Zimbabwe Editorial, 2Q2017/18

PESA Editorial - Zimbabwe - 2Q2017/18




A combination of political instability, economic mismanagement, economic sanctions and arguably hostile relations with major developed countries, has led to a collapse of the Zimbabwean economy. Zimbabwe’s political landscape has been defined by sharp political confrontation between Zimbabwe African National Union Patriotic Front (ZANU-PF) and opposition parties, mainly the Movement for Democratic Change led by Morgan Tsvangirai (MDC-T), which has resulted in political instability. The disputed 2008 election resulted in the formation of the Government of National Unity (GNU)1. Apart from the policy discord, to a large extent the GNU managed to bring a degree of political and economic stability to Zimbabwe.

ZANU-PF’s 2013 election victory ended the GNU and a political rift ensued over the succession question: who will take over after President Robert Mugabe. This has led to factional fights within ZANU-PF, worsening political uncertainty. The upcoming 2018 elections have reignited political tensions, as evidenced by ZANU-PF’s intolerance of opposition and dissent. These developments have increased political uncertainty that has affected investor confidence. In addition, political intolerance is providing rationale for the maintenance of some sanctions on state owned firms and economic boycotts against Zimbabwe, including the reluctance of international financial institutions to extend credit lines. This lack of capital has obviously worsened poor economic performance.

Under the GNU, the economy recovered strongly and grew at an average rate of 9.8% per annum from 2009 until 2013 (see Table 1) compared to the recession that averaged -9.0% from 2003 to 2008. However, since ZANU-PF’s electoral victory in 2013, economic growth slowed to an average of 1.8% between 2014 and 2016 and is projected to grow to 1.7% in 2017. The Ministry of Finance and Economic Development projects that economy will grow by 5.0% in 2018 and 6.0% in 20192. However, the IMF projects that the economy will be in a recession between 2018 and 2019 and only rebounding by about 1.0% in 20203.

Table 1: Zimbabwe, GDP Growth (Annual %)

Year200920102011201220132014201520162017
Real GDP Growth5.410.611.911.44.53.81.10.55.4

The economic slowdown is attributed to weak domestic demand, rising public debt, the persistent balance of payments deficit that has resulted in tight liquidity conditions, the recent drought, poor infrastructure, institutional weaknesses and external shocks4. The weak growth is underpinned by a slow recovery in agriculture and mining due to the recent El Nino droughts and low commodity prices5. The continuation of the Presidential Input Support Scheme that provided USD 153.1 million to support 1.8 million rural farmers, and the introduction of Command Agriculture Scheme valued at USD 334 million to support the production of maize, wheat and cotton, and the favourable rainfall season, have stimulated a recovery in the agricultural sector with output projected to grow by about 21.6%6. Improved international commodity prices have enabled the mining sector to contribute about 8.6% towards the GDP in 2016, from 7.9% in 2015, and is expected to grow by 5.1% in 20177. The price of gold reached USD 753.2 and is projected to increase to USD 905.3 in 2017, while the price of platinum group of metals reached USD 678.2 and is estimated to increase to USD 798.28. Due to the strong performance of gold, production of mineral exports grew by 6.4% to reach USD 2.2 billion in 20169. Moreover, firming international prices for platinum group of metals, diamonds and nickel are expected to push mineral exports to USD 2.3 billion in 201710. Exports have also been pushed up by 14.0% by the export incentive scheme, funded by a USD 200 million loan facility from African Import-Export Bank (Afreximbank).

Failure to access foreign capital has led to large fiscal imbalances that are being financed by domestic borrowing and foreign borrowing from PTA Bank and Afreximbank11. In 2016 the country received USD 200 million from Afreximbank to act as cushion on high demand for foreign currency and fund the introduction of bond notes through the 5.0% export incentive on all foreign receipts12. On 2 August 2017 the Reserve Bank of Zimbabwe (RBZ) announced USD 300 million extension of the export incentive scheme under the Standby Liquidity Support. An expansionary fiscal stance that stems from a high government wage bill, government transfers to support specific economic sectors such as agriculture, and elevated discretionary expenditure is increasing the country’s debt13. Increased current expenditures and reduced net capital flows have resulted in cash shortages that are hampering economic activities.

In 2013 the government adopted the Zimbabwe Agenda for Sustainable Socio-Economic Transformation (Zim-ASSET) blueprint, meant to restructure the economy and position it for a sustainable growth path until 2018. Zim-ASSET outlines the challenges that have to be addressed that include a high debt overhang, rising recurrent expenditures and a shrinking tax base15. Government interventions to solve these challenges include re-engagement with international financial institutions (IFI), reducing recurrent expenditures by cutting the government wage and restructuring state owned companies, and introducing effective mechanism to mobilise taxes. To a large extent the latest outcomes illustrate the ineffectiveness and slow pace of government in implementing the key reforms proposed in the blueprint. For instance, re-engagement with IFI to restructure the debt conditions was only achieved and agreed upon in October 2016 even though the Zim-ASSET strategy outlined an accelerated re-engagement programme with IFI, creditors and multilateral institutions to be implemented in 2013 or 2014. Using its allocation of IMF Special Drawing Rights, Zimbabwe managed to pay arrears amounting to USD 107.9 million to the IMF17. Arrears amounting to about USD 512 million with the African Development Bank (AfDB) and USD 896 million with the World Bank are still outstanding and a repayment plan was recently agreed18. Although a repayment plan has been agreed upon, Zimbabwe trade performance suggests that it might not be able to meet its obligations in the medium to long-term. The slow progress in restructuring external debt has hindered the government from accessing loans for the capital-starved economy.

Increased domestic financing of the budget, and takeover of the RBZ debt by the government through the Reserve Bank of Zimbabwe Debt Assumption Act, and assuming debt of a number of parastatals has resulted in domestic public debt rising markedly. The internal debt crisis has been deepened through the acquisition, management and restructuring of non-performing loans (NPLs) by the Zimbabwe Asset Management Corporation19. ZAMCO managed to reduce NPLs in the banking sector from 20.5% in 2014 to 8.0% as at June 201720. These interventions are not being supported by discouraging companies, particularly parastatals, which have been given relief from acquiring more debt. Without more overarching interventions to discourage more debt, this could have grave effects on the economy, considering that the government is still attempting to resolve the currency and liquidity crisis.

The country’s economic performance is also hampered by the currency and liquidity crisis. This is as a result of subdued production capacity, which entails low exports. The expansionary fiscal stance, suppressed net capital flows, and declining investor confidence in the economy has exacerbated the cash shortages. To solve the challenges, the RBZ introduced bond notes, a surrogate currency backed by a USD 200 million loan facility from Afreximbank. The currency is pegged at par with the USD. The notes were introduced as an export incentive on all foreign currency receipts. The cash shortages have persisted and this has prompted the RBZ to extend and enhance the export incentive scheme by USD 300 million under the Standby Liquidity Support from Afreximbank21. However, these measures are failing to solve the currency and liquidity crisis. An injection of more bond notes might end up reigniting hyperinflation that will be catastrophic for the economy.

The government has implemented reforms meant to improve the country’s investment climate. Since 2013, there have been notable changes: including making it easier to register property, improving access to credit information by establishing a credit registry, timely processing of construction permits and introduction of provisions that protect minority investors, among others22. Through these reforms the country was ranked 157 (out of 190) in the World Bank Ease of Doing Business Index in 2016, a huge improvement, but it dropped to 161 in 201723. These reforms are a step in the right direction, yet their effectiveness is undercut by political uncertainty.

Zim-ASSET intends to deal with corruption under its Public Sector Accountability and Transparency cluster24. However, fighting corruption has not been a priority because the government is trying to resolve the severe currency and liquidity crisis affecting the economy. The Zimbabwe Anti-Corruption Commission (ZACC) has been politicised and drawn into factional battles; which has rendered ZACC ineffective25. Resultantly, resource leakage due to corruption in parastatals is widespread. The previous Auditor General, Mildred Chiri, exposed the extent of corruption in parastatals but these were not acted upon. For instance, she exposed how the construction cost for the road to Harare International Airport were inflated without any explanation, how the bill for the airport runway went up by USD 13 million without authorisation, and USD 100 million in possible fictitious loan repayments26. In addition, fraud associated with mismanagement and exorbitant salaries is widespread27. This is not only affecting the performance of parastatals, but the economy as a whole.

The current political landscape is characterised by political uncertainty, because ZANU-PF is caught in a succession battle that is causing factional tensions while it prepares for the 2018 elections28. High-ranking officials such as the Minister of Higher and Tertiary Education, Science and Technology Development; Professor Jonathan Moyo has been attacking the Vice President Emmerson Mnangagwa over his interest in succeeding President Robert Mugabe29. In addition, a section of war veterans have persistently called for the president to step down. This is a drastic political shift considering that war veterans have been an integral element of ZANU-PF’s support base. The factional tensions have drawn the military commanders into politics. These recent political developments are also undermining economic performance.

Tensions have resulted in inconsistencies in policymaking and implementation. The government planned to cut current transfers but these have increased. In January 2017, the government transferred USD 8 million to Caps Holdings and USD 46 Million to the Grain Marketing Board – these were not budgeted for. From February to March 2017, current transfers have been exceeding the amount budgeted. In February 2017, current transfers reached USD 129 million against a budget of USD 80 million. In the period ending 31 March 2017, current transfers went up to USD 85.6 million against a budget of USD 77.9 million30. Political tensions have prompted investors to delay investment as they assess crucial political developments: first whether ZANU-PF will successfully resolve its succession question, second, the performance of the coalition of opposition parties, and third, the outcome of the 2018 elections. As a result, foreign capital inflows have been suppressed, with net foreign assets declining from 22.5% over the last year to –USD 624.1 million in June 201731. The coalition of opposition parties will definitely heighten political tensions and increase the chances for an electoral dispute. Tensions are already evident, as ZANU-PF and the opposition disagree about the electoral processes, such as the use of the biometric voter registration and composition of the Zimbabwe Electoral Commission – which the opposition argues is managed by security agents who are pro ZANU-PF32.

Urgent economic reforms that the country needs are not being a prioritised because they are considered to be politically imprudent in the face of the upcoming elections. For example, it is highly unlikely that the current government will reduce its wage bill by cutting civil service jobs or compensation, as this might affect its election campaign. Therefore, factional tensions exacerbate policy inconsistencies and slow down implementation of reforms, as ministries are presided over by different factions. Zimbabwean parastatals need to implement governance reforms, or restructure their financial obligations, and non-strategic entities should be privatised. Many parastatals still require an overhaul to reposition them for investment and partnership with the private sector; even after the government took over many of their debts. For instance, Air Zimbabwe and National Railways Zimbabwe are failing to attract long-term investors due to their weak balance sheets and mismanagement33. Corruption in parastatals is a major hurdle that the current government is not addressing expeditiously. On one hand there is resistance that emanates from factional tensions and on the other hand parastatals are a source of patronage for the ruling party, which creates a conflict of interest, undermining the anti-corruption drive. Therefore, it is highly unlikely that the current government will successfully restructure or privatise them, and so the anti-corruption agenda has become rhetoric. These are some of the challenges that require urgent attention to reposition the economy on a path to recover growth. Yet, priorities seem to be the factional battles and preparation for the upcoming elections.

In the medium to long-term the country’s outlook will be defined by three factors: ZANU-PF’s succession question, the coalition of opposition parties and the upcoming elections. ZANU-PF factional tensions are likely to escalate as the country prepares for elections and there is no sign of new leadership. The coalition of opposition parties is likely to reintroduce a dynamic that will heighten political tensions, ahead of the 2018 elections34. Accordingly, the country might plunge into another election dispute that will reverse the economic recovery that has taken place. The state of the economy is going to be a main issue in the upcoming elections. Hence, some critical changes might take place in the build up to the election; even if this is part of election campaign rhetoric. At a macro-level, recent developments suggest that the current government intends to adopt an interventionist approach in the economy. Although command agriculture, a programme heavily controlled by the state, missed its targets, its achievements have prompted the government to suggest an expansion of the same logic to other sectors on the economy35. This might potentially deter investors due to heavy state involvement in the economy. Overall, investors are going to wait for a government that will ensure political certainty in the long-term. Therefore Zimbabwe’s slow growth period will be prolonged due to a lack of capital that is direly needed to revive the key drivers of the economy.


Current Affairs Update



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Zimbabwe Plans to Introduce More Bond Notes

For the past 3 years Zimbabwe has be experiencing a liquidity crisis that is attributed to the production crisis across the economy. Local production capacity is subdued and as result the country’s exports are low. In addition, the expansionary fiscal stance, suppressed net capital flows, and declining investor confidence in the economy has exacerbated the cash shortages. To solve the liquidity challenge the Reserve Bank of Zimbabwe (RBZ) introduced “bond notes”, a surrogate currency that is backed by a USD 200 million loan facility from AfreximBank. The currency is pegged at par with the US dollar. The notes were introduced as an export incentive that was meant to ease the cash shortages. However, the continuation of the cash shortages has prompted the RBZ to extend and enhance the export incentive scheme by US$300 million under a Standby Liquidity Support from Afreximbank36. The Standby Liquidity Support, which is separate from the Nostro Stabilisation Facility, will back the bond notes that are going to be issued to monetise this subsidy scheme. Similar to the USD 200 million facility, the Bank will release the bond notes into the market on a drip-feed basis37 . This development is part of the instruments that current administration is utilising to stimulate production that is geared towards exports. There are two possible outcomes from this move. The introduction of the first incentive scheme has resulted in exports increasing by 14.0%38 and it possible that the new scheme can buttress this success. On the other hand pumping more bond notes into the economy might trigger another round of hyperinflation, which will definitely erode recovery that the economy has undergone since 2009. The long-term solution to crisis lies in producing more goods for exports, implementing reforms to attract investment and spending foreign currency more prudently.

Controversial Constitution Amendment

On the 25th of July 2017, Zimbabwe’s National Assembly passed the Constitution of Zimbabwe Amendment (No. 1) Bill. Of importance is the amendment related to the mechanism through which all judges are appointed. The 2013 Constitution established that the President would appoint judges from a list of recommendations created by the Judicial Services Commission after a public interview process39. The amendment alters this mechanism in respect to the appointment of the Chief Justice (CJ), the Deputy Chief Justice (DCJ) and the Judge President (JP)40. The amendment gives the President discretion over the appointment of these judges, as she/he is not compelled to follow the advice of the JSC. If the President choice differs from the advice the JSC the only requirement is for the President to inform the Parliament. This entails that the President can choose any candidate and there are no checks and balances in the process. This amendment constitutes a drastic constitutional change considering that these judges control the judiciary system. With the country attempting to build investor confidence and institutional certainty, the amendment is retrogressive in a number of ways. First this development will definitely put into question the independence of the judiciary system from the executive. The perception that the executive might have influence or control over the judiciary in the long term will negatively affect the business environment. This is in context where infringement of property rights, such as the controversial fast track land reform programme, has been legitimised through the courts. As such, the amendment is an indication that if the ruling party wins the 2018 elections, it will not hesitate to use its majority to amend the constitution in a bid to have influence over crucial state institutions. As a result, it will not contribute to the reforms that the country needs to undergo to create a conducive and broad investor friendly environment.

Opposition Parties Agree On An Election Alliance

After protracted secret negotiations, on 5 August 2017 various opposition parties agreed on an election alliance ahead of 2018 elections. The highlight of this alliance is that various splinter groups that came out of the Movement for Democratic Change have agreed to form a united front to challenge the Zimbabwe African National Union, Patriotic Front, led by President Robert Mugabe and to back Morgan Tsvangirai as sole presidential candidate. In addition, parties have agreed to collaborate on issues relating to electoral reforms, and distribution of parliamentary and local government candidates seats according to the electoral strength of the party, and a transformation policy to solve the country’s socio-political and economic challenges41. Taking into account the fragmentation of the opposition, which to some extent contributed to its poor performance during the 2013 elections, the alliance is a game changing development in Zimbabwean politics. As a result of this alliance there is now traction towards greater convergence of all opposition parties. However, as the country is preparing for next year’s election, a coalition of opposition parties is going to heighten electoral competition, which might trigger political tensions with the ruling party. This is in context where the ruling party has shown intolerance towards opposition parties. It is yet to be seen how the ruling party will respond to this strategy by the opposition. Yet due to coalition’s potential to launch a strong bid to unseat the ruling party, the ruling party might resort to anti-democratic strategies in preparation of elections. These could include using the laws such as Public Order and Security Act to disrupt opposition campaign programme, denying the opposition access to state media among other strategies. Cognisant of the previous elections it is possible that country might witness more political violence as a result of electoral competition. Certainly, the Southern African Development Community will ensure that the country holds a smooth election. A smooth election and transition to power will be crucial for the country’s economic recovery in the long term.

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1 Zimbabwe Election Support Network

2 Ministry of Finance and Economic Development

3 International Monetary Fund

4 African Development Bank

5 International Monetary Fund

6-10 Ministry of Finance and Economic Development

11-12 Reserve Bank of Zimbabwe

13 International Monetary Fund, ibid.

14 Reserve Bank of Zimbabwe, ibid.

15 Ministry of Finance and Economic Development

16 Reserve Bank of Zimbabwe, ibid.

17-18 Reserve Bank of Zimbabwe

19 Reserve Bank of Zimbabwe

20-21 Reserve Bank of Zimbabwe

22 World Bank Group

23 World Bank Group

24 Ministry of Finance and Economic Development, ibid.

25 The Source

26 The Source

27 Management, Vol. 4, No. 6.

28 Developmental Regimes in Africa, Policy Brief 03

29 The Herald; The Standard

30 Ministry of Finance and Economic Development

31 Reserve Bank of Zimbabwe

32 DailyNews

33 DailyNews

34 NewsDay

35 Ministry of Finance and Economic Development, ibid.

36-38 Reserve Bank of Zimbabwe, ibid.

39 Parliament of Zimbabwe

40 Parliament of Zimbabwe

41 Movement for Democratic Change




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