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Why international donors are avoiding Zimbabwe
Stephan Hofstatter, Business Day
May 04, 2009

http://www.businessday.co.za/articles/topstories.aspx?ID=BD4A992135

Zimbabwe-s effort to obtain international aid is based on a simple premise: after a few hiccups the country-s new unity government is running smoothly, so it-s time the world loosened its purse strings.

Most governments with deep enough pockets to matter, notably the US and European Union (EU) members, have refused to buy into this rubbish.

Since the unity government was formed in February, Barack Obama-s administration, by far the largest donor of humanitarian aid, has refused to lift sanctions or release reconstruction funds until Zimbabwe shows it is serious about upholding human rights, the rule of law and economic freedoms. Similar statements were made by EU member states.

The Southern African Development Community (Sadc) has taken a softer line, earning praise last week from the state-controlled media in Zimbabwe for its spirit of "African brotherhood". Two weeks ago, Sadc endorsed a bail-out package for Zimbabwe that included $2bn in short-term loans and aid to help revive the economy, and another $6,5bn in long-term reconstruction finance. SA, the only Sadc state capable of putting real money on the table, has so far pledged a modest sum and promised to identify bankable projects it can finance through the Industrial Development Corporation and the Development Bank of Southern Africa.

But the lion-s share of funding will still have to come from international lenders and investors sceptical about the credibility of the unity government.

It is easy to dismiss Zimbabwe-s power-sharing agreement as a sham not worth betting a cent on. There-s too much wrong with it.

For a start, the Movement for Democratic Change (MDC) remains a junior partner in the unity government despite winning parliamentary elections last year heavily rigged in favour of Robert Mugabe-s Zanu (PF) party.

Mugabe, whose disastrous policies destroyed Zimbabwe-s economy, retains the executive authority he has enjoyed since independence. He still chairs the cabinet and has the power to declare martial law, and his party retains the key land and justice portfolios. He also heads the security council - made up of the army, police and secret services - which orchestrated a bloody reign of terror against opposition supporters last year that prevented a presidential run-off that MDC leader Morgan Tsvangirai would have won.

Mugabe has lost no time putting his stamp on the unity government. Within a week of its formation he refused to revoke the appointment of Zanu (PF) hardliners Johannes Tomana as attorney-general and Gideon Gono as governor of the central bank.

Tomana famously advised the government last year it was legal to detain MDC supporters without trial. He also reportedly ordered the recent wave of arrests of commercial farmers disputing the legality of continued land seizures, and is credited with being behind the Supreme Court-s decision last month to deny bail to three MDC officials facing terrorism charges they insist are trumped up.

Gono, who reports to Mugabe, is accused of running a parallel government that raided foreign bank accounts held by businesses and nongovernmental organisations. He also required companies doing business in foreign currencies, including exporters, to surrender a percentage of gross earnings to the central bank, paid for in Zimbabwean dollars at the official exchange rate and therefore at a fraction of their real value.

This enabled him to become one of the world-s most bizarre central bankers, publicly dishing out tractors, combine harvesters, ploughs and farm inputs to Mugabe loyalists and supplying officials, MPs and judges with luxury vehicles and appliances. I-m told the money bought a fleet of hundreds of unregistered vehicles, some of which were used by security forces for kidnapping opposition activists. Gono also allegedly allowed party bigwigs to buy large sums in foreign currency at the official exchange rate, turning them into instant US dollar millionaires.

It is true that MDC Finance Minister Tendai Biti has already implemented important reforms that should go some way towards allaying fears that Zimbabwe remains a bottomless pit unworthy of any financial support.

In his first budget, in March, Biti said the central bank would no longer be allowed to engage in "quasi-fiscal activities". All expenditure from the government-s consolidated revenue fund would henceforth require parliamentary approval. He also abolished all surrender requirements, effectively neutralising Gono-s revenue collection powers.

Recent noises about repealing draconian media laws and the first meeting of a multi-party committee tasked with drafting a new constitution are promising signs, although civil society groups warned the constitution would be rejected if MPs continued to limit room for public consultation.

That these developments have so far failed to convince rich countries to open their wallets is frustrating humanitarian agencies. They want investment in sanitation and food production to prevent fresh outbreaks of famine and preventible diseases, such as cholera.

They have a point. The need for humanitarian aid, which has cost donors $260m in the past six months, will remain inexhaustible until root causes are addressed. A case could be made for targeted, ring-fenced recovery loans, which are bound to be more cost effective in the long run than continued crisis aid.

But as Zimbabwean economist Enoch Moyo pointed out when I visited his Harare offices recently, reconstruction funds on the scale needed to rebuild Zimbabwe-s shattered economy will never materialise until confidence returns.

And right now, despite a brave face put up by Tsvangirai, Biti and their fellow MDC MPs, confidence remains in short supply, including among Zimbabweans themselves. Moyo points out they still squirrel their forex savings abroad out of fear their wealth could be confiscated again if Mugabe experiences a sudden change of heart.

"There is a lingering fear that recent gains could easily be reversed during this fragile transitional arrangement," he says. "You can-t expect the international community to have faith in the unity government when Zimbabweans themselves don-t."

A recent upsurge in reported farm invasions with the complicity of security forces, including over the Easter weekend, is worsening these fears.

Moyo, like many others, argues Mugabe-s land grabs underpinned Zimbabwe-s economic collapse by turning collateralised property into dead capital. Solving the festering land issue therefore remains central to unlocking economic potential and restoring confidence.

But this would require several bold steps for which no one is ready. Large landholdings must be redistributed again, this time to skilled smallholders facing chronic shortages of good quality agricultural land in communal areas. The snag is that a new landed elite dominated by Zanu (PF) party bosses won-t go willingly.

At the same time, plans to compensate former farmers must be urgently finalised, and some invited to return to help revive commercial agriculture - something Mugabe will would never allow.

Millions of Zimbabweans who remain on communal land must also be given secure, tradable property rights so family plots can be turned into capital - a huge undertaking that a better-resourced SA has failed to achieve after a decade of trying.

The unpalatable truth is these reforms are unlikely to be carried out by any transitional government. But until they are, expecting the world to come up with the kind of capital inflows needed for Zimbabwe-s reconstruction remains wishful thinking.

* Hofstatter is contributing editor

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