The dilemma facing the Second Republic

By Rawlings Magede

President Emmerson Mnangagwa administration faces a huge dilemma going forwad. Distortions within the USD-RTGs rate have led to a spike in prices of basic commodities. The cost of living has seriously deteriorated in the first half of the year which has seen sharp increases in the price of fuel. Prices of basic goods have soared and the cost of living is not even comparable to the cost of labour. This rise has resultantly diminished disposable incomes for workers and the general populace who have already been dealt a heavy blow of unemployment. This has seen a serious decline in the standard of living and tremendously high levels of poverty.

The much touted rhetoric of a middle class economy that is anchored on National Development Strategy (NDS) 1 remains a farce.Overal funding for this ambitious strategy requires over US40 billion which the government does not have. Illicit financial flows, leakages and corruption have eroded government revenue that usually comes through tax. Underground economies particularly within the extractive industry which has   gained notoriety for tax evasions and smuggling of precious minerals such as gold continue to thrive. In 2021, corruption watchdog, Transparency International noted that Zimbabwe loses about 1 billion US dollars in revenue every year mostly because of political elites who engage in corruption. The report also indicated that the resulting institutionalization and systematization of corruption in Zimbabwean political and economic spheres has been extensive.

Most analysis of endemic corruption in Zimbabwe tends to focus on figures of financial resources lost through corruption but fail to give accurate statistics of the number of people who have been plunged into poverty through corruption. In understanding the dilemma facing the President Mnangagwa, we must do a run down from the 2017 coup and highlight what went wrong.

 

A neo-liberal agenda that failed to live to up to its billing

When President Mnangagwa took oath of office after the infamous 2017 military coup, his message was punctuated with hope and optimism. His message “Zimbabwe is open for business” soon became his clarion call to rally investors and international capital. So charmed were the Breton Woods institutions that in April 2019, a team from the International Monetary Fund (IMF) announced an agreement with the Zimbabwean government on macroeconomic policies and structural reforms that underpinned a Staff Monitored program (SMP).This monitoring programme would see the government and the IMF agreeing on policies to address the macroeconomic imbalances and tackle policy inconsistencies within government. This was then followed by removal of subsidies on fuel and other import subsidies. Even when citizens took to the citizens in January 2019 to register displeasure at the increase in the price of fuel, the president never took heed.

The IMF in 2020 also followed suit in registering displeasure in the administration of its SMP by government. It announced that the SMP program was “off track”. “Uneven implementation of reforms, notably delays and mis-steps in implementation and monetary reforms, have failed to restore confidence in the new currency,” the IMF said in a statement. The implementation of the SMP was beset by problems even before it even kicked off. While the government was keen to remove subsidies, over tax its citizens and partially privatize state institutions, it failed to demonstrate the willingness to arrest government’s insatiable appetite to spend. Throughout the SMP, spending especially by the Office of the President and Cabinet remained secretive. Added to this, in September 2019, the IMF even warned government that the state payouts to a partner of Trafigura group LTD undermined the country’s newly introduced currency. Payments to Sakunda Holdings in July 2019 owned by President Mnangagwa, Kuda Tagwirei under the command agriculture scheme were again secretive with most economists arguing that the payment made by the central bank were made after printing of more money. Such a disbursement led to an 80% surge in the amount of money in circulation compared with an IMF set target of between 8-10%.

Inconsistent policies

NDS1 presupposes that the US$40 billion needed for this ambitious programme will be sourced through traditional sources of finance, private sector and multilateral and bilateral creditors. One of the challenges of such an assumption is that no sane institution is willing to lend the government money because it is a bad debtor that still owes external creditors. In 2022, IMF resident representative to Zimbabwe, Patrick Imam remarked that public debt is an issue that has contributed significantly to the economic crisis facing the country. Three key drivers of Zimbabwe’s debt crisis are penalties on overdue external debt, budget deficit and the continued depreciation of the local currency. In June 2019 external debt stood at US$8.1 billion .Out of this chunk ,about US$5 billion is accumulated arrears, interest arrears and penalties, which constitute about 72.8% of external debt. Given this analysis, it means that the principal debt is around US$2.2 billion. In the face of distortions within the exchange rate, it becomes a mammoth task to service the external debt. Since government is a bad debtor, which institution (private capital included) is willing to lend money to bankroll NDS1?

One of the greatest undoing of President Mnangagwa’s administration has been policy inconsistencies. In May 2022 via a late-night broadcast, President Mnangagwa announced that banks would not be allowed to lend money to the government and the public sector. This announcement shook the market as a lot of companies suspended credit sales. Immediately, Tongaat Hulet, Zimbabwe’s largest sugar manufacturer announced that it was no longer making advance payments to farmers. In all these knee jerk reactions, the President is not firefighting alone. Finance Minister Mthuli Ncube and Reserve Bank Governor, John Mangudya have also been complicit in the collapse of the economy. Basic economics dictates that you cannot direct banks to stop lending when the rate between the US dollar and RTGs is growing.

One would expect the administration to change tact and approach in dealing with the ailing economy. The high levels of corruption, illicit financial flows, smuggling and leakages have continued unabated. Those close to the ruling establishment remain untouchable in their arcane dealings. Those responsible for managing government’s public relations and image have become a big joke as the signs of failure are glaring. Social services such as education and health care have become a preserve for a few in  a country with an NDS1 that highlight that government is supposed to have invested at least US$723 966 864 million into healthcare and wellbeing by 2022!What a big joke!

Against such a mess, the President recently encouraged young people to “make money” and take charge of their destinies. Intellectual and professional pursuit of honest work have been shunned in favour of “hustling” which in practice for many means self-enrichment through  being “runner boys or fronts” for the ruling elites. The gospel of becoming a real middle income country or agenda 2030 that is being parroted everyday is the biggest joke of the century.

In the final analysis, the Second Republic has failed to inspire confidence in citizens. Those assigned to do public relations and re-inspire citizens have dismally failed and continue to embarrass themselves on various platforms. As the country prepares for the 2023 plebiscite, the days ahead will have more eyes.

Homeland or Death! Tinofa Tichienda!

Rawlings Magede is a Development Practitioner who writes here in his personal capacity. Feedback on  rawlingsmagede2@gmail.com

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