Big Saturday Read: Mending a broken economy
Tweeting a storm
Mthuli Ncube’s first week in office as Zimbabwe’s new Finance Minister must have been quite a sobering experience. The high-flying economist left a more palatial environment in Geneva, where he was heading the research unit of an investment management firm, Quantum Global Group. Quantum Global, which has a special focus on Africa, has wealthy clients, who collectively have entrusted billions under its management.
On Thursday, barely a week after his appointment was announced, Ncube posted a crowd-funding plea on Twitter, to support the fight against an embarrassing cholera outbreak that has shamed the Southern African country still keen to announce its return to the world stage. The crowd-funding tweet created a storm. Some were receptive, praising Ncube for his initiative, a first by a government Minister. Others were not amused. They pilloried him for extending the begging bowl to an already suffering public.
How dare he begs for help from us? Weren’t the new ministers receiving brand new luxury vehicles? Hadn’t government spent a lot of money buying vehicles for traditional leaders? Didn’t the same government pay huge amounts to fly former First Lady Grace Mugabe home for her mother’s funeral, which the government also supported financially? People had these and many more questions.
It was a heavy storm, one that Ncube may not have anticipated when he tweeted. But if anything, the incident must have been a rude awakening for the man who is seen by some as the kind of technocrat who could rescue Zimbabwe’s economy from the abyss. It gives him a glimpse of the divided, wounded and angry Zimbabwe to which he has returned.
Ncube came to serve his country, but the government he is serving is deeply unpopular in the urbane part of the population which dominates social media. There is severe frustration over government’s misplaced priorities and insensitivity towards the plight of the common person.
A son of the soil returns
Ncube had just recently come back home and graced the national stage to great acclaim. A son of the soil had come home. It was just like it is back in the village – when the son who made it returns, villagers celebrate and place their hopes upon him – he has come, he who will lift the village from its miserly circumstances. Unsurprisingly, much is expected of Mthuli, a highly-decorated technocrat with a multi-carat resume.
The last time he was based in Harare, circumstances of his departure were less ceremonious. His bank project at Barbican had not survived past infancy. It was one of the most difficult moments for the financial sector and the whirlwind swept him and his nascent business away.
He promptly packed his bags and left for greener pastures. One piece of luggage that mattered most was the one he carried in his head. Mthuli has a brilliant mind for economics, one that had taken him through the cobbled streets of Cambridge, the great centre of knowledge where he left with a doctorate. His ability to instruct others in the discipline took him to lofty heights at Wits University, another famous citadel of knowledge.
That same asset took him to Abidjan, where he was Vice President and Chief Economist for Africa’s development bank, the AFDB. Then to Geneva at Quantum Global, with forays into academia at Oxford. That he is of the impeccable intellectual stock is not in doubt.
But here he was, back home, facing a storm for the crowd-funding suggestion. No doubt, he meant well. The trouble is he may have misjudged his audience and the antipathy it holds towards a government that hasn’t demonstrated prudence and common sense when it comes to use of public funds.
The piggy-bank is empty
Beyond the storm, the incident had revealed something about the state of the national coffers. He may have exposed the parlous state of the national piggy-bank. When the man who holds the keys to the treasury goes to the people to ask for money to fight a public health crisis, it suggests that the situation is dire.
The one redeeming feature, though, is that he did not take the route to the printers, something his predecessor might have done. He could simply have printed some money and handed it over as part of government’s rescue effort. If he didn’t and decided instead to beg from the .masses, it’s probably a positive sign that there is willingness to move away from the days of reckless money printing.
Popular will and sound government
Mthuli Ncube and other technocrats are an illustration of an effort to ensure recognition of the popular will while at the same time promoting sound government. The problem is that the popular will does not always produce the skills and competence needed to deliver sound government. In order to cover the deficit in skills and competence, it may be necessary to bring in the unelected into government.
Our constitution recognises this, hence the provision that permits the president to appoint up to five ministers from outside parliament. It could have been more had the proposition not been resisted and watered-down. Still, it is important to strike and maintain the balance – to satisfy the popular will, while at the same time, promoting sound government.
Ncube and Kirsty Coventry are good examples of the unelected who were brought into the new government to promote sound government by virtue of their skills and competence. Neither of them ran for political office. They never sought a mandate from the people. Their claim to legitimacy is their appointment by a political authority on account of their skills and competence.
The problem for the unelected technocrats is that they lack political power, which in politics is the equivalent of hard currency. In the minefield that is Zimbabwean politics, where one must have a constituency from which they draw power and legitimacy, unelected technocrats must rely on their appointing authority. To be sure, while their specialised knowledge is itself a source of legitimacy, it is not enough to withstand the force of political power that rivals possess. But this reliance also makes them vulnerable and beholden to their appointing authority.
Intersection between party and state
In this regard, Ncube and other technocrats must negotiate the tricky intersection between Cabinet and ZANU PF’s politburo, the party’s powerful executive. This intersection is hazardous to political and professional careers. Soon after announcement of Cabinet, Mnangagwa revealed that the old war-horses that had been retired had in fact been redeployed to the party on a full-time basis. It could be Mnangagwa’s trick to release old and loyal comrades without inflicting much pain and discomfort to them. They may have lost their ministerial jobs but they retain equivalent perks at party headquarters. It placates their wounded egos. They will keep quiet as long as they are eating.
But some think this is a rather charitable view of the situation. They think the redeployed comrades are actually the real power and that they will control Cabinet from the Shake Shake building. Indeed, party hawks were quick to remind all and sundry that the party is supreme; that whatever Cabinet does would have been approved or directed by the party through the Politburo. The party is indeed powerful – remember that political power is the hard currency of politics. It resides in the Shake Shake building. Mnangagwa only narrowly scrapped through to the presidency, while his party won a two thirds majority. In other words, Shake Shake building performed far better than Munhumutapa building.
This therefore, is the challenge that the unelected technocrats will have to contend with. They will have to negotiate around the principle of the supremacy of the party where the party’s ideas and policies collide with their ideas and policies. In this regard, for someone like Ncube, economic prudence will have to do battle with populism from the party headquarters. Will he resist if the party wants the treasury to fund party activities in the name of government work? Will he resist if the party wants to pass on to the treasury, debts that have been uncured by politicians, such as the liabilities incurred under the Farm Mechanisation Programme ten years ago? Will he resist if the party wants to save underperforming parastatals that are a perennial burden on the fiscus?
There will be points of collision between the politicians and the technocrats and unless the biggest politician of them all backs them, the technocrats will always lose. When they lose, they will become frustrated. This is the fate that befell another technocrat 18 years ago. When Nkosana Moyo was appointed to Cabinet by Mugabe, he too was an acclaimed technocrat whose appointment was well received. But he did not last. He left because he realised the system was not ready for change. Mugabe mocked him for being lily-livered. He had not supported him. If Mnangagwa adopts the Mugabe approach and does not back his technocrat, their fate is unlikely to be any different.
Tasks that await Mthuli
Mthuli Ncube has encountered many significant challenges in his line of work and he has probably succeeded more than he has failed. The Zimbabwean economy will be like nothing that he has ever encountered before. A senior civil servant in the British government during the last days of Gordon Brown’s time as Prime Minister left an infamous note for his successor which simply said, “I’m afraid there is no money”. One must wonder what kind of note Patrick Chinamasa, Ncube’s predecessor at the Ministry of Finance would have left for his successor.
The country is broke, something that must have stared Ncube in the face in the middle of a cholera outbreak which has already been declared a national disaster. The challenges he must resolve are numerous:
The problem of cash
Zimbabwe is short of cash. It has been short of cash for quite a few years now and there is no sign of any respite. A disputed election hasn’t helped. Government efforts have so far failed to arrest the deterioration. Promoting plastic money in a cash-based economy has limits. In any event, the most widely used electronic payment system, EcoCash is trading at a discount to the US dollar.
In 2016, the government introduced the bond note ostensibly as an “export incentive” to encourage local production. In reality, the government was responding to the cash shortage. Some protested, fearing the surrogate currency was a prelude to the dreaded Zimbabwe Dollar. The government insisted the bond note was equal to the USD. It was preposterous and it soon began to unravel.
The country was already short of USD but after the bond notes were introduced, the scarcity of USDs increased. Economists call it Gresham’s Law - bad money drives out the good money. But since the bond note could be exchanged at par with the USD on the formal markets, it also became attractive to punters. As the bond notes became scarce, the government turned to the printing machine and began to churn out more bond notes. The rates have since spiraled out of control. According to Zim Bollar Index, as of Friday 14 September 2018, the bond note was currently trading at 1.87 to the USD. On the same day, the RTGS had breached the 100 mark with the dollar trading at 102.
But market watchers say the biggest problem lies beyond bond notes. It is in the electronic balances held at banks commonly referred to as RTGS. It is there that government has been creating bigger amounts of money. Although they are denominated in USD, there are in fact no USD to back these balances. It is pretend money. It’s like the government has been running a pyramid scheme. When government wants more money, it simply issues treasury bills or prints more bond notes to mop up whatever US dollars are on the streets. There is a huge market on the streets of Harare – some refer to it “the World Bank”. This is unsustainable.
Many Zimbabweans are haunted by memories of the 2008 economic calamity, when they all became the most miserable billionaires in the world. Zimbabwe’s currency had tanked. The market simply abandoned the Zimbabwe Dollar and switched to foreign currencies. The government followed the market when it adopted a multi-currency regime in 2009. Now, though, after the bond notes experiment and rampant printing, many fear they are returning to that dark space. It’s a scary prospect.
This is an urgent problem that people expect Ncube to solve. Patience thins out very quickly among the weary masses. And if he takes too long, his political masters will simply throw him under the bus to save their skins. They are very adept at apportioning blame. Ncube has already hinted that he intends to drop the bond note but it’s not clear if this has the consent of his political bosses and what the plan is after abandoning the surrogate currency.
There has been a suggestion of negotiating to join the Rand Monetary Union. That would mean surrendering monetary policy to South Africa. Some think that would be a good thing but others think not. They warn that South Africa is facing potentially unstable times as it embarks on the politically-sensitive land reform programme.
Ncube has also talked about an eventual return to a local currency but that’s in the long term. Whatever route he chooses, people want an immediate solution to their immediate problem.
The debt burden
A long-standing problem which Ncube must resolve is Zimbabwe’s arrears. The country is heavily indebted and its failure to service debts has affected its credit rating. This makes it hard to access lines of credit and when it does, the punitive rates reflect its risk profile. The country owes roughly $1.8 billion in arrears to multilateral institutions. Its domestic debt has been growing too. According to the Zim Bollar Index, domestic debt rose by 72% between June 2017 and June 2018 – from $4.5 billion to $7.8 billion. This is mostly borrowing to fund the budget deficit – in other words, to fund the government’s spending habits. The new man will have to be tight. Really tight and tough.
Ncube says he has a plan for debt resolution. This is one area where he might use his networking and negotiating skills in the international finance community to find a solution. He knows the institutions, the people and the politics of international finance. His predecessor tried and came close with the proposed LIMA deal. The arrears to the IMF were paid but the World Bank, AfDB and the Paris Club of creditors are still owed.
Zimbabwe also has the burden of compensation towards foreign commercial farmers who lost their land and businesses during the land reform programme. These farmers were protected by Bilateral Investment Promotion and Protection Agreements (BIPPAs) between Zimbabwe and their home countries. They won arbitration awards at international tribunals against the government. With Zimbabwe bidding for foreign investment, it has to find a way to resolve these outstanding awards. After all, these farmers fall under the category of foreign investors. If the country cannot honour property rights or judgments from international arbitration tribunals it’s not a good sign to investors.
Lack of productivity
Another challenge is low productivity and in some cases, the lack of productivity. The key areas include mining, agriculture and manufacturing. The country has become one big supermarket for South African businesses partly because the country is not producing enough goods and where it is, sometimes the quality is poor or the cost is higher because of high costs of production. There was a time when the country had a vibrant manufacturing sector. The poor levels of production mean the country has to import even the most basic products. This raises the import bill, which gobbles up the country’s meagre foreign currency.
Zimbabwe simply has to start producing more for the local and export market. The capacity is there.The resources are there in abundance. Mining, agriculture and manufacaturing. Zimbabwe has many advantages that its competitors in the region don’t have. Much of its skills are currently propping up other economies, like South Africa. Ncube has to design a package that incentivises investors and producers, a package that incentivises its diaspora to return home. It could be tax breaks for investors setting up production plants in Zimbabwe. It might also be scrapping or reducing duties for those importing machinery for local production. It could be tax incentives for the diaspora skills to return home. The long term benefits of these investments will eventually outweigh the losses in tax revenues.
Lack of investment
Ncube is well aware that Zimbabwe’s investment profile has to improve. He has talked about resolving the debt overhang to give confidence to investors. There is need for incentives, as already mentioned. There are many countries in the region which are now ahead of us so there is intense competition. No one is going to invest in Zimbabwe because they feel sorry for us. We have to create conditions for it. Property rights protection is key. Our political stability is also important. There must be confidence in the judiciary. The rule of law must be respected. There must be no arbitrary rule.
Solving the investment problem will also help tackle the unemployment challenge, which at more than 90% threatens social stability. The country can look to foreigners but there are many Zimbabweans in the diaspora who could play a key role. Mthuli himself is a key example of a diaspora citizen who has returned home to play a role. He should use his vantage position to persuade the traditionalists in ZANU PF who have long viewed the diaspora with disdain. He won’t solve the challenges on his own. He needs the skills and competence out there. Many Zimbabwean engineers are busy solving water problems in other countries. They can be lured home to do the same, using the experience they have gained. They too are sons and daughters of the soil that can be brought back to uplift their village.
The spending problem
A big challenge for Ncube will be to curb government spending. One of Ncube’s predecessors Tendai Biti ran a tight ship during the GNU between 2009 and 2013. His mantra was that “You should only eat what you kill”. This was a euphemism for the idea that the government should live within its means. It was not always successful but the commitment was there. After 2013, when ZANU PF regained exclusive control of finance, the controls were loosened.
To his credit, Chinamasa tried to bring in some austerity, proposing to cut civil service bonuses, but he was thwarted by his boss, Mugabe who preferred populist approach. Chinamasa knew there was no money but politics got in the way. Even after the coup, Chinamasa proposed to remove the thousands of youth officers from the government payroll. Once again, that did not materialise – there was an election in a few months and these youth officers are the foot-soldiers of ZANU PF. This meant having to create more money out of nothing to fund these bonuses.
The lesson that Ncube has to draw from Chinamasa’s experience at the treasury is that no matter the best intentions or how great the policy proposals are, they will come to nothing unless one has political support. Will his boss listen and support him if Ncube shuts the pipe that has supported ZANU PF all these years under the guise of government business? Will he get political support if he proposes to curb the lavish travel perks enjoyed by Ministers and senior government officials? Will he be allowed to reduce the government wage bill by taking drastic but necessary cost-cutting measures, including laying off non-core staff like youth officers? Ncube has a huge task ahead of him, but even with the best will and skill in the world, he needs the support of his appointing authority.
He can call on Chinamasa, Biti, Simba Makoni, etc - people who have been in his role to learn a thing or two from them. They know what works and what doesn’t. He should call upon women leaders, the youth and civil society who have never been given a chance, to hear what they would do to solve the challenges. He’s doing well meeting the corporate leaders, but he should also call upon the vending community - the men and women who are running the informal economy that has sustained many families and livelihoods. He should speak to labour - the working men and women. It’s all about the collective effort but he has to avoid elitism.
Another challenge that awaits any finance minister is social services. He has a huge dilemma. It s that on the one hand he must implement austerity measures while at the same time delivering on the social side. Austerity requires cutting social spending, yet he has a population that has suffered a decline in social service for 3 decades. This goes back to the Economic Structural Adjustment Programme which started in the early 1990s. There is health, education and there is also support for the socially vulnerable groups such as the elderly and people living with disabilities. The constitution requires support for these sectors and related rights. But austerity policies militate against such expenditure.
In addition, many people lost their savings after dollarisation in 2009. The pensions and insurance sector collided with people when they lost everything they had saved for during that time. They need help. A commission has made recommendations for compensation, but there is a fear that this could bankrupt the industry.
The economics types in multilateral institutions that Mthuli will deal with when he negotiates packages to help Zimbabwe will mot likely tell him to cut social spending. But that will lead to serious collisions with the local constituencies, not least the politicians who fear upsetting the electorate. He has to strike a balance - building a broken economy with the help of his colleagues in multilateral institutions while looking after those who have been left behind by the capitalist system. It’s not going to be an easy road. There will be a lot of pain and resistance.
The political problem
Often underestimated is the fact that Zimbabwe’s economic problems are intimately linked to its political problems. The election was supposed to fix the political problem. It was supposed to reaffirm legitimacy and ensure acceptance of Zimbabwe back into the family of nations. But once again, the election failed to deliver on that front. The process and outcome were disputed. The international community which was expected to endorse the election has been hesitant. The new administration shot itself in the foot when soldiers shot and killed people on 1 August.
It is the political problem that meant the US was unmoved regarding the targeted sanctions regime even before the elections had been held. The US Congress passed an amendment to the Zimbabwe Dmocracy and Economic Rcovery Act (ZIDERA) just a few days before the election. The excessive use of force by the state on August 1 only made things worse. The US President signed the bill into law after the election. The Mnangagwa administration was desperate for US endorsement and it is not going to arrive anytime soon. The new Finance Minister will have a hard time trying to convince the Americans that things have changed. Even the British who many thought were warming up towards the regime were quite critical after the military crackdown.
Mnangagwa is trying to fix that problem with his proposed commission of inquiry but at present the country still repels potential partners. The PR mission has been trying to present a reformist perspective, with flowery articles in the British media. Ncube will want to help in re-building those broken bridges, again exploiting his networks gained through his work across the globe. It's not going to be easy. He may want to start at home, by courting the multitudes of the disgruntled on the other side of the political aisle. He commands some respect across the political divide and if he uses his vantage position well, he might just help to unlock some of the doors. He has to avoid the mind games that ZANU PF types often deploy on the political scene.
One thing that Ncube may have underestimated is the level of antipathy towards the government that he joined, especially in urban areas. He has to understand why there is that antipathy and how it can be toned down. The disputed election is a big factor. But there are long-standing issues, including government profligacy and failure to prioritise people’s problems ahead of their own parochial interests. This is why his otherwise noble crowdfunding plea received such a backlash. Ordinary people cannot understand why a government which has money to buy vehicles for chiefs, ministers and MPs can only afford a miserly amount for a national emergency affecting poor people and comes to the same people with a begging bowl.
Mthuli Ncube arrived with impeccable credentials. His appointment induced some hope in the market. But just weeks after the election, the market has refused to respond positively. His appointment has not impacted positively on the market. Instead, the situation has declined. The cholera outbreak in the capital is embarrassing. But it’s not a natural disaster. This is a man-made calamity which reflects poor governance at both local and national levels of government. Ncube had expected to hit the ground running. But the outbreak is part of the unexpected that he has to deal with together with his colleagues in government.
Mthuli and Kirsty have so far enjoyed a lot of goodwill from the public. But they are experienced enough to know that this could all be wiped away very quickly. They have to engage the people. They are not political animals, but they are there for the people on account of their skills and competence. While there was anger at the crowdfunding plea, he should not take it as a personal attack. The anger is towards the system. He should not be disheartened. He should understand why it’s there and take it as a challenge to work on it. Hard decisions will have to be made. They must be made.
Meanwhile, the long-standing economic challenges await attention. Zimbabwe is not like anything that he has seen before and he will have to unpack that invaluable luggage in his head that took him to lands far away, to citadels of knowledge and deploy it to the local challenge. Maybe he might just lift the village from its miserly circumstances.
You have my best wishes my brother, Mthuli and my sister, Kirsty.