa announced in the budget also included compensation for dispossessed white farmers, spending cuts and the disposal of loss-making parastatals.
As part of its measures to curb spending, the government will retire all civil servants over the age of 65 as it attempts to trim its bloated civil service workforce of about 298 000 employees, which gobbles up about 97% of state revenue.
Chinamasa said expenditure on salaries would be reduced to 70% of monthly revenue. A freeze on new hiring would be maintained and youth officers would be reduced from 7 269 to 3 530 — these were largely on the government payroll as Mugabe’s foot soldiers.
Alex Magaisa, a law professor at the University of Kent in the UK, said although spending cuts were needed, the answer to the critical question of the source of the funds to kick-start the economy was still elusive. “There are not enough exports; the country’s import bill is too high. Social services, like health, are in the doldrums. Zimbabwe is in dire need of capital,” he said.
Revival
Chinamasa appears to have set his sights on the revival of the re-engagement process with Western countries, which he agreed to in Lima, Peru, in 2015, in the hope that fresh capital can be unlocked for the country.
As part of the agreement, Zimbabwe must pay $1.8-billion of its arrears to the Westernbased lenders in order to unlock new lines of credit.
He struck a deal in Lima with the International Monetary Fund and other lenders that Zimbabwe would pay off $1.8-billion of its debt and that lines of credit would then be opened up for the country. But Mugabe scuttled that plan and refused to let Chinamasa meet Zimbabwe’s debt obligations.
Former finance minister Tendai Biti, at a press briefing held by opposition leaders in Harare on Friday in reaction to the budget statement, said that Chinamasa had opted for “lipstick reforms” instead of dealing with the root problems faced by the economy.
“We need to go beyond the lipstick economic reforms; we do not believe in the Lima [plan] to address our debt crisis. We need debt relief, we need to make peace with the US, UK and European Union,” Biti said.
We need to go beyond the lipstick economic reforms — we need debt relief Tendai Biti Former finance minister