Zimbabwe: Quo Vadis?

Only 700 000 people among a population of 13 million have formal jobs, less than at independence in 1980. Many of those jobs are in the bloated civil service & military and are clearly unsustainable. Ninety percent of jobs reside in the informal sector, where reliance on diaspora remittances remains crucial. Compounding the problem is that 80% of government revenue is spent on civil services wages; hence no maintenance of any kind but the most rudimentary is possible.

Has the tipping point been reached?

Signs abound everywhere.

Main picture: Farm invasions destroyed agricultural production converting Zimbabwe from an exporter to an importer of agricultural products.

The puny formal economy is contracting rapidly. With official figures being unreliable – the government is attempting to con the IMF into lending Zimbabwe money – the best guess of a 15% contraction has been catastrophic for government revenues. Exacerbating the situation is the continual increases in civil servants’ headcount and their remuneration.

New non-convertible Bond Notes. Is this •déjà vu?

New non-convertible Bond Notes. Is this • déjà vu?

Aware of the fiscal abyss, Finance Minister Patrick Chinamasa attempted to cut annual public service bonuses last year, but undeterred by the lack of money, President Robert Mugabe insisted that the double cheque be paid. Mr Chinamasa reluctantly agreed. Instead of an immediate lump sum, as the proverbial cupboard was literally bare, they were eventually paid in tranches but long after the end of the year.

Strikingly for an agrarian economy Zimbabwe, once the bread basket of Africa, is now ranked among the lowest in the region in terms of agricultural production. Apart from subsistence farming of basic necessities, all the other foodstuffs are now imported from South Africa

Tobacco auction floors

Tobacco auction floors

As described in a previous blog, Mugabe has survived by robbing Peter to pay Paul. This strategy is not sustainable. Mugabe’s populist economic policies, driven by misguided political rather than economic considerations, have crippled the farming sector. Now his indigenisation laws combined with the difficulty of operating are collapsing the formal economy as well.

Earlier this year, various punitive taxes and price increases were proposed: electricity tariffs would double and food imports from South Africa would be slapped with a 15% import duty.

As the financial situation has rapidly spiralled out of control, a raft of new austerity measures has recently been announced.

Triangle's sugar refinery in Zimbabwe

Triangle’s sugar refinery in Zimbabwe

The Ministry of Defence has announced that all personnel over 50 will be placed on retirement with immediate effect. The only exceptions will be personnel who fought in the Liberation struggle and those that the Military requests not to retire. Not announced at the same time is whether these personnel will actually be entitled to a pension and, if so, at what rate.

Other measures to reduce the bloated civil service which consumes 80% of the budget are being considered. This is one of the preconditions to the IMF granting new loans to Zimbabwe. A figures of a 50% reduction in headcount is being mooted, otherwise any such loans will not be used for productive purposes, but rather to fund current expenditure viz salaries which is unsustainable.

Zimbabwean Army to be shrunk dramatically

Zimbabwean Army to be shrunk dramatically

Following the shortage of cash in the economy, severe restrictions have been placed on the withdrawal of cash from ATMs. As the limit is only R 3000 per day, most citizens have to queue many times a month in order to obtain their salaries.

Even businessmen are experiencing the same frustration. Meeting their wage bills is now a prolonged affair as banks are unable to supply the cash even over a number of days. Given the imperatives of paying their staff, employers have resorted to obtaining cash on the black market at a premium of between 5 & 10%.

This is unsustainable.

Rapidly the erratic supply of electricity, lack of spares for maintenance, the difficulties of paying staff and the non-payment by government departments, is driving companies to the brink. Many are not expected to survive.

Queue at Zimbabwean Bank

Queue at Zimbabwean Bank

Formal employment is expected to decline significantly during 2016 after reductions over the past three years since the termination of the GNU – the Government of National Unity.

Without the fabled fairy God Mother in the wings, the current tribulations of the Zimbabwean citizens are unlikely to abate during 2016.

The first of the latest round of changes proposed – cutting the 30,000 headcount of the military – might well become a pivotal moment in Chinamasa’s attempt to reduce government expenditure to manageable levels. Tellingly Mugabe has excluded the War Veterans are they have been a key constituency in his survival.

A miner in Zimbabwe tunnels into the ground

At some point, the oppressive weight of increasing penury will induce the ordinary Zimbabwean citizen to rebel.

Me thinks: That time is rapidly looming.

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