Zimbabwe: tipping close to the edge
Zimbabwe is suffering from a fuel crisis, a foreign currency crisis, an investment crisis and, now, a political crisis. There seems little way out of the chaos in the immediate future
Zimbabwe is in a state of chaos. There’s hardly any money circulating, bread is in short supply, and never-ending fuel queues snake through all cities and towns. And for Zimbabweans who hoped this would be as gloomy as it gets, things took a turn for the worse last week, when a three-day stayaway escalated into unrest, mainly in high-density suburbs around Harare and the country’s second city, Bulawayo.
Things soured in mid-January when, during an 8pm television news bulletin, President Emmerson Mnangagwa announced a 150% fuel price increase. This pushed the price of petrol out of reach of 90% of the population. Just hours later, he boarded an expensive chartered flight to Russia.
In Mnangagwa’s absence, vice-president Constantino Chiwenga, a retired general and former head of the armed forces, stepped up to the plate. It was he who sent in the army after the usually impotent Zimbabwe Congress of Trade Unions — an ally of the opposition Movement for Democratic Change (MDC) — called for a stayaway that turned violent. It’s still not known why the responsibility of bringing the protests under control fell primarily to the army, not the police.
In the chaos, two supermarkets were burnt, scores of small businesses were set alight or destroyed, and medication was stolen from a couple of pharmacies in Bulawayo and destroyed by protesters.
The death toll is unconfirmed because the government’s information sector is largely paralysed or incompetent. It’s thought to be somewhere between three and 12 — though statistics provided by the Human Rights Forum, the NGO coalition that’s claiming 12 deaths, usually require independent verification. Medical sources and Human Rights Watch’s Dewa Mavhinga allege that at least two people died after being shot by soldiers.
A 42-year-old Zimbabwean soldier tells the FM that he was "beating people" last week. "I followed orders and I don’t want to think about it and I am used to it," he says. "We hate this government as we are so poorly paid," he says. After deductions he receives the equivalent of about $100 a month.
Also not confirmed are the number of injured — perhaps 150 — and the types of injuries sustained (such as gunshot wounds from soldiers firing on protesters).
Then there are the hundreds of cases being fast-tracked through the courts — a shocking diminution of the rule of law.
Alec Muchadehama, a lawyer representing dozens who were arrested, calls what’s happening a "travesty of justice". He told the privately owned newspaper Newsday: "Accused persons are being told to face trial before being accorded reasonable time to prepare their defence. Even where lawyers are involved, they are being told to prepare defence for 10 people within minutes, and so on."
The crisis reached such magnitude that Mnangagwa cancelled his trip to the World Economic Forum in Davos this week, opting instead to return to the floundering country.
Mnangagwa’s Zimbabwe has fallen on hard times in the wake of the November 2017 coup that brought him to power. His mantra, "Zimbabwe is open for business", now rings hollow: it’s hard to be optimistic when there is neither money in the state kitty nor loans on the horizon, and little investment to provide the foreign currency the country needs so desperately.
The optimism surrounding his presidency was first damaged in August, just 48 hours after peaceful elections, when soldiers killed six unarmed civilians during a small but violent opposition rally in Harare. Events last week — outside magistrates’ courts, at roadblocks near certain areas and outside some supermarkets and key state buildings — once again suggested that the army was in control.
The return to strong-arm tactics has been accompanied by a return to the vocabulary used by former president Robert Mugabe’s regime: the government has blamed the MDC for the violence, and the opposition has been accused of collaborating with a "foreign power" for "regime change". On Monday, at least six MDC MPs were arrested; several more are in hiding.
And just as the previous Zanu-PF regime banned newspapers and controlled state media, Mnangagwa’s government forced suppliers — primarily Econet’s Liquid Telecom and SA company Dimension Data — to cut off the internet. Though the Harare high court ordered reconnection late on Monday, many banking facilities remained paralysed by the electronic interruption.
The violence has eroded any remaining post-Mugabe optimism. It’s also shown just how short of leadership the opposition MDC has been since the death last year of its leader Morgan Tsvangirai, and how little the party contributes to debate on the economy.
Interestingly, the informal rate of exchange between the country’s local currency (bond note and electronic money) and the US dollar has not moved from Z$3.5/$1, where it settled after a spike last October.
A major importer of electrical hardware from SA says he expects the rate to fall in the next few weeks. With business "dying" in January, there’s been a reduction in volumes of electronic money and cash.
But it’s hard to find anyone familiar with Zimbabwe’s economic volatility who will bank on any recovery, let alone real growth, until there is a transparent, free-market exchange rate. That’s unlikely to happen as long as the Reserve Bank retains its unique powers to set the rate. Mnangagwa has done nothing to reduce its powers, leading to suspicions of high-level corruption.
The exchange rate, economists say, is a plank Mnangagwa will not walk. Another is the reduction of the bloated civil service, which consumes about 85% of state revenue.
Finance minister Mthuli Ncube is aware of the problem, but says the cost of retrenchment packages stands in the way of any dramatic reduction in numbers. So far only 3,000 low-paid, younger civil servants — called the Green Bombers because of the violent role they previously played for Zanu-PF — have, allegedly, been paid off.
But behind headlines telling of unrest there have been dribbles of good news: a 2% tax on electronic transactions has brought in more than three times what was expected, and government coffers had swelled by nearly $600m by the start of the year.
Of course, this is not real money: it’s Zimbabwe’s form of quantitive easing, for which the government still formally declares parity with the dollar despite all evidence to the contrary. Until that changes, the crisis will persist, says almost every banker around.
Zimbabwe’s never-ending economic crisis is the result not only of high government costs and an exchange-rate mismatch, but also of its inability to earn sufficient foreign currency. Most forex comes from the diaspora; remittances, primarily from SA and the UK, amount to about $1bn a year.
Tobacco, the largest crop, raked in more than $800m in 2018. But not all of the year’s harvest was sold, making things harder for producers this year. With heavier production, agents are worried the price will fall. And if buyers go for cheaper quality, it will imperil the large, heavily capitalised growers.
Gold also had a record year – 30t, coming mostly from the informal sector. But not many believe the minerals sector can grow, especially as the main producers receive only 30% of their earnings in real US dollars. The rest is held in local, electronic cash.
Zimbabwe was plunged into violent and angry protests in January 2019 after president Emmerson Mnangagwa announced steep fuel price increases, making Zimbabwe the country with the most expensive fuel in the world, according to GlobalPetrolPrices.com.
More important is the lack of serious interest in investment. There is nothing much worth investing in, particularly in the short term, and Zimbabwe needs cash now. It doesn’t have the minerals the world is looking for, and it’s short on agricultural diversity. Fixing that will be a slow process, and one that will not go anywhere without security of property rights, something that was abandoned during the post-2000 land grab.
Even the stock market has been hit. The country’s exchange, capitalised historically at $5bn, now stands at $20bn in the local currency — slightly higher than the prevailing unofficial exchange rate. Veterans of the robust bourse say they were shocked when, for the first time in their memory, politics stopped trade for three days last week.
In sum, unless Mnangagwa has worked some magic in Russia, Belarus and Kazakhstan, there will be virtually no foreign currency and investment coming in, and the gloom will be a long way from lifting.
But miracles may happen. Zimbabwe is still looking to leverage its various lithium assets, which are managed by first-class Zimbabwean, Australian and Chinese investors. And there’s a potential oil site in the northeast, in which an adventurer with new equipment is interested. Don’t laugh, say some veterans: Mobil tried 25 years ago and abandoned the site, but it was always geologically promising, and new equipment makes it cheaper to determine if prospecting will be worthwhile.
Financial analysts producing briefing papers say it will take at least a year for Zimbabwe to reconnect with the International Monetary Fund, even if it were able to institute all the necessary reforms and pay off its $2bn debt to the World Bank and African Development Bank.
But until then, the country will remain in dire straits.