What Will It Take to Fix the Mess in Zimbabwe?

HARARE (Capital Markets in Africa) – Busisa Moyo can’t wait to get out the door. It’s the middle of a Monday afternoon, and the chief executive officer of Zimbabwe’s United Refineries Ltd. is striding briskly out of his crushing plant—a vast rectangular structure with red brick walls and a corrugated metal roof. In theory, this is where millions of soybeans at a time can be cleaned, heated, cracked, and pulverized to extract vegetable oil. Except today, like most days, there are no soybeans and no workers; overhead, the steel catwalks are empty, and the line is silent apart from the clatter of Moyo’s footsteps on concrete. “I don’t like to be in there too long when it’s not running,” he says. “When you’re a factory man, you want to hear the machines pounding.”

Trim, 42, and dressed plant-manager casual in gray chinos and a short-sleeved button-down, Moyo exits into the pounding sunlight of Bulawayo, a decaying industrial city in southwest Zimbabwe. Since 2012 he’s kept United Refineries afloat in one of the world’s most unstable economies. Hyperinflation, corruption, and dereliction were hallmarks of President Robert Mugabe’s reign—which ended with the 93-year-old dictator’s sudden ouster in late November. Now, for the first time in almost four decades, Moyo and other Zimbabweans are daring to hope that their profoundly dysfunctional country can repair itself.

More pressingly, though, Moyo has to solve a money problem that persists into the post-Mugabe era. It’s not that he’s broke—United Refineries has more than enough in the bank to pay for a trainload of soybeans awaiting release across the border in Zambia. The issue is liquidity. Attempts to curb inflation have restricted companies’ access to their funds, and Moyo’s ability to import is determined weekly by a committee convened by Zimbabwe’s central bank. “The most nail-biting moments of my life are from Monday morning”—when Moyo makes his request—“until Wednesday,” when the committee’s decision is communicated, he says. Sometimes United Refineries is allowed to use $350,000; sometimes it’s as little as $200,000, with no apparent logic given. Moyo scrambles to allocate the funds as best he can to keep some part of the refinery operation going, and its workers in their jobs, until the nail-biting begins again. “I believe there are immense opportunities here,” Moyo says of Zimbabwe, where he’s remained after two of his three siblings, like millions of their fellow citizens rich and poor, left years ago for a more normal life abroad. “But a lot of the time I’m like, ‘Why do I put up with this rubbish?’ ”

Over his 37 years in office, Mugabe impoverished Zimbabwe’s 14 million people with a series of perverse economic experiments. Formerly the breadbasket for much of the continent, today the country can barely feed itself, and a national railway that once served as a crossroads for the region barely functions. Streetlights in Harare, the capital, long ago went dark. At about $1,000, the country’s per-capita gross domestic product is less than one-fifth that of neighboring South Africa.

The task of reversing this destruction falls to Emmerson Mnangagwa, Mugabe’s former vice president and political protégé, who has pledged to break with the old regime’s worst policies. “We must accept that our challenges as a nation emanate, in part, from the manner in which we have managed our politics, both nationally and internationally,” Mnangagwa said shortly after assuming the presidency. “We have an economy to recover, a people to serve.” While his early moves have won praise from reformers, it’s hard to overstate the difficulty of restoring a nearly rogue state to normal membership in the international financial community.

Still, reasons for optimism include Zimbabwe’s natural resources: platinum, lithium, huge areas of highly fertile land. And despite Mugabe’s many depredations, investments in schools and universities during his rule yielded some of the highest rates of literacy and education in Africa. A 3 million-strong diaspora, concentrated in Johannesburg and London, is a potent source of skills and investment. A new beginning isn’t at all out of the question.

Zimbabwe’s success or failure will be relevant for more than its own citizens. A quarter century after the fall of the Soviet Union began what was supposed to be a golden age of democratic prosperity, more countries are headed toward autocracy—Hungary, Poland, Turkey, to name a few—than away from it. Zimbabwe could go either way. But if its people manage to reconstruct a functioning state from the wreck Mugabe left them, it could serve as a template for the day when economic reality catches up to Venezuela, North Korea, or even Russia—that is, places where strongmen have attempted to contort the laws of financial physics to their own ends. And if Zimbabweans can’t fix their system, their country will stand as evidence that when a bad leader stays in charge long enough, a nation can be broken beyond repair.

Moyo’s cooking-oil factory in December. With limited access to foreign capital, his company is operating well below capacity.

Even by the standards of colonial Africa, Rhodesia was a nasty place for its black majority. In 1965, Ian Smith, the white-supremacist leader of what was then a British colony, declared independence rather than bend to demands from London to enfranchise the bulk of the population. “The white man is master of Rhodesia,” he declared, “and he intends to keep it.” Smith seemed willing to bear any price to maintain white rule—his regime was a global pariah, shunned by virtually every country except apartheid South Africa—and in the early 1970s a sporadic guerrilla campaign by black activists intensified into open warfare. Mugabe, a former teacher who’d joined the wave of leftist revolutionary movements sweeping the continent, emerged as one of the heads of the Zimbabwean rebellion. In 1979, Smith was forced to relinquish power. It was a moment hailed by activists around the world; for the official handover, Bob Marley, though stricken with cancer, flew into Harare (then known as Salisbury) to sing Get Up, Stand Up with the Wailers in a stadium packed with jubilant citizens of the new, black-led Republic of Zimbabwe.

Mugabe was elected in 1980 as its first leader. His tendencies were clearly autocratic—his party, Zanu-PF, was never seriously challenged, and internal rivals acquired a habit of dying in car accidents. But Mugabe remained genuinely popular well into the 1990s, thanks to investments in health care and education and a welcoming attitude to foreign investment that allowed business to flourish.

Later in the decade, though, as the economy flagged and Mugabe’s popularity slid, he needed a new cause to rally supporters. He found it in land redistribution. About 4,500 white farmers still controlled the best agricultural land, and Mugabe began tolerating and then encouraging its “resettlement” by black Zimbabweans. These scenes were chaotic and occasionally violent, extending in a few cases to murder. Dispossessed farmers received little or no compensation and fled the country in large numbers.

The land seizures were the beginning of Zimbabwe’s descent into an economic abyss. Agricultural output collapsed as highly efficient commercial farms reverted to subsistence cultivation, with production of key crops falling by more than half from 1999 to 2005. With a government that had shown it wouldn’t respect property rights, the country became a no-go zone for foreign investors almost overnight. For Mugabe, this presented a serious new problem. Always eager to ensure the broadest possible base of support, he’d created a vast civil service that enjoyed generous pay and benefits, as well as a web of subsidies for the businesses of key allies.

To keep funds flowing in the absence of real growth, he ordered the Reserve Bank of Zimbabwe (RBZ) to print money, leading to hyperinflation on a scale reminiscent of the Weimar Republic. In 2008 the unofficial rate of price increases reached 98 percent per day. On paydays, workers rushed to shops to spend what they could before the paper became worthless; the Harare stock market shut down, unable to meaningfully price shares. The RBZ repeatedly created tiers of banknotes, culminating with a 100-trillion Zimbabwean dollar note that remains the highest-denomination bill issued in at least half a century.

The madness paused between 2009 and 2013, when Mugabe was forced to share a measure of power with a more grounded opposition party; among other reforms, Zimbabwe abolished its currency and effectively switched to the U.S. dollar. But an incorrigible Mugabe soon rigged an election and resumed extravagant spending. This time, however, his central bank could no longer print new money. Zimbabwe’s only way of obtaining large amounts of U.S. dollars was to export goods or attract foreign investment, but with growth plunging, not nearly enough cash was coming in. To avoid economic paralysis, the RBZ began injecting electronic dollars into the banking system and issuing domestic bills called “bond notes” to ease the shortage of physical money. They quickly became better known as “zollars.”

Inside Zimbabwe, an RBZ-created zollar in either physical or electronic form is officially valued at one-to-one with U.S. currency; no one outside the country shares the central bank’s assessment. An electronic balance in Zimbabwe can’t be used to make dollar payments abroad, which is why Moyo is unable to use his zollars to import soybeans. The fiction doesn’t really hold up domestically, either. Every day at dawn, Zimbabweans line up at banks to withdraw as much hard U.S. currency as they are allowed; the greenbacks emerge from ATMs filthy and frayed from overuse. One local financier was recently told by a teller that all he could access was $20—in the form of 200 10¢ Zimbabwean “bond coins.”

Black-market moneychangers can easily be found on street corners, charging a premium to convert bond notes to U.S. bills. Three traders I asked in Bulawayo in early December were demanding fees of as much as 30 percent, or $13 in bond notes for $10 back in U.S. cash. When I pulled out a U.S. $5 bill to pay for drinks in a fast-food joint in Chegutu, a dusty town southwest of Harare, a man in a suit and tie shot between me and the cashier and tried to swipe his bank card to pay for my purchase. He proposed I give him the cash—a small-scale zollar/dollar arbitrage.

Zimbabwe cannot have an imaginary internal currency forever if it wants to return from beyond the edge of the map of established economic theory. (One example of the current illogic: The Harare stock market tends to rise on bad economic news, because domestic investors view shares as a hedge against zollar inflation.) Citizens know a reckoning is inevitable and will almost certainly be painful. The country’s economy is built on “a grand illusion,” saysJohn Legat, a Harare-based investor. “At some point you’ve got to say, ‘Sorry guys, we’ve been telling you it’s a dollar, but it’s not.’ ”

On Dec. 7, Finance Minister Patrick Chinamasa rose in Parliament to present the first budget of the post-Mugabe era. For Zimbabwean reformers, much of the speech was promising. Symbolically, Chinamasa promised to slash the bloated delegations Zimbabwe sends to international meetings and banned business-class travel for all but the most senior officials. More significantly, he pledged broad spending cuts and suggested an end in most sectors to the Mugabe policy of “indigenization,” which forced businesses to transition to majority ownership by black Zimbabweans and was often used to benefit political allies.

More intractable problems remain. Zimbabwe’s government is a patronage machine of astonishing scale, with 300,000 employees whose wages alone eat up almost 100 percent of the country’s tax revenue. The state owns about 100 largely dysfunctional companies, from Air Zimbabwe Ltd., currently barred from flying to the European Union on safety grounds, to the Zimbabwe Electricity Supply Authority, which can’t produce enough power to keep the lights on. Whether such companies are restructured or privatized, large job losses are certain, further exacerbating poverty in the short term. There’s also the question of bribes and other forms of corruption, which the new government has said it will confront aggressively. That’s one thing at the lower levels, but it may be a different story when investigations lead to senior officials.

Almost every economic prescription for Zimbabwe, though, starts with the dual-currency conundrum, and the potential fixes are unpalatable. According to the RBZ, at the end of October the country’s commercial banks held about $6.4 billion in deposits, underpinned by just $40 million in foreign cash. Restoring the zollar to true parity with the U.S. dollar probably would require a huge injection of capital, for which there is no clear source. The World Bank and International Monetary Fund won’t lend to Zimbabwe because the country is in arrears on past financing. No private investors are apparent. A U.S. bailout of a smallish African country where few direct American interests are at stake isn’t remotely on the radar of the Trump administration; and China’s foreign-investment priorities are biased toward hard infrastructure that provides work for its companies—not shoveling funds into what could be a black hole. Ultimately, even if a miracle recapitalization did occur, it wouldn’t solve a fundamental liability of using the U.S. dollar: Such a strong currency makes Zimbabwean exports uncompetitive.

The most prominent alternative is a forced devaluation, officially acknowledging the fact that $1,000 notionally on deposit in a Zimbabwean bank is worth far less. (No one quite knows by how much; estimates of the true exchange rate range from 1.2 zollars to 7 zollars per greenback.) Socially, this would be explosive in a country whose citizens have already lost their savings once in recent memory. But economically it might be essential, if it enables the restoration of a Zimbabwean currency that makes its exports more attractive.

The scale of the work required to revive the economy in Zimbabwe is most apparent outside Harare, in the vast tracts of rural land—the country is just smaller than California—where two-thirds of its people live. The highway to Bulawayo runs through what was once some of the country’s most productive farmland—but today is largely fallow, flat expanses of ragged grass extending almost to the horizon. Here and there, huts abut small patches cleared from the scrub, where farmers grow subsistence crops of corn or potatoes.

One of the few farms still functioning efficiently belongs to Anthony Mandiwanza, a Harare-based businessman who bought his roughly 200-hectare spread in 2001. (He says he paid a fair-market price to an aging, white farmer who wanted to part with the land and its title.) On a cloudy Sunday morning, Mandiwanza, a stout 62-year-old in pale green cargo shorts, shows off neat rows of corn and bushy groves of mango trees. He pauses in a field of verdant tomato plants, bending to inspect what looks like a knee-high bird feeder—in fact, a trap for pests that mimics the scent of female insects. “We’re sitting on really, really fertile land,” Mandiwanza says, gesturing in a rough circle over his bald head. Though he complains that importing new equipment is currently “mission impossible” because of the currency shortage, his property still boasts well-maintained tractors and combines; if Mandiwanza can find an outside investor, he’d like to irrigate the whole place, potentially doubling output.

Mandiwanza’s spread could pass for a farm in almost any developed country—if not for its neighbors. Immediately across the property line are shacks belonging to smallholders who were resettled on the land of an exiled white farmer and now work the soil with hoes and spades. It’s like peering over the fence and into another century.

The neighbors aren’t likely to suddenly start farming at 21st century scale. When Mugabe allowed the seizure of commercial farms, he didn’t give formal ownership to the new occupants; the land is controlled by the state. That means millions of people like Mandiwanza’s neighbors have no title to the fields they work, which makes it mostly impossible to borrow from banks or foreign investors for capital improvements. The establishment of a functioning system of land tenure, with clear ownership and property rights that can’t be arbitrarily abrogated by the state, is so necessary, and so complicated, it can almost make a reformer momentarily forget about the zollar.

Mugabe’s private office used to occupy the double-height 14th floor of Zanu-PF’s Harare headquarters—a leaden, concrete skyscraper with a triangular crown. Now the space belongs to Mnangagwa, a leader who claims he can transform a system of which he’s been an intimate part for his entire political career. As countries from Russia to Egypt have learned, one authoritarian system can easily be replaced by another.

Mugabe’s removal was as much the product of internal party intrigue as popular discontent. It resolved a toxic rivalry between Mnangagwa—who headed a faction known as Lacoste, after his revolutionary nom de guerre, “Crocodile”—and First Lady Grace Mugabe, 52, who’d sought to succeed her husband. The Zimbabwean military was instrumental in his coup, and has been rewarded. Mnangagwa put two senior military figures in his cabinet; one of them, the new foreign minister, commandeered an early morning news broadcast in full camouflage to announce the seizure of power. The head of the army, Constantino Chiwenga, became vice president on Dec. 23. Highway roadblocks, a long-ubiquitous feature of Zimbabwean life, where police officers extracted “fines” from motorists, have in recent weeks been taken over by troops with Kalashnikov rifles slung over their shoulders. Whereas Mugabe was usually escorted in public by police guards, Mnangagwa is generally accompanied by a uniformed soldier.

The new administration has a model for expanding prosperity while remaining firmly in political control. “We look forward, naturally, to China in terms of our development path,” Chinamasa tells me in Harare. “They’ve been able to take out of poverty something like 300 million people. That is a feat not many countries have been able to achieve, and that means we have no choice but to look to them for guidance and direction.” He’s speaking after a signing ceremony for a 1.45 billion-yuan ($223 million) Chinese financial-assistance package. Two-thirds is for a low-interest loan to upgrade shabby Robert Gabriel Mugabe International Airport, and much of the remainder is a grant to fund the construction of a new Parliament building, which will be erected by Chinese contractors.

Although Mnangagwa has said elections planned for later this year will meet international standards, his democratic credentials are slim. For many Zimbabweans, he’s associated with one of the ugliest episodes of Mugabe’s reign, a 1980s purge that led to the murder of some 20,000 civilians, mostly members of the Ndebele ethnic minority, by the new national army. Opposition politicians have accused Mnangagwa, who was minister of state security at the time of the massacres, of being deeply involved, an allegation he has denied. Much of his government career was spent in security-related positions, including overseeing the much-feared Central Intelligence Organisation, and he was behind crackdowns on political opposition that kept Mugabe’s grip on power unchallenged. Mnangagwa’s allies insist that he’s a democrat at heart. “He’s seen what it is to raise and grow a dictator, and he doesn’t want to go that way,” says Larry Mavima, an entrepreneur and close friend of the president who sits on Zanu-PF’s central committee.

Western governments have called for the establishment of genuine democracy. For now, stability may be enough. The U.K., which shunned Mugabe, has said it’s willing to work with the new government, and U.S. Secretary of State Rex Tillerson called the dictator’s resignation “an extraordinary opportunity.” One unsettling model for the future Zimbabwean government is Rwanda, where President Paul Kagame—whose regime has been accused of murdering political rivals abroad and suffocating dissent at home—remains more or less acceptable to Western donors and investors thanks to market-friendly economic reforms.

In the longer run, the increasing Chinese influence in Africa may allow Mnangagwa to simply pay less heed to Western norms. At the signing ceremony for the construction package, China’s ambassador said Beijing views itself as an “all-weather friend” to Zimbabwe. Money from China will flow whether or not Zimbabwe progresses toward democracy.

Decay, both man-made and natural, is just part of Zimbabwe’s environment. In Bulawayo, where Moyo has his factory, the city center is ringed with abandoned, overgrown industrial facilities. Spurs to the national railway are carpeted with ankle-high grass. An old power plant looms menacingly over the main shopping district, its six huge concrete cooling towers occasionally sloughing off jagged chunks. Zimbabwean economist John Robertson wrote of his country in November: “Descriptions of the damage done to its productive sectors, its indebtedness, its struggling power and railway services, its destroyed savings … could easily apply to a country that had suffered a defeat at war.”

Still, for a place that to outsiders is almost a byword for chaos, aspects of daily life in Zimbabwe can be remarkably orderly. Harare may be run down, but it’s rarely dangerous; violent crime is far more prevalent in Johannesburg. And some institutions remain robust. The auditor general’s office produces regular reports on state companies that pull no punches, and the court system has a number of respected judges dispensing fair verdicts. The roads, railways, and power grids may be decrepit, but they exist, including in rural areas, and can thus be revived—something that can’t be taken for granted in much of Africa.

In an open-air restaurant in Harare in December, I overheard a group of businessmen on their lunch break making caustic jokes about Mugabe and his wife, including an unflattering impression of “Gucci Grace,” as she’s known because of her expensive tastes, ordering around the help. A few weeks earlier, doing so could have landed them in jail, or worse. Mugabe’s absence seems surreal to many Zimbabweans; no one under 50 can really remember a leader other than the man who ruled their country for more than seven years longer than Stalin did Russia and who once claimed that “only God” could remove him from power.

Evan Mawarire, a pastor and activist, leaves court on Nov. 29 after being acquitted of charges including attempting to overthrow the Mugabe government.

“My granddad, my dad, me, and my daughter, all four generations, we’ve had our lives managed downwards by the same person,” says Evan Mawarire, a pastor and democracy activist who was despised by the old regime. For our meeting on a Harare cafe terrace, he’s wearing a Zimbabwean flag tucked into the belt of his gray slacks. He began carrying one at all times a couple of years ago—an attempt, he says, to remind his compatriots of the country’s founding values.

Mawarire had been predicting Mugabe’s downfall for a long time. Yet he’s still a little dazed by the pace at which things have changed. Toward the end of our conversation, he pulls out his phone to flip between a pair of photos, taken less than two months apart. In the first, taken after he was arrested outside his church in September and charged with subversion for criticizing Mugabe, he’s wearing a beige prison jumpsuit and handcuffs. In the second, he’s standing on top of a military truck outside the presidential palace, addressing the crowds at the vast Harare rally that preceded Mugabe’s resignation. Although Mawarire concedes that optimism comes uneasily to a Zimbabwean dissident, he’s verging on ebullient. “I’m very encouraged,” he says. In the days after the coup, “the one thing that we as citizens thoroughly enjoyed was the freedom to do what our constitution says we can do, to protest, to challenge government policy. … It was amazing.”

Mawarire is under no illusions about the depth of the pit in which Mugabe left Zimbabwe. Repairing the physical degradation is one thing; recovering from the psychic damage, he fears, could take decades. “The abuse that we have gone through runs deep,” Mawarire says. “He destroyed everything we have.”—With Godfrey Marawanyika

Source: Bloomberg Business News