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Can Zim ride the optimism wave and leapfrog to Economy 4.0?

Dec 07 2017 06:55
Tim London and Sean Gossel

The momentous shift in Zimbabwe has opened up the space for political and economic reform that has the potential to reinvigorate the entire SADC region, but it’s a window of opportunity that is likely to be short, say Tim London and Sean Gossel.

THE mood in Zimbabwe is cautiously optimistic right now. At his inauguration, President Emmerson Mnangagwa told Zimbabweans that they must set aside “poisoned” politics and work together to rebuild the nation and re-engage the world.

The message was inclusive and upbeat, but it is by no means clear that the new president will be able to turn these promises into action, even if he is able to rise above his questionable past as Mugabe’s right hand man.

Mnangagwa has served in every Zimbabwean cabinet since independence in 1980 and is very close to the country's security apparatus; at one point, he led the notorious Central Intelligence Organisation.

Questions have also been raised about his involvement in the Matabeleland Massacres in 1983. Over the last few years, however, he had begun to position himself as something of a reformer. Several interests, including significant sections of the business community, have coalesced around him.

It is also widely believed that Mnangagwa enjoys the support of Zimbabwe's most powerful international ally, China. He has a long history of working with the Chinese, going back to when he received military training in the country in the 1960s.

China's influence in getting Zimbabwe to this point should not be underestimated. Under Mugabe, Zimbabwe had built up debt owed to China of close to $1.5bn, defaulting on several of those loans. Since as far back as 2014, the Chinese had refused to extend any more bailout packages or provide budgetary support until they were repaid, among other conditions. One of these provisos was sorting out the issue of political succession.

China also wanted to see certain domestic economic reforms. A particular concern was addressing the public sector wage bill, which accounts for around 80% of the Zimbabwean budget.

These are some of the critical economic issues that Mnangagwa and his new government will have to address. While a change to the presidency is clearly a short-term boon, lasting change in the country will depend on the country's economic revival and on whether the new government is able to restore transitional justice.

The economic challenges

Under the last 20 years of Mugabe's rule, the Zimbabwean economy has been dramatically weakened. According to government figures, the size of the economy has halved since 2000. In the mid-1990s the country accounted for almost 2.2% of Africa's GDP; it now makes up just 0.9% of the continent's total economic output.

While it's impossible to say how many Zimbabweans are unemployed, some estimates put the figure as high as 90%. Millions have left to seek work in South Africa and elsewhere as there are simply no opportunities for them in their home country.

According to the Zimbabwean finance ministry, the country owes lenders - including the International Monetary Fund, World Bank and the African Development Bank - around $9bn. This puts its external debt at close to 80% of GDP, and this figure has been rising sharply since the end of the unity government in 2013.

A political transition now offers an opportunity for the world to re-engage with Zimbabwe to find ways to address these considerable issues.

Short-term gains

Riding on the waves of the optimism, it is likely that Zimbabwe will see the return of a good number of citizens currently living abroad: the diaspora is estimated to be as much as four million people. This, of course, has the potential to boost the economy with an influx of skills, international experience, and goodwill.

A surge of positivity about the country could also lead to a boost in local investment into the economy (jobs, infrastructure, etc.), and the positivity will also, perhaps, attract at least some aspects of foreign investment.

The country’s investment potential is significant, say analysts, and investors are not blind to this. Zimbabwe was a significant agricultural exporter up until 2000, when farm invasions disrupted that trajectory. Now, over half of the country's arable land is not in production.

The nation also has the world's third largest reserves of platinum, the precious metal used in electronic and medical equipment, and is the fifth-largest producer of lithium, essential for rechargeable batteries.

This goodwill and optimism, of course, will not last forever; all stakeholders will have to reassess every few months to see if their investments are worth it or not.

It is likely that all three factors (return of the diaspora, improved local economy, and attractiveness of foreign investors) will escalate quickly if the first six to 18 months of the new government go well, as others will then feel encouraged to join in after the first movers – likely to be the IMF and China – have established that it’s now a safer place to live, work, and invest.

Zimbabwe’s neighbours within the Southern African Development Community (SADC) will play an important role here. Zimbabwe is South Africa's largest trading partner in Africa and it is a very important regional state in terms of security, in particular; its relative success will affect the region profoundly.

In a show of regional support for Zimbabwe’s new leader, the presidents of Botswana, Mozambique, and Zambia attended the inauguration; this support needs to turn into active engagements to address issues of economic reform and help Zimbabwe back onto a sound footing.

Thus far, SADC has been on the back foot and pronouncements have been confused and unclear. It is likely that the regional bloc will facilitate financial bridging, but is more likely to step up trade channels than financial ones.

Long-term chances

So far, Mnangagwa continues to make the right noises. Speaking at a graduation ceremony in Harare last week, he highlighted that the economy must modernise in order to engage with a “fiercely competitive world”.

On the other hand, some of Mnangagwa’s actions appear to demonstrate that he is more interested in rebuilding ZANU-PF and ensuring that those that benefited from the Mugabe years retain access and power.

Assuming that Mnangagwa is sincere in his aim to rebuild the economy, there are significant opportunities here. Due to the depressed nature of Zimbabwe’s economy and infrastructure, it does have an opportunity to “leapfrog” over some of the issues that have plagued more developed economies - that have had to make the inevitable mistakes of the “first mover” - and build a technology-rich 4.0 economy.

As Peter Diamandis points out in his book Abundance, exponential technologies can accelerate access to water, food, energy, healthcare and education; a whole new wave of entrepreneurs and innovators in Africa are doing just that.

This is perhaps the biggest potential opportunity for Zimbabwe in general, and its people in particular: can they be encouraged and supported to build a 4.0 economy that people talk about, given that there are so few institutions/systems currently in place that would need dismantling to get there?

In the long term, a lot of this will come down to people. The most important thing for rebuilding Zimbabwe is that its people need to be empowered. Practically speaking, the first thing Mnangagwa needs to do to enable this empowerment is invest heavily in Zimbabwe’s educational system, starting with primary, then secondary, then tertiary.

The new president/leadership must create a transparent agenda and related processes for maximising the natural resources of the country and the potential of its people to fund a corruption-free economy. This economic strength must then be reinvested into quality education and sound international and regional partnerships; then the current optimism in Zimbabwe may translate into something more permanent.

But it is a window of opportunity that is likely to not stay open for very long. The eyes of the world will, no doubt, be watching Mnangagwa closely to see which direction he chooses for a new Zimbabwe.

  • Dr Tim London is a member of the Allan Gray Centre for Values-Based Leadership at the UCT Graduate School of Business. Dr Sean Gossel is a senior lecturer at the UCT Graduate School of Business. 

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