The below jawbreaking article was authored by UK lawyer, Jonathan Chando in June 2018. It has so fsr accurately predicted Emmerson Mnangagwa’s economic disaster.
FDI NOT THE PANACEA ZIMBABWE’S ECONOMIC RECOVERY
In the advent of the military power takeover, which saw the ouster of Robert Mugabe and the forceful ushering in, of Emmerson Mnangagwa, as head of state, there has been hyper activity under the “Zimbabwe is open for business” rhetoric. However there has been little indication (if at all), that there is any improvement on the ground.
This article seeks to analyse the direction our politicians have taken, in their quest to revive the economy, which desperately needs resuscitation.
The country has witnessed the President making, in excess of 15 sojourns, to countries across the world, with bowl in hand, scarf in neck, begging investors to come to Zimbabwe with their money. The China trip saw deals worth billions of dollars being signed, (dozens were signed before by Mugabe to no avail). Included in the deals as the country was told, were the supply of buses worth in excess of $500 million, for urban commuting. In excess of $1 billion worth of clothing in the form of ZANU PF regalia was also sourced from China on the same trip.
But are we desperate to find investors, so much as to waste the resources available, in travel expenses on the taxpayer’s account? Is this money not better used for other purposes, to alleviate the dire situation in our country?
What is the purpose of posting ambassadors to foreign countries if they cannot seal deals for the country? This article will interrogate this strategy by the President and his government in detail.
The country has also witnessed the opposition leaders make several trips, to the US, UK and South Africa, to engage(as they say), foreign governments and potential investors, in preparation for when/if they win elections and takeover government. We have even witnessed them telling (lying to) voters about how Trump promised a $15 billion windfall, should they win the election, and how they will build a $100 billion economy within a few years, sprawling with bullet trains and airports at growth points. Pensioners have been promised compensation of their lost pensions, while depositors who lost their savings in the RBZ’s Gideon Gono era, were promised US$ pegged reimbursements. We have also witnessed the so called opposition economists, together with their president, vowing that they will end the cash crisis in 14 days of winning elections. They have promised a cash injection from somewhere outside the country. What country would splash cash in such a way without due diligence and collateral security in return? A sudden return of confidence in the banking sector, is also being pledged, and the cash crisis will just vanish overnight and banks will start dishing out cash at ATMs, simply on the basis of the opposition being in charge. They also believe that all those hoarding money in their homes will suddenly take it into the banking system.
This article will also interrogate these opposition pronouncements, so as to test their feasibility and reliability.
Is lack of foreign direct investment (FDI) the cause of the downfall of Zimbabwe’s economy? Is FDI the real and most important means of reviving Zimbabwe’s economy?
It is imperative that we interrogate this seemingly important model of economic revival.
As stated above, the idea of lack of FDI as the main obstacle to Zimbabwe’s revitalisation has been permeated by both government and the opposition. But it is not the means to the revival of the economy. Zimbabwe is not even hungry for FDI as both the ruling party and the main opposition alliance would like the people of Zimbabwe to believe.
This article will explain why FDI is only secondary to what is required.
RESTORATION OF THE ROTTEN GOVERNANCE CULTURE
Before any attempt to revive Zimbabwe’s economy begins, whoever is or will be in charge of the country after 1 August 2018 must start by analysing and reversing the rotten governance culture that has slowly but steadily ingrained itself into the country’s governance system.
Zimbabwe over all the years of its self governance, has developed a culture of institutionalised corruption, nepotism, theft and plunder with impunity, protection of criminals and general disregard of the law. This culture has infectiously entrenched itself in government, quasi government institutions, local authorities, in the private sector and in society in general. Government departments like the Registrar General’s office, which encompasses the issuing of passports, birth certificates, identity cards and death certificates, is well known for its corrupt activities. Other departments like IMMIGRATION and ZIMRA, have not been spared by this virus.
Jobs have been given on the basis of cronyism, family ties and sexual favours. Competency, transparency and accountability have been thrown out through the window.
Parastatals and other quasi government institutions have not been spared. Those in charge of these departments and institutions have plundered the resources belonging to the organisations they lead with impunity and gracious approval from the politicians in charge. The politicians have encouraged this, as they became the major beneficiaries of the plunder by civil servants, whom they appointed through nepotism and cronyism . Tenders for government and quasi government projects are now given to briefcase cronies. A point in issue is the recent granting of the tender for Presidential travel arrangements being granted to the wife of the coup leader, turned Vice President, with neither following tender procedure nor provision of requisite documents by the potential contractor.
The November power take over, which I have always called a coup, brought in a so called New Dispensation, which came with the slogan, “Zimbanwe is open for Business”. The New President started with a trip to the Davos World Econmic Forum, where he started telling the world that the country was now open for FDI. This he did before he had done anything on the ground to change the country’s way of doing business.
But is it really open for business? Who had closed it in the first place? The answer to this is simple. When Mnangagwa took over the government with the help of the military, he appointed most members of the former Cabinet into the same positions they had previously occupied, and shifted a few into new portfolios.
When the military took over, they stated that they were hunting for criminals around then President Mugabe. But no one has ever been arrested and or charged with any crime, nor brought before the courts, to date. The nation was told that those who externalised money would be shamed, as well as arrested if they didn’t return the money within a specified amnesty period. Nothing was ever said about that, nor was anyone brought to book or shamed.
The same corrupt system is in charge of government, including the already corrupt civil service, and no attempt has been made to cleanse it. It is the very same system that closed Zimbabwe for business. How then would we expect to have a cleaner, newer, more efficient administration with the same corrupted system in place? The same corrupt elite has siphoned cash out of banks, government institutions and companies they control. They have vast loads of cash in their houses and abroad, while the country is on its knees. Some of their children have been arrested at borders trying to smuggle the cash out of the country, whether it was for business transactions or offshore banking, but no court proceedings against them have successfully been concluded. The VP challenges the populace to use plastic money for all transactions, yet he is seen counting US$100 notes in public.
It is therefore futile to waste time soliciting for FDI when the same porous system is still intact.
CLEANSING THE ROT IN THE BANKING SECTOR
Reserve Bank currency leakages which result in money turning up on the streets and at borders, instead of banks, is a menace that needs to be reversed before any solution is sought to Zimbabwe’s crisis. Whether it is the RBZ itself or the commercial banks, responsible for this, the President needed to have resolved this crisis before jumping onto the plane to foreign lands.
It is clear that this rotten system involves syndicates which are controlled by high ranking politicians. The country has heard of companies associated with the President’s sons controlling the movement of cash from the RBZ, into the black market.
Control of key sectors of the economy by the likes of John Bredenkamp, Billy Rautenbach, and Nicholas van Hoogstraten, who are well known for allegations of underhand dealings and uncouth influence on governance, in partnership with the ruling elite, makes it difficult for sanity to ever prevail. Van Hoogstraten, who has convictions in the UK is allegedly influential in ZANU PF circles and has funded the party’s activities in return for protection of his property empire. Bredenkamp is known (according to Wikipedia)for sprucing up the Smith regime in the UDI era and involvement with the current political elite in the arms trade during the DRC war.
Rautenbach on the other hand is a specified person in South Africa for tax evasion and or other cases. He has been involved in mining in the DRC and was once put on sanctions over his alleged involvement in the DRC war, which he denies. Apart from his family transport business empire, he is involved in the Green Fuel project in Zimbabwe, which involves senior ZANU PF politicians.
The three are alleged to have corruptly built empires in the mining, agricultural, oil, wildlife, manufacturing, banking and transport sectors, in connivance with politicians.
Their murky involvement and influence in Zimbabwe’s economy with politicians, retards the current regime’s clean slate on good governance.
Even if billions of dollars are brought in through the RBZ for disbursement to banks and onto customers, it will end up on the streets and back outside the country. Drastic measures will need to be implemented if any sanity is to prevail in the country.
The system has had a perpetuated, dysfunctional, despicable, and illegal culture which is not easy to turn around, if the people in charge are still the very people who presided over the growth of the culture. It is a tall order for this or any incoming government to achieve, let alone within the timeframe so peddled by the main opposition.
The commercial banks themselves have not been spared by the corrupt culture, as they have jumped onto the bandwagon of hoarding and dishing out cash to their directors, their family members, preferred associates and customers for so called burning. Depositors’ money is dished out to friends, relatives and politicians as non-performing loans, ahead of the productive sector. The loans are spent on lavish parties, luxury holidays, expensive cars, boyfriends and girlfriends. The productive sector of the economy has been left wallowing in financial dire straits while banks divert the money. Some of the banks have ended up under curatorship, with depositors losing their savings.
Bankers have also leaped onto a culture of quick-buck harvesting by charging exorbitant bank charges, which fleece customers of their hard earned cash. Mobile money transfer companies have joined the band of greedy entities and fleece customers of their money by charging unscrupulous fees.
While President John Magufuli of Tanzania, at his inauguration, banned foreign travel by government officials, including himself, and instructed that all foreign business be handled by relevant High Commissioners and Ambassadors in the foreign countries, President Mnangagwa travels across the globe, with delegations in excess of 50 at a time, all reaping hefty packages in per diem allowances at the expense of the fiscus. The Presidential delegation, instead of using the national airline, charters expensive private aircraft. The Tanzanian Vice President, on the few trips abroad, has used the national airline, in economy class, with ordinary citizens. Where Air Tanzania does not ply, he connects on ordinary commercial airlines that ply those routes, with a skeletal delegation, to save taxpayers’ money.
THE PRIVATE SECTOR
The private sector is also complicit as they are also engaged in the quick-buck syndrome and all corporate governance has been thrown into the bin. Profits are no longer considered in the standard 15 to 25 percentage mark, but in the 100 to 200 percent earnings.
Buyers in the private sector have become the richest employees, by conniving with cronies and brief case businessmen to fleece companies of money by awarding inflated purchase orders, which has destroyed profitability of enterprises.
So there is no sane sector of the economy which can embrace or sustain any realistic change of culture under the current governance system. Until and unless the top echelons start cleansing themselves of the culture they created and maintained, it is futile to invite any foreign investors for meaningful revitalisation of the economy. Only illicit money launderers, drug peddlers and illegal arms dealers would happily jump on the opportunity, while countries that regard their own interests ahead of the Zimbabwe’s well-being, would rejoice. A case in point is the UK, which is seeking its own opportunities, after exiting the European Union. The UK does not care about good governance in Zimbabwe as long as it’s trade interests are achieved, and its glory and dominance is reinstated over its former colony.
The opposition also talks of solving the cash crisis in 14 days of taking power. They talk of getting a windfall from some foreign funder, who will pour billions into the banking system. Unless and until the corrupt and financially immoral culture is rooted out first, the cash crisis will not recede overnight.
Confidence with a new government alone is not enough to bring back money into the banking sector, as the opposition economists believe. As long as the syndicate that controls the illicit and porous system is still intact, it is futile to pour in money into the sector. Cleansing of the whole sector is necessary and cannot happen in 14 days, without shaking and destabilising the country’s economy . Reinventing or creating a new governance culture will take more than one term of a Presidency at least.
REVIVAL AND SUPPORT FOR THE PRODUCTIVE SECTOR
As mentioned earlier in this article, the President was quick to travel abroad to try and lure investors. While it may be good to bring in investors, it is ingenuous to focus on foreign investors, while ignoring local business. Zimbabwe has always had enough investment in all essential sectors. It is the corrupt culture that has scared away and or stifled both local and foreign businesses.
Zimbabwe is still mining gold, platinum, nickel, diamonds, coal, emerald, granite, and many other minerals. All these minerals are exported, but where are the proceeds going? Who is getting the foreign currency?
The country has already been over mortgaged to foreign countries like China against natural resources, and further mortgaging will deprive future generations of their inheritance. Government must refrain from seeking loans and or grants pegged against the country’s resources as has been happening. It must seek trade and investment with emphasis on local beneficiation, like the establishment of smelting plants for platinum and cutting and polishing of diamonds locally.
The manufacturing sector has been left to disappear into oblivion, rendering the whole nation jobless, while the country is now a net consumer, flooded with inferior Chinese products and South African GMO produced foodstuffs.
If government had the slight sense of national empathy, it would have started by looking inwards, to the local productive sector, and find ways to stimulate productivity and create employment. Foreign currency that is being earned from mineral exports would be directed at assisting the productive sector import raw materials for production to create employment.
Manufacturing and exporting businesses used to hold nostro accounts, with banks, where they would keep their foreign currency for purposes of importing raw materials, machinery, tools and equipment. These were raided by the RBZ when it desperately needed foreign currency to fund its misplaced priorities. This was another reason business stopped banking foreign currency with banks. So, for government to restore confidence in the business sector, it has to restore these nostro accounts and devise a robust policy preferably legislation, which must prohibit the Central Bank from raiding such private accounts. This will instil confidence in business and they will feel safe to deposit their money in banks.
The Chinese and other Asian owned businesses are well known for keeping their cash away from banks, including foreign currency. This they do with collusion from high ranking officials who even help them smuggle it out of the country. The arrest of four people of Asian origin recently, allegedly with US$4 million in cash and 100 kgs of gold is a stark example of this menace. Any serious government must uproot this scourge before talking of Zimbanwe being open for business.
I mentioned earlier that the President went to China to seal so called deals, among them, the deal to purchase in excess of US$500 million worth of urban commuting buses. The import of chief’s vehicles was also misplaced. ZANU PF used foreign currency to import campaign vehicles and party regalia.
If that money had been allocated to W. Dalmer, WMMI, and Quest/Leyland to import kits for those buses and vehicles to be locally assembled, it would have gone a long way in promoting local industry and creating much needed employment. I have always viewed Themba Mliswa as one maverick who is an opportunist, and a former beneficiary of the rotten system, but I must commend him for his fight in Parliament, when he demanded that vehicles for MPs be assembled by WMMI instead of being imported. Although this was ignored, it was a noble suggestion for the good of the economy.
It may be argued that the buses and vehicles were a donation from China, or that China had given a condition that the loans or grant was to purchase only Chinese goods. However, the government must be able to set its parameters so that it will not be squeezed into compromises by these so called donor partners.
Zimbabweans have noticed that all contracts given to the Chinese, utilise almost 100% Chinese raw materials and equipment, including labourers. It is ironic that government allows that even locally available materials and equipment are replaced by those from China. Zimbabweans wallow in poverty for lack of jobs while China exports its labour into our country, and wherever locals are employed, they’re abused by these foreigners.
Government must not accept contracts drawn under such conditions.
Many important industries which closed because of government policies, could easily revive, if the corruption running through society is uprooted. Companies such as Dunlop Zimbabwe, Kariba Batteries, and others were solid and sustainable industries which were destroyed by a corrupt governance system. Zisco Steel was Africa’s renowned steel supplier, but is lying idle, while the country is left to import steel products from South Africa and China.
In the first days of this new government, there was hype and fun fare, with promises Zisco would be opened in a few weeks. Nothing has happened 7 months down the line. Bickering and demands for shares in the company or cuts by politicians has been reported as the obstacle to its revival.
There was pomp and fanfare when refurbished Transnet locomotives were imported and commissioned by the President. But they failed to take off, as they derailed one after the other. This clearly shows lack of both vision and organisational intelligence. The NRZ railway tracks need rehabilitation before we even think of buying new locomotives. The NRZ radio communication system is dilapidated and needs absolute reconstruction, but we rush to import useless and incompatible locomotives.
The textile industry has seen, companies like Merlin, National Blankets, David Whitehead, Julie White, Bernstein and others being neglected by government, opting to import party regalia from China. Zimbabwe, a country formerly endowed with its own cotton industry, has been reduced to a net importer of textiles and clothing. Second hand clothing has been allowed to be smuggled through Mozambique in bales, destined for Mupedzanhamo and other flea markets. The cotton industry has been relegated to oblivion yet the country was well known for quality cotton and textile products. Bata, Conte Shoes and G&D shoes, which supplied shoes across Africa and beyond have been left to sink into oblivion.
The new government is shouting “Zimbabwe is open for business “, while it fails to ensure the revival and protection of its own industries.
The construction industry in Zimbabwe was second only to South Africa, with both solid technical expertise and industrial base, enough to meet the needs of any infrastructural development. The country has a wide pool of engineers who are doing wonders in developing other countries. Zimbabwean engineers are well known in organisations like Network Rail in the UK for developing sustainable transport systems. They have been heavily involved in the HS2 railway project. But our government is calling for foreigners to come and perform shoddy infrastructural development, while neglecting its own human resource base.
While the politicians fly each other to foreign lands for treatment, the ordinary citizen dies in local hospitals for lack of medicine. The White City bombing incident clearly showed the reality of the leadership’s attitude. They flew each other to South Africa for treatment while the aides and others were left to wallow at Mpilo where some eventually died.
Zimbabwe had pharmaceutical companies that manufactured most of the country’s medical equipment and drugs, such as CAPS Holdings, Varichem, and Glaxo-Smithkline in Harare, and Datlabs in Bulawayo. Yet they’re now history. Government, instead of working on reviving such industries, they spend money on foreign medical trips for themselves.
Reviving such industries like CAPS and Datlabs should be government’s priority instead of these “Zimbabwe is open for business “ slogans without support of local industries.
SIGNING OF THE AFRICA TRADE AGREEMENT
As I mentioned earlier about the President signing the Africa Trade Agreement in Kigali, it is good to be seen signing such agreements on regional and international protocols. But is it beneficial to Zimbabwe at this juncture?
Zimbabwe does not have any products that it currently exports, save for mineral raw materials, which are not for the African market anyway. So what will Zimbabwe benefit at this juncture from this agreement? Products from other countries across Africa will land in Zimbabwe tariff free, which will in effect stifle the growth of local industries.
My opinion is that Zimbabwe should have ensured the growth and protection of its manufacturing and export industries before signing such an agreement. Any such agreement should have been signed after extensive consultations with all stakeholders such as manufacturers and heads of industry bodies.
Nigeria and South Africa, the two largest economies in Africa, refrained from signing, citing their need to consult their countries’ stakeholders first. They would both benefit more from this agreement than all other countries, but did not sign, because they consider their local stakeholders more than international partners.
If Zimbabwe had such an attitude towards its local business, it would not have hastily signed the agreement, before ensuring its local industry is ready for that.
The President also attended the commissioning of the Kazungula rail road bridge, which actually bypasses Zimbabwe. Although Zimbabwe was said to have been eventually been made a partner, it is hardly beneficial to the country, as all traffic will bypass Zimbabwe, and will be a loss of revenue for the country.
THE CHINESE EXPERIENCE
When China moved from its communist path, towards market oriented economic development, Deng Xiaoping, created a very articulate formula to develop China’s economy. Deng never visited foreign countries, nor did he meet foreign leaders to seal deals on FDI. He concentrated on ensuring that the internal laws and mechanisms in his country were conducive both for local business and foreign investors. The adage that goes, “charity begins at home” was one of Deng’s main tools. Deng crafted policies that began to pluck out corruption, and enable local business to thrive.
He ensured the protection of local industry by demanding that any foreign company that invested in the country’s special economic zones, must employ local labour. Wherever there was no expertise and it required foreigners, he ensured that the investors implement technology transfer and use local raw materials wherever they were available.
Deng promoted partnerships between foreign companies and Chinese state enterprises, which have now developed into fully fledged multinational companies. Examples are Huawei and ZTE, whose major shareholders are the China Aerospace Science & Industry Corporation and the China Aerospace Science and Technology Corporation. China’s FDI policy demanded total transfer of technology to the local workers, and it bore fruit. Today Chinese state enterprises, whose shareholding is now diluted by local private shareholders, are world leaders in technology. They remain attached to the state through part ownership and through towing national policy.
Contrastingly, Zimbabwe’s model of FDI policy is haphazard and confusing. State enterprises like the ZMDC have partnered foreign diamond mining companies, but remain broke and mismanaged. One cannot tell where the revenue from the mining is going. The local state enterprises do not have a grip on the daily management of the mining and are oblivious of the quantity, quality or value of the diamonds mined and exported.
CONCLUSION
Change itself is a daunting, time consuming and arduous task. It is challenging enough to change one’s personal habits, let alone entire institutions or government. Attraction to the status quo and cognitive dissonance hinder significant change.
Nevertheless, that’s what must be demanded by the President and the government, with zero tolerance to any form of criminal behaviour in any sector of both government and the general economy, private sector included. But it has not been forthcoming. The current government is so entangled in this corrupt governance system, and benefits from it, that even if FDI was to be poured into the fiscus, the leakages I mentioned earlier will devour it all and leave the economy in the same state, albeit with more debt to the poor taxpayers.
In conclusion, it is my firm belief, that Zimbabwe needs to cleanse itself of the toxic governance system that has reduced it to a pariah state. Government then needs to invest more on assisting local businesses to revive themselves and protect them against foreign domination, if Zimbabwe is to ever develop itself back to its past glory and surpass.
By Jonathan Chando-
Lawyer, Academic, Political Analyst and Commentator on International Law and Politics.
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