BSR: 2018 Budget - A “New Economic Order”?
There was much anticipation for this year’s budget largely due to the recent events which catapulted President Emmerson Mnangagwa to the helm of government following the dramatic resignation of former leader, Mr Mugabe. There is already a lot of analysis of the budget by economists. The focus of this analysis is less on the figures and allocation of funds but more on the political messages drawn from the budget statement, the principal question being: what does this budget tell us about the new administration?
The rise of Mnangagwa to the top office and the ouster of Mugabe brought with it a great deal of expectation among Zimbabweans, who are hoping for a fresh start after years of economic suffering. Mnangagwa’s assumption of office coincided with the budget formulation process. This meant he had an immediate opportunity to make a clear statement of his economic vision. There is certainly a strong desire to differentiate the Mnangagwa administration from the previous Mugabe administration. The budget statement tries, as much as possible, to respond to a number of concerns raised by Zimbabweans over the inept, irresponsible and profligate manner in which Mr Mugabe ran his governments.
Indeed, opposition strategists must be scratching their heads because the budget statement could well be a part of their manifesto as it carries a number of issues that would be at the top of the opposition wish-list. Reading through the budget, it’s as if the new Mnangagwa administration is a former opposition party that has taken office after the Mugabe administration. The budget statement chronicles the ills of the Mugabe administration that the opposition has always raised in the past and promises to deal with them. The challenge, of course, is in the implementation. If the new administration fails to live up to its undertakings, the opposition will still have good ground to stand on in their campaign.
Chinamasa’s second bite of the cherry
Mnangagwa’s choice of Finance Minister when he announced his Cabinet last week divided opinion after he brought back Patrick Chinamasa, who had been sacked by Mugabe barely a month earlier. Mugabe had demoted Chinamasa from the finance ministry and shunted him to a newly created ministry of cyber-security. Now though, Chinamasa is back and has an opportunity to demonstrate that he is a different character from the man who previously served under Mugabe.
Under Mugabe, despite his best intentions, Chinamasa sometimes found himself having to justify policy reversals by his boss or fighting off Cabinet colleagues who had other ideas over the economy. One such ugly fight was against former Minister Patrick Zhuwao, over the notorious indigenisation policy. On one occasion, after bravely announcing an unpopular decision to cancel civil servants’ annual bonuses in the name of fiscal discipline, Chinamasa had to endure the embarrassment of public chastisement when Mugabe reversed his decision. Announcing the budget under Mnangagwa’s leadership, Chinamasa seemed to aim a shot at his old boss, as he repeatedly made references to the problem of “policy inconsistencies, reversals and hesitations of the past”. Clearly, the policy inconsistencies and reversals had frustrated him and others, although they lacked the courage to challenge Mugabe.
Admission of failure
The budget statement was also an honest admission of past failures. Chinamasa admitted that the performance of the economy had been unsatisfactory. Interestingly, there was no serious effort to hide behind the usual sanctions mantra as was so often the case under Mugabe. In this regard, Chinamasa followed the lead of his new boss who in his inaugural address had also toned down on the sanctions mantra. There is clearly a strong desire to reduce the language of confrontation in dealings with the West.
Chinamasa was clear that the economic failures were down to the previous regime’s weaknesses including “policy inconsistencies”, “an uncertain and uncompetitive business environment”, “entrenched weaknesses and indiscipline in the public finance management” as well as policies that “reduced both domestic and foreign investor confidence”. He also blamed “fiscal indiscipline” reflected by “failure to adhere to approved Budgets” and arbitrary expenditures outside the budget. He could, however, have extended his honest assessment to the fact that political violence, human rights violations and the breakdown of the rule of law exacerbated the situation. Unless these weaknesses are publicly acknowledged, they cannot be easily solved.
Chinamasa also cknowledged that the country was in need of a “paradigm shift” hence the coining of the so-called “New Economic Order” as the label of the Mnangagwa-led economic era. Chinamasa referred to the need to “walk the talk with regard to adoption of a paradigm shift in the way we do business and manage our economy, public enterprises and finances.” This, he said includes “restoring discipline, fostering a stronger culture of implementation, supported by political will”. There was also an acknowledgement government’s proclivity to overspend what it does not have. This echoed Tenda Biti, former Finance Minister’s emphatic stance during the GNU era that the government must live within its means. Chinamasa acknowledged that too is spent much on “salaries, allowances and other consumptive expenditures, such as condition of service vehicles and travel, among others.” These are the right statements, which must please many listeners. Whether the new government will live up to them is another question altogether.
A critical question of course is where the funds to kick-start the economy will come from. 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. Chinamsa acknowledges that the budget deficit is too high and remains an albatross on the economy. He also acknowledges the futility of high domestic borrowing - the use of treasury bills and the RBZ overdraft to fund the deficit. Nevertheless, the solution to this problem, apart from undertakings to cut expenditure is not immediately apparent. What will stop government from resorting to treasury bills and the RBZ overdraft? Unless these questions are answered the root causes of the problems will remain unresolved. The paradigm shift requires concrete measures to address the problem.
What do we learn from the budget statement of the ideological orientation of the Mnangagwa presidency? What is the ideological content of the New Economic Order? Chinamasa’s offers us a direct answer. Despite the commandist tone of the “Command Agriculture” policy which he has spearheaded in the past, Mnangagwa is taking a market-based approach to the economy. According to Chinamasa, “the new system of economic organisation and management will incorporate elements of market economy in which enterprise is encouraged, while industrialising our economy.” It will therefore be a predominantly market economy.
It will be interesting to watch over the next few months the extent to which the government will actually allow market forces to hold sway without government interference. This talk of a market economy will please international capital and foreign investors. However, the left will be appalled, arguing that the new administration is merely pandering to Western capital. They will argue that market fundamentalism will only favour the wealthy and powerful corporations while leaving the poor in the doldrums. The challenge for the government will be to craft a system which enables investors to generate profits and get returns on their investment while at the same time generating employment for the workers and ensuring befits accrue to the greater community. It must not forget the importance of social justice in a world of unbridled pursuit of profit.
There is a clear desire to court foreign investors, which is predicated in a policy of international cooperation and re-engagement particularly with the West after almost 20 years of severely strained relations. The Mnangagwa administration knows the risks of the isolationist policy that the Mugabe regime took in the past. However, addressing the country’s “high risk perception among existing and prospective investors” will have to go beyond words. It must be demonstrated by a clear respect for the rule of law. It will be easier for Western countries to justify change of policy to their local audience if the new Mnangagwa administration demonstrates that it is different from the Mugabe regime in its attitude towards the rule of law, human rights and in particular, property rights. This is probably why the budget statement reiterates the commitment to respect Bilateral Investment Promotion and Protection Agreements (BIPPAs) and to pay compensation to farmers who lost their land during the land reform programme. This was a sticking issue in the Zimbabwe-West relations and these statements are designed to open gateways to a new era of relations. The budget statement does not say where the money for compensation will come from but presumably this will form part of the negotiations between Zimbabwe and Western countries. The country has reiterated its commitment to meet its debt obligations.
One of the highlights of the budget statement is the clear move from the “hard indigenisation” of the Mugabe era to a softer version in the Mnangagwa era. In this softer version, the 51/49 per cent shareholding ratio will only be applicable to the extractive industry, which is now limited to only diamond and platinum extraction industries.
Further, there will be a “reserved sector” of the economy, which will be for Zimbabwean citizens only, although there will be exceptions where specific conditions are met by non-Zimbabweans. This “soft indigenisation” is obviously designed to reduce the country’s “high risk perception” and to attract foreign investors. Mugabe’s “hard indigenisation” was highly unpopular among foreign investors who feared for the dilution and loss of their property rights. The rhetoric over indigenisation, which was a key part of the ZANU PF campaign in 2013 was very damaging in the investment community. The move towards a soft version might be welcomed by investors.
However, it might have been a better idea to have clearly rebranded this entire policy and law of indigenisation. As a brand, it is deeply tainted and a turn-off within the investment community that its continued existence on the statute books is unhelpful. It should not be necessary to have to explain it and allay fears as will no doubt be the case even following this relaxation. If the new administration wants a break with the past as far as indigenisation is concerned, it makes sense to change the language completely.
The Mnangagwa administration wants to demonstrate that it is different from its predecessor under Mugabe. In this regard, it has chosen fiscal discipline as an important pillar of differentiation. The budget statement announces some important changes to the way the public sector does business. Cynics might say some of the measures are populist, but there is an election coming in less than 10 months so it makes sense to make changes that resonate with people’s concerns. A number of these changes promised in the budget come straight out of the opposition manual. The administration has obviously been listening to the complaints of citizens regarding the Mugabe government’s spending habits. The critical changes promised include:
Continuing the freeze on recruitment of public sector workers.
Retiring public officers who have reached the 65 years retirement age. This will please many people who have been complaining about senior civil servants who have held on to their jobs for more than 20 years, well past their age of retirement. People will look to see if this will apply to the likes of Tobaiwa Mudede, the long-serving but unpopular Registrar General. There will be a voluntary retirement scheme for civil servants.
The notorious Youth Officer roles will be abolished. They were an important part of the ZANU PF election machinery but the fear may also be that they were too aligned to the G40 faction which had very recently defended their retention. However, their functions will be performed by Ward Development Coordinators in the Ministry of Women, Gender and Community Development. This will produce a cost-saving of US$19.3 million per annum.
The car vehicle benefit scheme will be changed so that only the most senior civil servants will get one vehicle each while the others will get vehicle loans.. This will cause disgruntlement among civil servants who saw the vehicle scheme as compensating for otherwise low wages.
There will also be major changes to government travel, with reduced delegations and more use of staff at embassies. There will also be very restricted business class travel for the most senior civil servants while the rest must use economy class.
There will also be a downsizing of foreign missions. Currently Zimbabwe has 46 and they take up $65 million per year. In the past government has failed to pay staff and rentals at its foreign missions. There is o need for these missions when the country cannot afford them. They can always be re-established in future when we have the money.
An alarming change is the proposal to amend the constitution to remove provincial and metropolitan structures that are essential to the devolved government. This is a serious threat to devolution. Chapter 14 of the constitution, which provides for devolution, has never been implemented since 2013. The Mugabe administration was not amenable to the idea of devolution, which they opposed during the constitution-making process. The new administration is using the funding argument to justify amendment of the constitution to remove devolution. Those who support devolution should watch this carefully because the entire idea could fall apart before it has even been implemented. If the government wants to remove devolution from the constitution, it will be a major change to the constitutional settlement which must be deeply interrogated and debated by the people.
Another constitutional amendment signaled as part of the cost-saving measures is in relation to commissioners of the various independent commissions established to support democracy and combat corruption. According to Chinamasa, the commissions are too costly, therefore the role of commissioners will be changed from full-time to part time, with consequent reduction in their remuneration. Only the Chairperson would be engaged on a full-time basis. This matter needs serious debate because of the impact this change is likely to have on the independence of these important commissions whose purpose is to act as checks and balances on the executive arm of the state. The fact of the matter is that democracy is expensive and using cost to dilute checks and balances or even to reverse devolution would be dangerous for our young constitutional democracy. Consideration must be given to making cost-savings in other areas.
The government will also move from using private security companies to using more technology in order to cut the burden of security costs. However, with such a large police service, it is hard to understand why government has resorted to private security companies over the years. Many police officers who have been spending their time at roadblocks should instead be deployed to do what private security guards have been doing at government buildings. There is no need to spend public funds on private security companies – it is likely that some politically connected persons were the beneficial owners of those private security companies. As part of the anti-corruption investigations, it should be interesting to do an audit to identify these companies and their beneficial owners.
The tough statements also extended to state enterprises which have been a drain on the fiscus over the years. Chinamasa revealed that state enterprises which used to contribute 60% to the economy (presumably at independence) now contributed just 2%, a clear statement if any was needed, of the failure of the Mugabe regime. He also revealed that 70% of the 93 state enterprises were technically insolvent. Chinamasa had strong words for them, saying there would be no funding for state enterprises, “without any returns, either through dividends or meaningful public service delivery.” His conclusion was that those state enterprises “that exhibit potential will be reformed, while those which cannot be rehabilitated will be privatised or face outright closure”. If these tough words could be followed by actual implementation, then one might have hope for Zimbabwe. Chinamasa should have focused on the boards of these state enterprises because this is one of the most corrupt layer of the state. There is a lot of nepotism, incestuous corporate relationships and greed. If Chinamasa is serious, he must commission an audit of all state enterprises’ boards to discover the corruption and rot that exists at that level.
Despite the tough talk on cost-cutting measures, the budget continues with the policy of paying annual bonuses to civil servants. The total cost of this will be $176 million. The payments will be staggered during the course of the year. This is clearly a political decision which has no economic rationale. Chinamasa has in the past tried to ban these bonuses. The economy is in worse state now than when he tried to cut the bonus. The explanation for this seemingly irrational decision lies in the forthcoming election. This is a new government which came through a popular military intervention. It has no interest in squandering the goodwill it is currently enjoying. In any event, there is an election in less than 10 months and no one wants to go to an election with an unhappy bunch of civil servants.
The budget statement reiterated the new president’s tough talk against corruption in his inaugural speech. The statements are good but much will be seen in the implementation. It’s interesting that Chinamasa’s statements demands accountability from the anti-corruption authorities – police, Zimbabwe Anti-Corruption Commission and the National Prosecuting Authority. They must make quarterly reports of their activities. Chinamasa acknowledges the fact that the retention of funds by agencies of the state such as the police has led to “corrupt practices and extortionist tendencies.” However, instead of withdrawing the authority to retain these funds and begun afresh, Chinamasa only threatens to withdraw the authority in future if the practices are reported. This is a missed opportunity.
The idea of the lifestyle makes the right political tones which will please people, but again, until it is actually done, it will only be a promise. However, it is important to note that Chinamasa pays tribute to the sterling work of the Auditor General who over the years has produced important reports highlighting the high levels of corruption and irregularities in the use of public funds. Chinamasa also reiterated the 3 month amnesty, for individuals and corporates for the return of illegally externalised funds and assets. When all is said and done, the c=scourge of corruption demands real commitment beyond words. Much has been said before regarding the fight against corruption. The Anti-Corruption Commission has been a constitutional body since 2004 and the Prevention of Corruption Act has been on the statute books since the 1990s. But there is precious little to show for both the law and the institution. It will take a lot more than talk to convince Zimbabweans that the government is serious about corruption.
I have deliberately omitted the budget allocations as they have been widely covered by the papers. The interest here was to assess the policy and ideological direction of the new administration from its budget statement, its first economic document of note. It confirms a pragmatic and flexible administration which is eager to please erstwhile enemies of the Mugabe regime. There is a hint of toughness and certainly a desire to say we are different from the old regime. It identifies problems that have been highlighted by opposition parties in the past. This is all well and good. The major question is whether it can do what it has promised, that is, to “walk the talk”. If the government can do half the commitments made in this budget statement, it will probably win more fans. If it fails and this ends up as empty rhetoric, it will disappoint more people. The opposition has its work cut out. A large part of its message has been adopted by the new administration and if they can deliver the change they are promising, then the opposition will have an uphill task. This gives them more reason to be vigilant and to hold the new administration to account.