The Economic Tragedy in Zimbabwe

Opinion & Analysis / Editorials


EDITORIAL: The real tragedy in Zimbabwe

January 16 2013

Business Day
HAS there ever been an economic tragedy simultaneously so profound and so disregarded as Zimbabwe? The situation is so much more tragic because it has raised so little attention in the capitals of the world. No outraged editorials in the New York Times; just vast, international indifference.

Zimbabwe’s financial collapse resulted in an inflation rate so extreme it was treated more with wry amusement around the world than with the concern rightfully due to its citizens. How many countries in the world have gone so far backwards so fast? The Zimbabwean middle class has long deserted the country, its most promising citizens have left, its hospitals have few medicines, and a once glorious education system lies in ruins. A promising country with an industrial base once second only to SA in southern Africa staggers on, with its citizenry at the mercy of its greedy, self-righteous and conniving political class. The deeper its sinks, the more conniving and the more toxic that political class becomes.

The era of hyperinflation is now over thanks to what Zimbabwean politicians laughingly call their "decision" to abandon the Zimbabwean dollar. There was never really a decision; the currency had ceased to function. Now Zimbabwe is technically growing again, but everybody knows it is growing from minuscule to slightly larger than minuscule, and that is not much of an achievement.

Having gone through what the country has gone through, you might think the consequences of economic catastrophe would have chastened the political class, and made it more cautious about embarking, yet again, on any dubious economic adventures. Yet, seemingly undeterred, the government has now embarked on a process of "indigenisation" — a polite word for an asset grab by the elite. Under the cloak of localising ownership, Zimbabwe is picking off what remains of the carcass of business entities, forcing them to sell half of their equity to politically connected locals. That includes a shady fund managed by military figures.

This process is akin to SA’s process of black economic empowerment (BEE). Yet, for all its flaws, the foundation on which BEE is premised is an earnest attempt to rectify inequality caused by apartheid. Indigenisation, on the other hand, has no such grand moral aims. It is simply an act of national economic chauvinism. That may play popularly among the political class; indeed, that is its intention. But the economic consequences are horrendous. Essentially, it means that to invest in Zimbabwe, the return on capital has to be double that achieved elsewhere, as the equity is halved. That may be possible in tiny, marginal areas of the economy, but generally it is an obvious mistake.

The indigenisation programme places existing investors in Zimbabwe in a tight spot. There is little international companies can do except try to explain the basic economic rules to Zimbabwe’s political elite. But, as they are not listening, the choices are stark. This week, Impala Platinum struck the deal necessary to abide by the legislation, as its only choice is to comply or withdraw. As the ore is available in minable quantities only in Zimbabwe and SA, its hand is forced. In fact, as the company is one of the few large-scale employers left in Zimbabwe, its bargaining position with labour is close to despotic. So what it loses in the equity grab by the politicians it can counterbalance in lower production costs — one of the unpleasant ironies of this situation.

Now Zimbabwean Empowerment Minister Saviour Kasukuwere says his next target is the banking sector. Even in Zimbabwe, there is some opposition to this move. No doubt the British and South African banks will comply, as the contribution of their Zimbabwean branches is negligible anyway.

Yet the fact remains that Zimbabwe has taken another step towards economic perdition. It does so with the world, not to mention its southern neighbour, determinedly looking the other way. Ultimately, that is the real tragedy.