How Rhodesia did it

By | March 9, 2017

Source: How Rhodesia did it | The Financial Gazette March 9, 2017

By Tinashe Nyamunda

ALTHOUGH Zimbabwe was the victorious outcome of a nationalist struggle against Rhodesia, there were significant continuities in the country’s economic structures in the first two decades of independence. The government exhibited limited commitment to land reform and economic indigenisation. Even though the ZANU-PF government needed to be tactful not to upset historical structures of Zimbabwe’s economic inheritance, it needed to strike a delicate balance and undertake some form of transformation to maximise the country’s future prospects. However, limited progress was achieved in terms of economic transformation in the first 20 years of independence, resulting in political disaffection in the 1990s.
To retain political support at the turn of the 21st Century, the State undertook sudden and radical measures aimed at transforming the racial structure of the economy, resulting in the fast track land reform programme. However, the racial undertone and process of this overdue exercise was problematic. Moreover, land reform did more than destabilise race relations. Although a steady decline had started in the early 1990s under the weight of the Economic Structural Adjustment Programme (ESAP), land reform prompted rapid economic collapse. The most visible symptom of this was inflation. With its Special Drawing Rights (SDR) suspended at the World Bank and with its government officials facing European Union (EU) and American sanctions, these challenges ushered in a deepening political and economic crisis. By comparison, Rhodesian history had also been characterised by political conflict and international sanctions between 1966 and 1979.
Economic sanctions in Rhodesia and Zimbabwe
This blog post makes some comparisons between the Rhodesian and Zimbabwean crises. The late Ian Smith and his Rhodesian Front (RF) government made a Unilateral Declaration of Independence (UDI) on November 11, 1965. UDI was never recognised by London which soon responded by imposing financial sanctions, chief among which was expelling Rhodesia from the British pound sterling area. Rhodesia’s local currency, formed under the 1932 Coinage and Currency Act had been fully backed by British sterling at par. Britain had also become the largest consumer of Rhodesia’s biggest foreign exchange earner, tobacco, between 1947 and 1965. The colony also benefited from commonwealth preferences and markets. But as part of British sanctions following Rhodesia’s UDI, all of these benefits were lost. Britain was confident that it could influence political processes in Rhodesia because of the colony’s seeming economic dependence on metropolitan markets. The then British prime minister Harold Wilson even claimed in 1966 that London’s financial sanctions would bring the Rhodesian rebellion against it to an end in a matter of weeks rather than months. Yet the Rhodesian economy survived punitive metropolitan measures and international ostracism from sanctions subsequently imposed by the United Nations for 15 years. The colony enjoyed a tremendous degree of economic success characterised by capital, commercial and industrial expansion, increased agricultural output and even increased rates of employment for the better part of the Rhodesian rebellion. It was not until the intensifying liberation struggle managed to overstretch Rhodesian resources that the Smith regime was forced into a negotiated settlement at Lancaster in 1979.
As the Zimbabwean crisis arose in its various forms, the ZANU-PF government was ostracised by EU sanctions and the United States’ Zimbabwe Democracy and Economic Recovery Act (ZIDERA) of 2001. In contrast to the Rhodesian experience, the effects of sanction and the political crisis on the Zimbabwean economy were much more severe. Having inherited a thriving but racially uneven economy at independence, by the 2000s Zimbabwe was in crisis. Attempts at politically induced transformation triggered economic crisis which manifested itself through hyperinflation. Agricultural productivity collapsed as de-industrialisation set in and formal unemployment increased to record levels. With productivity plunging and an increased dependency on imports, hyperinflation which peaked at 89.7 sextillion percent by 2009 rendered the economy weak. This resulted in the deposition of the inherited Zim dollar and dollarisation (loosely defined). Although temporary stability was achieved through dollarisation during the years of the Government of National Unity (GNU), one of the country’s main political parties, a severe liquidity crunch resulted in the Reserve Bank of Zimbabwe (RBZ) opting to introduce bond notes in November 2016.
The coordinated economic response of Rhodesia
Many have been sceptical about the prospects of Zimbabwe’s pseudo currency. This sentiment is driven by the experiences of Zimbabwe’s history since its economic plunge at the turn of the century. It has left many perplexed at the tremendous collapse of the economy. Many studies continue to be produced that analyse this history, but I want to suggest that Zimbabwe’s late colonial history may provide at least some basis for worthwhile comparison.
On the morning of the collapse of Federation and the eve of Rhodesia’s UDI in 1964, the Smith regime passed an Exchange Control Act (1964) and Reserve Bank of Rhodesia Act (1964) in preparation for taking full control of financial matters in the event of provoking Britain to impose economic sanctions in response to the colony’s rebellion. The RF entered into a series of trade agreements with other countries.

They especially created alliances with South Africa and Portugal to form the Pretoria-Salisbury-Lisbon axis determined to maintain white superiority in the region. Preparing for Britain’s retaliation, Salisbury created a cabinet committee called the Ministerial Economic Coordination Committee (MECC). Chaired by the ministry of finance John Wrathal, the MECC consisted of key ministries which would cooperate and coordinate on key policy priorities requiring government financing to stimulate economic development. The RF deliberately defaulted on debt. Restrictive exchange controls created a hot-house effect through locking investments in and reducing the possibility of foreign exchange loss through disinvestment. Foreign companies were forced, usually against their will, to register as local companies if they were to continue operating, including the expatriate Standard and Barclays Banks. In short, the ministries closely coordinated economic policies for the general benefit of the white Rhodesian state.
Notably, the Reserve Bank of Rhodesia, under Noel Bruce for most of this period, was kept at the periphery of state. Its role was limited to traditional central bank roles of money supply, setting interest rates and monitoring and registering financial institutions. Governor Bruce’s main media presence involved representing the bank in cases against its adjunct in the United Kingdom, giving policy statements limited to the roles ascribed to the bank. Major fiscal decisions responsible for Rhodesia’s economic success were the responsibility of the Finance Ministry in consultation and close coordination with the MECC. Although they did not always agree, the cabinet committee’s protective approach to the Rhodesian economy required very astute, collaborative, informed and inventive management strategies as the recipe for import substitution industrialisation, economic diversification, and (smuggling) export led survival and even growth. This insured the stability of the Rhodesian pound and the Rhodesian dollar (after decimalisation in 1970) for the better part of the UDI period.
The central role of RBZ’s crisis
In the case of Zimbabwe’s debilitating and deepening political and economic crisis, the government opted against economic coordination of the kind practiced by the Rhodesian government and its MECC, and rather delegated the task of economic recovery to the RBZ, especially with the appointment of Gideon Gono. Misdiagnosing the problems responsible for unleashing the economic crisis and attempting to address the symptoms, Gono turned to quasi-fiscal measures as a strategy for economic turn-around. The state blamed worsening problems on sanctions. Although the government adopted a “Look East” policy as a measure of trade diversification, this proved inadequate. Also, Zimbabwe failed to take economic advantage of regional liberation solidarities with South Africa, Namibia and many other African countries that were persuaded by President Robert Mugabe’s anti-imperialist discourse. Instead, politics became largely characterised by patronage. MECC type coordination that could have encouraged accountability was never fully considered or seriously explored. In its place were reports of predation, corruption and secretive accumulation within ministries. A kind of MECC would have given the state a unified sense of purpose and platform to debate issues and resolve the main economic challenges that confront Zimbabwe.
The crisis in Zimbabwe appears to be worsening as the long-term stability of bond notes is questioned. The mis-diagnosis of the economic challenges in Zimbabwe lingers with the RBZ still at the forefront of discourse on economic recovery. Ministries compete and even contradict each other over policies and very few of them speak in unison. Examples include the infamous contest between Minister of Finance Patrick Chinamasa and Minister of Indigenisation Patrick Zhuwao over the interpretation and application of indigenisation laws in the financial sector, resulting in further flight of capital. Another example from recent GNU history is that of the Ministry of Mines, then under Orbet Mpofu, operating secretly in Chiadzwa without providing revenue figures and export data to the Zimbabwe Revenue Authority and the Tendai Biti headed Ministry of Finance. Under these secretive shadow arrangements, only specific well-placed individuals benefit and not the state.
History provides some lessons for our contemporary economic and financial challenge. Here, I use the example of Rhodesia’s MECC to demonstrate where I think our contemporary government is failing.
There is no shortage of comparative historical and contemporary examples or thinkers who can provide alternative suggestions that can help turn around the economy. The capacity to reconstitute the economy is there, but it is the responsibility of an informed, committed and coordinated state, not one statutory institution without adequate political authority to drive sustainable economic recovery.
Tinashe Nyamunda is a post-doctoral research fellow with the International Studies Group, University of the Free State, South Africa.

6 thoughts on “How Rhodesia did it

  1. mike

    the difference is smith and co wanted the country to prosper . Mugabe and co have taken the wealth of a country and put it into their pockets.

    Reply
  2. VaChihera: Professor

    Thank you forthiswell informed contribution to Zimbabwe economic demise over 37 years of misrule. Why has a state ranked first by UNESCO in education almost 5th least performaning economically on the African continent?
    It is my considered opinion that:
    1. Very poor politics contribute 60%.
    2. Dependance DNA due to bad population attitudes contribute 20%.
    3. Racialism from traditional Western partners contribute 15%.
    4. Thieving from allother partners contribute 3%.
    5. Geographical location contributes 2%.
    So what we need to do internally constitute 80%.
    Politically we are failing dueto the fact that there is no injection of new players and ideas toturn around the rot. The population is recycling the old wastetotheir demise and care less for the future generation as a nation. The population is a willing participant in corruption, destruction of a moral educational curiculum in schools and thieving and plundering of undeveloped natural resourcesto any bidder!
    We haveto face these facts and return to co valuesthat build bridges among nations, nation and a vibrate future nation well integrated in the African and world economy in the face of extinction.
    Iremain to be advisedfor a better option. Sometimes a pill is too difficultto swallow!!
    VaChihera: Professor

    Reply
  3. Flick

    Don’t you just love it !!! Rhodesia = Success, Zimbabwe = Abject failure !!!

    Reply
    1. spiralx

      No. It is a huge source of sadness that a potential success became a failure so quickly, and continues to be one.

      There is a Diaspora out there (white, black and all shades inbetween), who would love to return to help make their country a success again.

      It is hugely frustrating that the pirate regime continue to make that impossible.

      Reply
  4. MPN

    The key difference is innovation, foreseeing a problem, acting to produce a suitable outcome, maintenance, developing natural resources and most importantly, no room for crooks and parasites in the system.
    Most was achieved from a willingness to give rather than take. Solutions were found to small things of the day.
    If you could not get something, a plan was worked to resolve the issue. Friends and friends of friends rallied to provide that solution and thus the impact of sanctions and isolation was felt but London failed to recognize the fierce determination to overcome the odds.
    Sanctions had the opposite effect and actually grew the economy in all sectors to being self sufficient be it food chain or industry.
    Yes there were wrongs in society, as there are all over the world, but given a chance there was the opportunity to be the envy of Africa.
    The new Zimbabwe inherited so much but have chosen to steal and plunder as a cancer which is now terminal and in intensive support – No currency, Airline, food, healthcare, bankrupt, collapsed railways and the list could go on.
    Here is a model of how to do things right or wrong and one done not need to be a professor to work that out!
    It’s only admission, with no excuses and blame!

    Reply

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