BSR: Two Years After the Coup – The Economy (Part 2)


For all the shortcomings of his two-year-old administration, Emmerson Mnangagwa might have been excused by many Zimbabweans and might have been glorified as a hero, had he performed a Houdini Act on the economy.

True, the coup that catapulted Mnangagwa into power in November 2017 took place against the backdrop of an on-going and long-running economic quagmire.

But he came in with great verve and a show of undaunted spirit. He spoke a lot and promised much and in doing so, raised great expectations. He touted it as “the new dispensation” and promised to do things differently from the old regime. However, his performance in the two years after the coup has been flaccid at best. It has been a much ado about nothing affair which has sunk the country into serious economic and political doldrums.

In any event, he lacks the licence to divorce himself from the deep-rooted causes of that economic collapse, having been Mugabe’s top lieutenant and chief enforcer since independence in 1980. It would not be unfair to say that if Mugabe was the architect of the economic collapse, Mnangagwa was more than a handyman.

Two years on, Zimbabwe is still in dire straits, a ready example in many an economics class of how not to run an economy. Some locals say things are worse than when he arrived but even if that might be marked as an exaggeration, the mere fact that he is being compared to his predecessor is damning enough. The only way after Mugabe should have been upwards. But under Mnangagwa Zimbabwe has failed to defy the economics version of the law of gravity.

In this article, I examine what has happened (or perhaps better still, not happened) on the economic front in the two years since the coup. I look at why the Mnangagwa regime has been such a disappointment to so many of those who were willing to give it a chance in the first days.

Terrible indicators

The indicators are not good. Although the government suspended official year-on-year inflation data, the IMF put it at 300% in August 2019 and independent observers say it’s over 400%.

There has been no improvement on the employment front with more than 90% of the working population unemployed. Companies continue to close down while others have been forced to scale down operations. Loss-making public enterprises are still draining the national coffers.

The majority have crossed over to the informal sector. More than 60% of the population is in need of food aid, thanks in part to natural disasters but largely to poor agricultural policies.

There have been serious shortages or increase in the prices of basics including fuel, electricity, bread and cooking oil.

Wages have fallen well below inflation. There have also been continued cash shortages. Civil servants have been striking with doctors and teachers leading the pack.

Hospitals are dysfunctional and some say there’s a slow genocide taking place with thousands dying of curable ailments. Instead of working to find an amicable solution, the government claims to have fired doctors.

But just as they did under the Mugabe regime, when they experience as much as a cough, senior ministers hop on the plane and fly to South Africa or overseas for medical treatment. There is virtually no incentive on their part as public officers to ensure that the healthcare system is fit for purpose. More of these indicators are examined in greater detail in this article.

Young Zimbabweans are tired and exasperated. There is an overwhelming air of hopelessness. They go to college and graduate. Mnangagwa, as Chancellor of all state universities, attends every graduation ceremony to cap them. It is doubtful that the irony registers in his mind as he attends these ceremonies, that the majority will be transitioning into redundancy, thanks to the parlous economic conditions. If there is an opportunity to leave, the average young Zimbabwean will grab it without hesitation.

Public debt

Already a big problem in the past, public debt has increased over the two year period. The Finance Minister admits in his latest budget statement, that public debt is “unsustainably high, due to the accumulation of arrears, as well as expansion of domestic debt”. The Minister admits that without alternative sources of funding, the government has over-relied on domestic sources of financing which has resulted in rising domestic debt. “Since 2017, there has been a huge increase in domestic debt,” says Ncube.

In the previous budget, Ncube told the nation that from December 2017 the government had gone on a borrowing spree from the central bank. Its overdraft facility at the RBZ rose from US$1.4 billion in December 2017 to US$2.5 billion in September 2018. In just 10 months the regime had taken US$1.1 billion from the central bank. According to the 2019 budget statement, lending to the government from the RBZ rose by US$1.11 billion between January and September 2018. The new Mnangagwa administration had gone on a spree of issuing Treasury Bills after the coup – most probably to fund their election campaign.

Civil society watchdogs like ZIMCODD believe the public debt is understated and they have called for a comprehensive audit so that a true picture is revealed. For example, this year the government took over the US$1.2 billion legacy debt from commercial banks. This includes debts owed to foreign airlines for airfares which the banks didn’t repatriate in foreign currency due to shortages. This foreign currency crunch and inability to repatriate profits has also dissuaded investors from the country.

However, in attempts to water down the severity of the problem, Ncube says domestic debt has been reined in since the end of 2018. He attributes this to, among other things, what he calls “zero recourse to RBZ financing including the overdraft facility”. In other words, he says that the government has not borrowed from the central bank. This claim is hard to sustain given that in the same budget statement he also discloses that the government issued Treasury Bills in 2019 to cover a ZWL$318 million cash advance and a ZWL$2.9 billion overdraft both from the RBZ. Even if the claim is that some of the TBs were for restructuring existing obligations it would still be misleading to claim that there is zero-financing from the central bank.

The enormous foreign debt that has stood for years is still unpaid and is growing due to interest and penalties. It now stands at US$8 billion according to the latest budget statement. More than 60% of this debt is owed to bilateral creditors, with the remainder due to multilateral creditors such as the World Bank and African Development Bank.

The bulk of foreign debt consists of arrears in principal, interest and penalties. These arrears prevent Zimbabwe from accessing lines of credit. As Ncube admits in the latest budget statement, “the external arrears prevent the country from accessing new financing from the IFIs, traditional bilateral and commercial creditors”. Effectively, Zimbabwe is caught up in a debt trap.

The country has made token payments to the IFIs, says Ncube, in an effort to demonstrate a commitment to re-engagement to the creditors. However, this tokenism is a pointless exercise, akin to pouring money down the drain when it could be used to alleviate the plight of the poor. The creditors are not impressed by the tokenism. Zimbabwe needs to attend to major reforms that will rehabilitate its political brand. Creditors are reluctant to be seen as if they are condoning a recalcitrant regime.

A country with no friends?

The Mnangagwa regime might have used the goodwill and support it enjoyed in the early months to find a benefactor willing to support it with bridge financing to clear its arrears and unlock credit lines. That could have provided a huge boost. This is how Myanmar was able to clear about US$6 billion of its debts in 2013 with the help of Japan. The help from Japan to pay off loans to IFIs and bilateral creditors helped to unlock funds from those institutions while facilitating debt cancellations.

The Mnangagwa regime did not have the fortune of its counterparts in Myanmar. It is not clear why none of the regime’s allies came to its aid. For so long referred to by ZANU PF as an “all-weather friend”, China baulked at the request for US$2 billion support. Not even China had confidence in the new regime, despite the rhetoric. It had refused Mugabe’s requests a few years earlier.

China does support a limited amount of projects including the rehabilitation of the Hwange Thermal Power Station and the expansion of the airport in Harare. It is also building the new parliament building in Mt Hampden. These sweeteners serve to maintain a relationship, but they cannot obscure the fact that China refused to offer the much-needed package in respect of which the Mnangagwa regime was desperate.

Mnangagwa’s allies in the region are happy to offer him moral support. When it comes to real economic assistance, they are nowhere to be seen. When Zimbabwe defaulted on its energy bills to South Africa and Mozambique, they simply stopped supplying electricity, plunging their neighbour into darkness. Debt forgiveness for a neighbour in distress? No. It’s strictly business.

Currency conundrum

The currency issue is probably the biggest and most visible indicator of Zimbabwe’s predicament. When Mnangagwa became president in November 2017, Zimbabwe had a multi-currency system, which had been adopted since 2009 after losing the local currency to record-breaking hyperinflation. However, a year earlier, Zimbabwe had introduced a surrogate currency, called the bond note, which it said was equal to the US dollar. The one to one equivalence was, of course, a command fiction which only the government maintained.

The Mnangagwa regime has now officially abandoned the multi-currency regime and introduced mono-currency with the official return of the Zimbabwe Dollar on 24 June 2019. A few months earlier in February 2019, the government had semi-liberalised the exchange rate, making the RTGS Dollar legal tender and abandoning the pretence that the surrogate currency was equivalent to the US Dollar. This attempt to push the maker towards the RTGS Dollar in a multi-currency environment failed, leading to the hasty introduction of the Zimbabwe Dollar in June.

The net effect is that the local currency has lost enormous value against the US Dollar – more than 80% – from what it was worth at the time of the coup. Therefore, whereas the surrogate currency was 1:1 with the US Dollar in November ember 2017, it is now 1:15 on the official Interbank Market and 1:20 on the parallel market.

The problem is that while the local currency lost value against the US Dollar, prices of goods and services had already risen as if they were pegged to the US Dollar. Furthermore, workers’ wages and pensions were not adjusted to keep at pace with the currency changes. What changed was the prefix to the figures, not the figures themselves. Until this month, pensioners were still getting a measly $ZWL80. The new monthly pension announced by NSSA may have risen by 150% but at ZWL$200 (or US$13) it remains a pittance. A bag of Compound “D” fertiliser costs ZWL$400 which means a pensioner who is farming must wait two months to buy a single bag.

Given these ridiculously low figures, it’s not surprising that Zimbabweans cannot take the Finance Minister seriously when he announces that he has made a surplus. It means absolutely nothing to them. Likewise, it is hardly surprising when some make adverse comparisons between Mnangagwa and his predecessor.

Consequently, workers and pensioners who were already complaining under Mugabe in November 2017 are still impoverished under the Mnangagwa regime, with no respite in sight. This is why the public healthcare system is at a standstill and a serious administration would have declared a state of disaster.

The Professor’s Great Currency Gamble

Mthuli Ncube knew he was taking a great gamble when he abolished the multi-currency regime and announced the new Zimbabwe Dollar as the sole legal tender on 24 June 2019. Writing in the Financial Times, on 20 August 2019, Ncube described the return of the Zimbabwe Dollar as a “simple economic and geopolitical necessity”. The multi-currency regime had been “a tourniquet, not a cure” he said arguing that while it brought stability it had eroded the country’s competitiveness on the export market where regional currencies were weaker than the US Dollar.

However, “plenty of foreign exchange is required to stabilise the introduction of a new currency and leaven inevitable inflation” the Finance Minister conceded before adding, “Zimbabwe’s reserves could not be described as abundant”. He indicated that Zimbabwe had no prospect of getting foreign currency. “A fresh tranche of foreign exchange in the required volume and time frame was impossible, he admitted. The choice was between “short-term turbulence now or greater anguish later”, suggesting that the government was under severe pressure to introduce the currency.

Indeed, attempts in February 2019 to rescue the situation by liberalising foreign currency trading and designating the RTGS as the preferred currency had failed to yield the desired outcome. “Change has to be driven more forcefully” write Ncube, justifying the legal intervention designating the Zimbabwe Dollar as the sole legal tender and banning the US dollar and other currencies for local trading but also reaffirn=ming the command approach to the economy.

However, as with all currencies, the fate of the Zimbabwe Dollar lies in its ability to inspire confidence and belief in the market. As Yuval Harare has pointed out a currency is a myth; a figment of the imagination which depends on the extent to which it is believed. Its value holds if a significant number of persons believe in it. The old Zimbabwe Dollar became extinct because the market lost faith in it. Market actors could no longer believe in it as a medium of exchange. The great test for the new Zimbabwe Dollar is whether it succeeds where its predecessor failed.

Already the market refused to believe the government’s original order that the Zimbabwe Dollar was equal to the US Dollar. This is why it is hovering between 15 and 20 Zimbabwe Dollars to 1 US Dollar. It might hold if the market believes in it, or it will fall further.

In this regard, the experience of the RTGS Dollar between February and June 2019 is worth learning from. Ncube said the government was forced into a hasty intervention by introducing the Zimbabwe Dollar as the sole legal tender after realising that the RTGS Dollar was failing to establish itself as the currency of exchange and instead the market was re-dollarising. But there is no guarantee that the market will not self-dollarise even with the command Zimbabwe Dollar. After all, when dollarisation was adopted in 2009, it was not because the government ordered it. Rather the market had already self-dollarised and the government simply followed the market.

The authorities will hope that the Zimbabwe Dollar does not spiral out of control as happened to the old Zimbabwe Dollar in 2008. If it does, Mnangagwa would have taken Zimbabweans back to the dark place where his predecessor and mentor took them a decade ago. It is sobering to think that this striking feat cannot be ruled out.

Forex blues

In this regard, the perennial shortage of foreign currency remains problematic. In November 2017, Zimbabwe was short of foreign currency. The forex crunch began years earlier and it prompted the government to introduce bond notes touted variously as an export incentive and to reduce cash shortages. The cash shortages had begun at the tail end of 2013, the same year that ZANU PF retained power exclusively following a controversial general election which ended the Inclusive Government.

The Inclusive Government had ushered in a period of relative stability on the economic front. But while Zimbabwe was spending foreign currency, it was not generating enough of it. There was capital flight after the 2013 elections and the demand for foreign currency outstripped supply. In the end, long queues formed at banks which could only give very low amounts at a time. In 2017 the situation was dire with shortages of fuel and basic goods becoming more common.

The new administration was expected to make things better, with renewed hopes of foreign direct investment and new lines of credit. However, none of that has happened leaving the country severely impoverished of foreign exchange sources. It has had to rely on earnings from tobacco and gold exports as well as remittances from the Diaspora.

The government’s policies in the gold sector have been counter-productive, as the Finance Minister has admitted this week. He told a business event that Zimbabwe was losing 30 to 34 tonnes of gold to South Africa through smuggling. He also conceded that illegal exporters were avoiding the formal system because of punitive rules which force them to surrender a large part of their export revenues. The government was warned that the parallel market would flourish because of its tough rules, but it did not listen. Now it’s counting the cost.

The problem is for too long the little foreign currency that came was abused by political and business elites. They took advantage of access to the central bank, getting forex at 1:1 and making profits on the black market or selling goods at higher prices that did not record the implicit subsidies they were getting.

The central bank had a Foreign Currency Allocation Committee, which gave cheap foreign currency on a preferential basis to a select group of importers on the basis that they were importing essential commodities such as fuel, grain, cooking oil and electricity. These subsidies were not always reflected in the prices charged by these importers and producers. It was a racket which made a few elites wealthy in a sea of poverty. The facility has since been removed for fuel importers.

In the 2020 budget, the Finance Minister has undertaken to end the subsidies for grain importers. However, there will still be subsidies ostensibly to protect consumers from the rise in prices that will follow the marketisation of grain imports. Whether these subsidies will make a difference in the racketeering among elites is debatable.


A major problem during the Mugabe era was unbudgeted spending by the government. This lack of fiscal discipline has been the government’s major undoing. This meant the government breached its own budget limits and ministries and spent beyond their lawful appropriations. Only later would they seek condonation from Parliament.

There is currently a Financial Adjustments Bill, by which the government intends to seek condonation for systemic bouts of overspending since 2015. Interestingly, there was more overspending in 2017 (US$4.5 billion) and 2018 (US$3.5 billion) – the period covered by the Mnangagwa regime than prior years (US$25 million in 2015 and US$1.5 billion in 2016).

It’s already clear that the government spent more than it had budgeted for in 2019. The Finance Minister says in his latest budget statement, “In 2019, spending outside the Budget and macro-economic shocks disrupted attainment of the TSP targets. Refraining from unbudgeted activities and borrowing from the Central Bank will, therefore, constitute a key obligation for both Treasury and the Central Bank Authorities from 2020.” This is the same thing he promised in the last budget statement, which means the government is not living up to its undertakings.

The truth is that old habits die hard. These are the same personnel who ran government departments during the Mugabe era. They have continued to behave as they did during that period regardless of Ncube’s exhortations.

It doesn’t help that Mnangagwa has defaulted on his promise of having a small government by which he sought to distinguish himself from his predecessor. However, his government has expanded over the two years. After initially trimming the number of deputy ministers, he has added new ones, repudiating his earlier undertakings. Deputy Ministers are not essential in a bureaucracy that already has a Permanent Secretary who operates as the CEO of a Ministry. They do not even sit in Cabinet in place of their Minister when he or she is absent. The roles have been used as instruments of patronage; a classic case of Jobs of the Boys, thereby broadening the President’s sphere of loyalists and acolytes but at public expense.

Command Agriculture Scam

Zimbabwe was once regarded as the breadbasket of the region. This was because it had a vibrant agricultural sector both in the commercial and subsistence sectors. The country’s rainfall pattern has always been erratic but the commercial sector has harnessed rainwater in times of plenty, building dams and investing in irrigation infrastructure. This infrastructure was also affected during the chaotic land reform programme and efforts to rebuild it have been marred by corruption.

For example, the Auditor General revealed that a company called Solutions Motors was given more than a million dollars to supply irrigation equipment and vehicles for the Department of Irrigation. The company did not deliver half the goods. This type of corruption is systemic and one of the major factors of the Mnangagwa regime’s failure to turn the economy around.

More importantly, however, is that the agricultural support program implemented by the government since 2016 has been nothing short of a disaster. Launched as Command Agriculture, Mnangagwa immediately claimed it as his flagship program, well before the coup. But it turned out to be a great scam. Sakunda Holdings was presented as the funding partner of the program but in reality, it was no more than a conduit for public funds from the government. The government paid Sakunda which sourced inputs and distributed them to the farmers via the Grain Marketing Board.

The reality was that Sakunda was no more than a middleman but as the AG found out the systems were so compromised that there was a conflict of interest and no way of monitoring whether Sakunda was complying with its obligations. When senior civil servants in the Ministry of Finance were questioned by the Public Accounts Committee to account for huge payments to so-called suppliers under Command Agriculture, they professed ignorance.

To his credit, the Finance Minister saw early on that Command Agriculture was a scam that could not be sustained. His objections are encapsulated in the following words from his latest budget statement, “The current financing model for agriculture places an unfair share of the burden on Government … The model has created opportunities for arbitrage, leakages and corruption, presenting a risk to macro-stability and the Budget.”

Ncube’s problem from the start of his tenure was that Command Agriculture was his boss’ flagship programme. Now he had the daunting task of telling him that it was a financially disastrous programme. He has been sniping at it over the past year. But he has not succeeded in getting rid of it altogether. He has a new name for it: Smart Agriculture, a term that had pride of place in their political rivals MDC Alliance’s manifesto. He says some state and private banks have agreed to give loans to farmers, with the government standing as guarantor. Given the high default rates under the previous guise of the program, it is more than likely that the government guarantee will be called. This means the government is still effectively funding the programme. A public guarantee of debts by the government, after all, counts as public debt.


Corruption was a major problem in Mugabe’s Zimbabwe and as we have already seen it is economically costly because of the leakages and the expenses it adds to the cost of doing business for investors as they are forced to pay unlawful rent to rent-seekers within the state system. We have seen how corrupt dealings in the gold sector are depriving the country of huge potential revenues that could be used to deliver public services.

When Mnangagwa took power, he promised to fight it. However, as with most things under the regime, the undertaking was based on deception. Two years into the regime, there have been no major scalps.

Instead, the regime has perfected the technique of “Catch and Release”, whereby they arrest a big name, keep them in custody for a few days before releasing them on bail. Even if they are convicted at the Magistrates Court, they eventually get bail pending appeal and the cases appear to get forgotten.

In a few cases, unfortunate ones like Prisca Mupfumira, are sacrificed and made to stay in remand prison for a few months. Then she got bail. The matter is then held in abeyance until it’s forgotten. Or technicalities are raised and she escapes the charges. If parts of the justice system itself are not corrupt, they are plagued by incompetence. This has become so frequent under the Mnangagwa regime that people no longer take notice whenever there is a high-profile arrest. They know in advance how it’s going to end. It’s all smoke and mirrors.

Earlier this year Mnangagwa appointed a new anti-corruption commission. The old one appointed during the Mugabe era had been fired last year on grounds that it was failing to fulfil its mandate. The new ZACC began with great verve but despite a few high-profile arrests, there has been no discernible progress. The AG produced an excellent report with a vast number of potential cases of corruption. It remains to be seen whether ZACC has taken up any of these leads to investigate and build solid cases for prosecution.

Before the new ZACC, Mnangagwa had appointed an anti-corruption prosecution unit which he placed in his office. The inappropriateness of setting up an anti-corruption prosecution unit in the president’s office was highlighted at the time. So far there is no evidence of fruits of this unit.

In the first few months of his presidency, Mnangagwa launched an amnesty program whereby he extended amnesty to those who had allegedly externalised vast amounts of money. He promised to name and shame offenders. After building up great expectations, the outcome was a damp squib. He also announced a new asset disclosure requirements for Cabinet Ministers and senior public officers. The fact that it would be secret was highlighted as a weakness. In the end, after the burial noise, nothing was heard of the asset register.

All this posturing is not new. When Mugabe was the leader, ZANU PF had a Leadership Code which imposed strict ethical requirements on Ministers and senior party leaders. Built on socialist principles, they were only allowed limited amounts of property. It was even included as a term in the Unity Accord which brought ZANU PF and PF ZAPU together as one party. However, it was not even worth the paper it was written on. They all went on a spree of property accumulation, often by foul means. So when Mnangagwa makes big promises on ethical leadership and anti-corruption, they are just that: promises, but without substance.

The Missing Link

Mthuli Ncube is hopeful the economy will attain a 3% growth by the end of 2020, up from -6.5% at the end of this year. Then again, when he presented his maiden budget in 2018 his projected economic growth in 2019 was an ambitious 3.1%. What went wrong for the Mnangagwa administration?

Most of what went wrong has already been examined in this article – policy weaknesses and inconsistencies, poor exports, foreign currency crunch, egregious corruption and isolation. Natural disasters such as drought and Cyclone Idai exacerbated an already dysfunctional system. But for all his efforts on the economic front, Mthuli Ncube has had no control over the political factors that are critical to Zimbabwe’s revival. He thinks strengthening the Ease of Doing Business reforms will help to improve Zimbabwe as an investment destination. In this regard, he is concerned with technical reforms. The big elephant in the room however is political reforms.

There is a school of thought which focuses narrowly on economic aspects, believing that the economic challenges can be resolved internally within the discipline using economic tools. If the economists are given space and they are allowed to deploy their tools, things will get better whatever the politics. Another school of thought suggests that the endeavours of economists will come to nought unless the politics is sorted.

The notion of de-linking economics from politics in Zimbabwe’s context is unwise. Brand Zimbabwe is politically damaged. The process of debt resolution which is critical to Zimbabwe’s ability to access credit markets cannot be successful unless Zimbabwe’s political brand is fixed and rehabilitated. The IFIs and bilateral creditors to whom we owe arrears won’t negotiate with a regime whose political brand is tainted. The abysmal human rights record, covered in the last BSR is a cause for concern. They don’t want to be seen as enabling a brutal and unrepentant regime.

Likewise, the response of IFIs and commercial creditors will take a cue from the reaction of the international community to the re-engagement agenda. In this regard, the Mnangagwa’s re-engagement agenda has so far been a dismal failure. The poor conduct of the elections might have been forgiven. But the killing of civilians on 1 August 2018 and again in January 2019 did irreparable damage to the regime.

The regime could have diluted the use of excessive force by taking decisive action against offenders. It has refused to do that. But even the Kgalema Motlanthe Commission which was set up after the August killings has so far proved to be a deception. Its long list of recommendations has not been implemented. This failure to hold perpetrators to account does nothing to improve the regime’s reputation.

Even the sanctions issue, a favourite scapegoat of the regime, could be resolved by investing more efforts in the area of political reforms. The Finance Minister reveals in the latest budget that the biggest “development partners” are the US, UK and the EU, in that order. There is room for re-engagement, but the regime has yet to learn that grandstanding in international relations does not pay dividends.

The importance of re-engagement cannot be overstated. It would help to unlock the gates of negotiating the burdensome public debt. Without resolution of the public debt issue, it will be impossible to access lines of credit that are necessary to kick-start activity in a number of areas of the economy.

Mnangagwa had a great opportunity and much goodwill when he arrived on the scene, his shortcomings notwithstanding. That he squandered it all at the altar of political expediency is hard to explain because it is the political equivalent of self-immolation. His invitation to the great gathering of capitalist barons and financiers at Davos a few weeks after the coup was an invitation to treat; itself a signal of the over-excitement and hype that gripped an audience beyond Zimbabwe’s borders. He had just toppled one of the world’s most notorious leaders and he was enjoying the limelight. His supporters sold him to the world as “pragmatic” and “business savvy”. If they were selling products on the market, they would have been guilty of fraud and mis-selling. Even as early as Davos, he got overwhelmed by the occasion and created seeds of doubt instead of optimism.

The overall performance in the two years since the coup: a lot of bluster, an abundance of rhetoric, so many promises, but ultimately no substance and reluctance to be change agents. Those who were hopeful are grossly disheartened while those who foresaw disaster find no comfort in saying we told you so. Prospects? The absence of competence makes it improbable.