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Zimbabwe's economic recovery: Lessons from the neighbourhood and beyond - SAPES Seminar
Upenyu Makoni Muchemwa,
April 15, 2010

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As part of their ongoing policy dialogue series SAPES Trust hosted a discussion entitled: Zimbabwe's economic recovery: Lessons from the neighbourhood and beyond. Economist Tim Muzondo presented a short paper on the history of Zimbabwe's Economy, and gave a brief outline of the issues that need to be addressed to enable the country's recovery. Minister of Finance Tendai Biti then discussed the realities of the economic situation.

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Tim Muzondo

What does one mean by recovery? Recovery implies some sense of turning around, getting back to where one was before. The question though, is where are you turning back to in the case of Zimbabwe? Are we turning back to the period prior to 2000, any period prior to 2000, or are we turning to some specific period prior to 2000, or are we simply saying we want the fastest possible economic growth for us to turn around, irrespective of where we are going? Listen

The economy was not free. The controls were there. Foreign exchange continued to be allocated administratively; the exchange rate was controlled; interest rates were controlled; prices were controlled. As economists in the Ministry of Finance it was a big job to decide what the price of mealie meal would be and the price of bread, these things would go to Cabinet to decide. Instead of focussing on major policy issues, very operational things were considered much more important than overall economic policies, because of the command and control policy framework. Listen

I call these issues that need to be addressed to support recovery. The first and most important is macroeconomic economic stability. The second is to implement structural reforms. The third is rebuilding the productive capacity of the economy and to rebuild economic and social institutions, the fourth is property rights, protect and respect property rights and the fifth is governance issues, and the final one is international support, by which I mean government policies must be such that they will yield maximum support from the International Community. Listen

What is the National Currency going to be? My view is that it would be a terrible mistake to go back to a Zimbabwean currency. In terms of confidence in the Zimbabwean economy, a return to the Zimbabwean dollar given what has happened, would make it very difficult for investors to believe that macro economic stability is here to stay. I think the wise thing to do would be to use the Rand as the national currency, not only that but also integrate the financial system of this country with that of South Africa, so that individuals and businesses can borrow not only from banks here but banks in South Africa. Listen

The current situation presents enormous challenges, but in addition there are also opportunities. There is significant excess capacity in the economy right now. That is a good thing from the point of view of economic recovery because it means businesses do not have to buy additional capital in order to increase capacity. There are high levels of unemployment, from the point of view of recovery; it's a good thing because there are resources that can immediately be employed to boost the economy. There is already short-term macro economic stability. That's very good because it builds confidence for business to invest and to produce. There is a credible cash budget system, which was introduced by the Minister [of Finance]. It encourages firms to produce and invest. Businessmen will tell you that there is a tremendous shortage of short term and long-term capital or credit. If there was a new government, which satisfied the requirements that I'm talking about, these constraints can be removed very easily. And the fact that you could do that would be a positive thing in terms of encouraging the recovery of the economy.

Tendai Biti

A failing African economy does not generate conditions that would lead to a purple revolution or an orange revolution that leads to the liquidation of the government or the state. It doesn't happen. Oftentimes the smaller the cake becomes the higher the capacity of the gatekeeper to brief the population and reproduce itself for many years. The classic example was Mobutu Seseseko. Listen

Donors in this country are doing a lot, but from the point of view of where I am sitting in the Ministry of Finance, unless that money is channelled in a vehicle where I am able to know that it has gone to point 'Y' on the budget and I am able to tick it off, it is not effective aid at all So for all intents and purposes, it becomes dead aid, its not meaningful to us. Listen

In January our inflation was 0.7%, in Feb it was about 1%. That means that our annualised inflation will be about 12%, which is not acceptable, we will be back in double-digit figures. Our projection in the budget is 5%. If you look at the inflation drivers for November and January, the cost of energy did not go up, the cost of electricity did not go up. Prices have gone up purely as a result of speculative tendencies. One of the results of an immature, nascent bourgeois class, nascent business class is that they find it very difficult to play by the rules. Listen

The wages have become a fundamental threat to this economy. The fact of the matter is that we have a wage bill of nine hundred and fifty million dollars, which is seventy percent of our revenues, which is 18% of GDP. What the wage bill in Government is doing is that it is having a multiplier effect in respect of the wages that are being paid by the private sector. There are companies with wage arrears of two months, three months, and four months. When a company does not pay wages for that long it means that PAYE has not been paid, so the entire economic value chain has been disturbed. Listen

This country's economy is based on agriculture. We have not found an alternative accumulation model. We need to find an alternative to extraction of raw materials and agriculture. Until such time as we have found that alternative it means that the model based on agriculture is dominant. Now we have question marks around land, some of us have argued that its time to give the people who have benefited from the land reform programme, title deeds. Because if you are going give someone a 99-year lease, what is the difference? Who will live to 99 years anyway? You might as well give them title deeds. Then you can rationalise on two things: you can rationalise on the sale, because he got the land free of charge, so you might increase your capital gains tax for the first sale. You might also rationalise if you think that the market is going to be a tool to reverse the land reform programme, you might say land should only be sold to citizens, and should not be sold to corporate bodies. But you need to make that land live capital, and you can't do that without a title deed. It's actually dishonest if you say to someone I'm going to give you a 99-year lease . . . what is the difference? Listen

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