Zimbabwe’s top 10 economic challenges 

Source: Zimbabwe’s top 10 economic challenges | Fin24

INCOMING interim Zimbabwean President Emmerson Mnangagwa has an enormous task awaiting him on both the political and economic front.

The euphoric joy sweeping Zimbabwe after the ousting after 37 years in power of Robert Mugabe (and his wife Grace, who had her sights firmly set on the presidency) is based largely on the populace’s hopes with regards to radical changes on the economic front.

And there is no doubt that change is necessary in this country where there is widespread desperate poverty (80%) and an unemployment rate of 95%, and where hyperinflation plagued the local currency into extinction by 2009.

At the height of this crisis in mid-November 2008, the inflation rate was 79.6 billion percent, leading to the country switching to the American dollar as its currency.

The seizure of 4 500 white-owned farms led to a substantial drop in tobacco export at the time, which was the nation’s biggest earner of foreign currency.

At the time of the switching of the currency to the dollar, the economy improved slightly, also inspired by the unity government formed after the disputed 2008 elections. The upswing was short-lived, as Mugabe quickly demonstrated that he had no intention of changing his despotic ruling style.

In Emmerson Mnangagwa’s first address to the nation on his return from South Africa this week, he clearly prioritised revitalising the economy and creating jobs – two things which go hand in hand. His political survival depends on attaining success in this regard, as well as on returning the country to a more democratic style of government. It remains to be seen whether he will indeed do these things.

Foreign investors will be watching closely to see whether free and fair elections are held. Without this, Zimbabweans will just be in for another round of Mugabe-style disaster.

Here’s more about some of the top challenges (many of which are interlinked) facing Mnangagwa, the interim government, and Zimbabweans in general:

Creating jobs

In a country where the unemployment rate is 95%, and there are very few jobs outside of the state service, the creation of jobs is obviously of paramount importance. Labour legislation is also currently restrictive. A regular income makes it possible for workers to become more economically active, thereby also stimulating the economy.

A higher employment rate also means increased social stability, as well as a higher income from taxation for the state to help rebuild the economy. A nation in which the majority lives in desperate poverty, without access to services, cannot make progress on any front.

Reviving agriculture

The agricultural sector used to be the backbone of the economy – in fact, Zimbabwe used to have the nickname “the breadbasket of Africa”. After the seizure of many white-owned commercial farms, much of the land fell into disuse, or is only partially used for subsistence farming.

There needs to be a return to the highly efficient and labour-intensive use of the land to restore production of maize, wheat, and tobacco, to name but a few. This will also increase job opportunities in rural areas, and also increase revenue from possible exports.

Reviving mining

Zimbabwe is a country with many mineral resources and raw materials. These include platinum, coal, iron ore, gold and diamonds. These mines, if operations are restored and efficiently managed, can help to revive the country’s economy.

In 2011, the government published new regulations implementing an ‘indigenisation programme’ which required  foreign mining companies to give a 51% stake of their business to black Zimbabweans. Many companies were unwilling to do so, and left the country. It would be interesting to see if the new interim government would consider setting this ruling aside, possibly paving the way for the return of some of these mining companies.

Attracting foreign investment

This is crucial, but Mnangagwa’s financial policies will be under close scrutiny by foreign investors, many of whom suffered great losses under Mugabe’s rule.  Chinese involvement in Zimbabwe has not been without its problems, as they, like many other investors, are often intent on extracting their pound of flesh.

Nothing attracts healthy foreign investment as readily as political stability and good resources. One of Zimbabwe’s strongest assets is the high literacy rate of the potential workforce. Foreign investment is not just driven by sentiment, but also by potential profits. Securing further loans from the International Monetary Fund is more likely now, but these are likely to come with strings attached, such as the holding of free and fair elections.

Restoring the banking system

This industry has been in disarray for many years, the low point probably being in 2007 in the time of hyperinflation when the Reserve Bank of Zimbabwe started printing higher and higher denominations of Zim dollars, and one could not buy a loaf of bread with a trillion-dollar note.

Many banks collapsed. To this day, stories abound of people sleeping outside banks in order to be first in the queue to draw the limit of $20 (the country switched to the US dollar currency after the collapse of the Zim dollar). Restoring the local currency is not an overnight process, and the future of alternative currencies, such as bond notes and treasury bills remains uncertain.

Restoring infrastructure

Roads, dams, communication systems (including telephones cellphones and internet communications), energy and water supply, the health services and schools all need serious attention as very little spending has gone into these in the past four decades.

Without these being repaired and upgraded, the growth of the economy is simply not possible. As these are urgent, chances are that the interim government would use foreign loans or investments to enable this process of restoring or creating the necessary infrastructure.

Reviving tourism

Countries surrounding Zimbabwe derive much income from tourism – as Zimbabwe used to. Upgrading the infrastructure, and spending money on the things which attract tourists, such as game reserves, could revive this industry.

Getting expats to return home

Home is where the heart is, but many highly educated Zimbabweans have emigrated and re-established themselves in other parts of the world. They did this largely because they were unable to make a decent living in Zimbabwe under Robert Mugabe, or they were victims of political persecution. Just in South Africa, it is estimated that there are between one and three million Zimbabweans.

Many people would like to return home and help to rebuild their country – but they need to know that it will be safe, and that they will be able to make a living. It will be a challenge to the interim government to get these people back.

Beating corruption

In a country where the financial sector has all but collapsed under Mugabe’s kleptocracy, corruption is rife, especially in the highest circles of government. Many of the guilty ones are still in the government. Eradicating this will be a real challenge, but growth is not possible without this happening.

Corruption is a parasite on any country’s economy. There is also the question of what will happen to the many properties and assets expropriated by Mugabe and his cronies.

Reducing taxes

Tax rates in Zimbabwe are high. Reducing these will stimulate personal spending power, and regenerate businesses. The reduction in money to the state coffers will, one hopes be offset by an increase in the number of taxpayers and viable businesses under the new interim government.

State spending also has to be closely regulated, to prevent a recurrence of the excesses of the past.