Only radical reforms can save dying economy: Biti

via Only radical reforms can save dying economy: Biti – The Zimbabwe Independent October 2, 2015

AS Zimbabwe’s economy continues to nosedive with the ruling Zanu PF and government at sea on what to do, Zimbabwe Independent reporter Elias Mambo (EM) spoke to former finance minister during the Government of National Unity (GNU) (2009-2013) Tendai Biti (TB) on the deteriorating situation. Below are excerpts of the interview.

EM: Can you briefly describe the state of the economy?
TB: The economy is in a state of inertia, regression, disequilibrium and on a slippery slope. We are in a recession fast-tracking ourselves to a depression. There is low aggregated demand due to collapsed production and output. The growth rate in 2015 should be anything between -3% and -2%.

We are back in the red and what’s shocking is that only once in the history of mankind has a country moved from extreme crisis of over-accumulation characterised by hyperinflation in 2008 to the extreme crisis of under-accumulation characterised by unemployment and de-industrialisation in a space of less than 10 years. These two crises are very difficult to deal with. In short, this economy is in the intensive care unit.

EM: What is the net effect of all this?
TB: The obvious effect is increased levels of poverty, where 79% of people are living in extreme poverty surviving on less than US$0,35 per day. There is extreme urban poverty and this is worse than rural poverty where people in the rural areas can look for a cob of maize while in urban areas there is no fall-back position.

The other problem is extreme social dislocation, increased levels of bohemianism (unconventional lifestyle), rape and all kinds of social ills. There is also a new wave of immigration where thousands of people are leaving the country going to South Africa, Botswana and Namibia and even to non-traditional places such as the Middle East, Dubai and Qatar. There is a fresh wave of immigration as people flee economic collapse.

People are also flocking to Pentecostal churches for salvation. This is a nation crying out for new leadership and direction. People are hopeless while the country is burning.

EM: What is your view on the International Monetary Fund (IMF)’s Staff-Monitored Programme?
TB: This has been ongoing for a long time. There is nothing new about that because IMF simply demands reforms. Debt relief must be earned, but that is not possible if the government is not walking the talk.

Government must present unequivocal and unambiguous evidence of reforms. Finance minister Patrick Chinamasa is trying hard, but I am fully aware President Robert Mugabe and other Zanu PF officials cannot stomach such reforms.

Accepting reforms means dismantling the machinery which brought Zanu PF into power; and they are not ready to dismantle that power retention infrastructure. A good example is that when I was minister, there were 235 000 civil servants, but now there are over 550 000 employees.

EM: But what can be done?
TB: Government must remove those 200 000 ghost workers who were recruited during the run-up to 2008 and 2013 elections. Genuine reforms demand that those people are booted out like yesterday, but political expedience means they cannot be fired because they brought Mugabe back into power and the next election is less than 36 months away.

Genuine reform demands that the controversial indigenisation policy is repealed, but then again, political expedience means they must maintain the line because that was their election slogan.

Reforms also require that the land programme must be addressed. Give title deeds to people, but this means people will be free to get out of the clutches of Zanu PF, resulting in them voting for a party of their choice. So by not giving them the title deeds that means they remain indebted to Zanu PF because they will be told they can be chased away anytime.

There is need for reforms. But reforms cannot be implemented because that will be political suicide for Zanu PF.

EM: And the issue of de-industrialisation?
TB: The Zanu PF regime is responsible for the policies that caused massive de-industrialisation. The Zimbabwe economic narrative should not have changed after the 2013 elections because Chinamasa did not pursue any radical policy from what I pursued. Most of the policies have been maintained.

But why is it there has been massive collapse between July 2013 and September 2015? Why is it that the stock exchange lost US$2 billion and there has been massive capital flight of over a billion dollars? The answer is very simple: trust. There is a broken social contract. The citizen and capital do not trust Zanu PF. That’s why there has been a rapid shift in our economic fortunes.

An ordinary person claims the GNU was a Christmas (holiday). What changed was trust. Zanu is not capable of running the economy and the net effect is that companies will just go down under and unemployment will scale explosive proportions.

EM: But there has been talk of deals such as the Russians, Chinese and of late (Aliko) Dangote (Nigerian tycoon and Africa’s richest man), aimed at turning around the economy.
TB: Those deals remain on paper. No sane investor can pour his money into a bottomless pit. There has been serious policy discord in government, let alone the controversial indigenisation policy. Dangote is a smart businessman who cannot just trust the word of mouth that his investment will be protected.

The Russians are clever, they have accessed cheap mining concessions and they are sitting on them until the right government comes in. I have dealt with the Chinese during my tenure as a cabinet minister. I signed the Kariba South Power Station Expansion Project and TelOne deals, but they also want genuine reforms. They cannot invest much now. Once Mugabe begins to speak nonsense, they shift to Mandarin.

Investors are also worried with Zimbabwe’s policy inconsistencies and lack of competitiveness. We rank lowly on world surveys on easy of doing business. The currency — the US dollar — is also overvalued. The wage structure is relatively higher than in most countries in the region. A mere office orderly gets about US$400 per month when in South Africa he will be paid around R2 000. An investor will obviously go and invest in South Africa.

EM: So what then is to be done?
TB: The author of all these problems is Mugabe and Zanu PF. Since Independence in 1980 the economy has never imploded as it is now. That is a tragedy because there are good stories happening in the region. There is a good narrative in Mozambique, Malawi, Zambia and a fantastic story happening in Kenya. Zimbabwe remains a black spot.

What needs to be done is not a miracle, but to have basic leadership skills and policy consistency. I tried to instil the philosophy that we live within our means. We eat what we kill.

During my time we had that philosophy, but Chinamasa has abandoned it and now lives off on Treasury bills. Every bank is clogged with Treasury bills that are being rolled over. The corrosive effect is that you are creating a crippling budget deficit which I think is now close to 30% of the GDP.

We will pay dearly for that. The other problem is the Reserve Bank of Zimbabwe (RBZ) Bill which has been added to the fiscus on the basis of transactions that were not audited.

There is also the Sadc Free Trade Zone. If Thabo Mbeki was still the South African president, we could have been having a regional currency and a regional central bank, like in Europe.

We need regional integration and this is the answer to resolve the monetary policy and currency issues. Right now the RBZ does not have the key instrument to manage the economy — an effective monetary policy.