Mugabe cannot go it alone

Zimbabwe's economy needs an international bail-out, says Tony Hawkins.

From an economic viewpoint, the election outcome could hardly have been worse. For the first time since independence in 1980, Zimbabwe's voters were offered a clear cut choice between a government that has ruled for 22 years, failing dismally to deliver on any of its economic promises, and a inexperienced but forward-looking candidate and party that promised a complete break with the past.

During the election campaign the victor, President Mugabe, issued blood-curdling threats about the future, promising retribution against the white community for supporting the opposition Movement for Democratic Change, as well as promising to expropriate the property of those guilty of "economic sabotage". To complete black empowerment, he said, the third chimurenga (liberation struggle) would be extended from land resettlement to other aspects of the economy, including mines and industries.

Against that background, three broad economic scenarios suggest themselves.

The first - and most likely - is that Mugabe will be as bad as his word. That he will take over some 4,500 farms totalling some 8.8 million hectares or about 22.5 percent of the total land area, effectively putting paid to the country's economic dynamo, commercial farming. That he will seek to go it alone economically, breaking all ties with the international community, extending the range of price controls and return Zimbabwe to the command economy model that he tried to establish during the 1980s.

The second, much more optimistic, scenario, assumes that Mugabe will indeed go back to the 1980s, but rather to the memorable "national reconciliation" speech he made almost 22 years ago, in which he extended the hand of friendship to Zimbabwe's 180,000 whites. This scenario sounds far less plausible given the president's bitter attacks on the white minority - now no more than 70,000 people, mostly middle-aged to elderly. He and his closest henchmen really do believe that the hostile world reaction to his election triumph is "kith-and-kin" driven. It is white countries - the United States, Britain, European Union, Australia, Canada and New Zealand - which are leading the charge, because he has taken back land from the whites.

Assuming that he ever reads serious reports on the state of the Zimbabwe economy, and his track record suggests not, one of the first documents to land on his desk will be a warning from the economic advisers in his finance ministry, who are funded by the United Nations Development Programme, that Zim- babwe simply cannot "go it alone". The ministry's advisers are urging Mugabe to adopt instead a "co-operative option", which would mean going back on many - indeed most - of the promises made during the election campaign. There are many in business and in commercial agriculture, desperate for some way out of the economic crisis, who would be willing to buy into such a deal. There are, however, some very serious snags.

For a start, the MDC opposition is not going to disintegrate, especially now that it has a very real power base in Harare, where it controls both the city council and the mayor's office. Second, the fact that, aside from a few African states, Mugabe's victory is seen internationally as illegitimate. The issue is no longer how he handles the land issue but that he is perceived to have stolen the election.

The British government has made its position crystal clear. There will be no economic assistance to Zimbabwe until free and fair elections are held. Both the Abuja land agreement of September 2001 and the UNDP plan for land reform in December 2000, which are at the heart of the so-called "co-operative option," depend on funding by the international community. If London, Brussels and Washington stick to their guns, the co-operative option will only be a starter once the elections have been re-run, probably under international supervision.

There is no way that Mugabe is going to agree to that, which suggests that it may well be too late for the second scenario. It was a starter as late as the Abuja meeting of last September, but no longer.

The third scenario is that punted by Pretoria - a government of national unity (GNU). This is based on the belief that the unity pact of 1987 between President Mugabe of Zanu and the former vice-president, the late Joshua Nkomo of Zapu, can be replicated under current conditions. The South Africans, probably rightly, argue that there can be no rapprochement with the international community, including the all-important IMF and World Bank, without bringing the MDC, preferably with Morgan Tsvangirai, into government.

Mugabe's bargaining card, it is argued, is the treason charge hanging over three senior MDC officials - Tsvangirai himself, Welshman Ncube and Resnon Gasela - for their alleged participation in a plot to assassinate the president. If the MDC would join a GNU then the government would drop the charges - or so the theory runs.

The GNU formula is South Africa's best way of extricating itself from the isolation into which its official observer team has plunged it by determining the deeply flawed poll to have been "legitimate". Pretoria desperately needs a way out for two other reasons. It has been left out on a limb by the vehemence of the Commonwealth response. In addition, the angry western and donor reaction suggests that Nepad (the new economic partnership for African development) will never get off the ground, so long as a significant number of African governments - Kenya, Tanzania, Uganda, Namibia and South Africa - continue to back Mugabe.

Only when it becomes clear which tack Mugabe will take will the likely direction of economic policy become clear. The priorities are obvious:

* Tackle inflation. The current monetary policy imposed in January 2001 has been a predictable disaster. Inflation has doubled to 116 per cent in the year to February, partly because interest rates (the yield on Treasury Bills) are just above 30 per cent, or minus 85 per cent in real terms.

This massively negative return pushed savers into foreign currency, real estate and the equity market. The parallel market exchange rate has risen fivefold over the last year to around Z$350 to the US dollar from Z$75; equity prices trebled in the first eight months of 2001, but have since lost 20 per cent, though they are still 90 per cent ahead of the levels of a year ago; property prices have trebled in the past 12 months.

Everyone agrees that interest rates must rise and that government must cut its spending. But just how this could be done is unclear. When interest rates increase, so too will the cost of servicing the domestic debt which has surged in recent weeks from Z$190bn (US$3.5bn at the official exchange rate) to Z$226bn. To cut spending, the army and airforce units must be withdrawn from the Democratic Republic of Congo and civil servants and the army and police must have their real earnings cut drastically as inflation escalates further.

Then there is the little problem of the maize price. Zimbabwe is experiencing its worst drought in a decade. It will need to import upwards of one million tonnes of maize, along with some wheat and oilseeds over the next 15 months. The maize will cost at least double and perhaps as much as three to four times the current price.

This means the government will either have to subsidise food prices or allow the presently controlled price of mealie meal to rise drastically. Some combination of the two is likely. South Africa will be able to supply only some of the maize required so Zimbabwe will have to import substantial amounts from overseas at high cost.

* Devalue the official exchange rate from the current Z$55 to at least Z$150 to the US dollar. In the past the Mugabe government has refused to devalue, but its new advisers are suggesting pushing the rate as far as Z$250 to the US unit. This is obviously unacceptable, especially given the impact that it would have on fuel, electricity and food prices. But some adjustment is likely, perhaps before the end of March.

* Revive business and investor confidence. This is a tall order for a government that has gone out of its way to undermine property rights and the rule of law. It implies going back on his land policy, which his supporters claim swung the vote in his favour.

* Restructure the domestic debt and seek foreign debt relief. This is out of the question without a radical change in government policies. This again is where the GNU comes into the picture, with proponents arguing that this is the only vehicle for restoring Zimbabwe's credibility with the international community. In effect, this puts Tsvangirai into an enormously powerful position, giving him an effective veto over what kind of government he would be prepared to serve in and for how long.

One point is clear: without an international bail out there will be no recovery in Zimbabwe's economy. The grim reality is that GDP is forecast to fall 9 per cent this year, compared with 7.5 per cent in 2001. This is probably an understatement because the drought will intensify the downturn.

The domestic and international debt positions are unsustainable. The country has foreign payments arrears of US$1.5 billion - about 33 percent of GDP. It has triple digit inflation, set to increase to around 130 per cent by midyear. Unem- ployment is estimated at 40 per cent and real incomes are lower now than they were in 1970.

The Mugabe victory puts Zimbabwe into a cul-de-sac. It is in everyone's interests -except those of the ruling clique at the top of Zanu-PF - to bring this crisis to an end as soon as possible. A national unity government is not the answer.

Professor Tony Hawkins is head of the school of management at the University of Zimbabwe.