192018Jan
A post-Mugabe Zimbabwe

A post-Mugabe Zimbabwe

Summary

For the first time in 37 years, Zimbabwe exists without the shadow of former president Robert Mugabe looming large. A tense and emotionally turbulent seven days in November resulted in his eventual resignation. Frustration and bitterness over his rule that had been brewing for a number of years finally erupted and caused a change that few expected to come so suddenly and peacefully.

President Emmerson Mnangagwa has presented himself as a moderniser of both the party and the country and has certainly struck the right note during his recent public addresses. At this stage, we believe his administration can be judged on two aspects – its cabinet and the 2018 budget speech. He has been criticised for the composition of his cabinet (reduced from 27 to 21 ministers) which includes many of the same faces and the addition of a few military personnel.

It is possible that this decision was made with one eye on the 2018 elections and the other on creating a gladiator-like tournament in which ministers would need to prove themselves quickly or face axing after the polls. There is some speculation that the opposition was approached but their demands could allegedly not be accommodated. Out of the cabinet and marginalised in the “we ousted Mugabe” narrative that is being dominated by Mnangagwa, the opposition has a lot of ground to make up before the polls next year.

The 2018 budget statement, announced a week after the new cabinet, gives us the strongest indication of the new government’s policy priorities. It says many of the right things: a renewed commitment to fiscal discipline; privatisation of state-owned entities while recapitalising a select few; tackling public sector corruption; improving the business environment and ports of entry; compensation for dispossessed farmers; encouraging moves towards a cashless society; and honouring external debt obligations.

The plan is ambitious but in some cases, scant on detail. Agriculture and mining are still considered to be strategic sectors and there are a number of planned interventions aimed at stimulating their revival. On the agricultural front, a reversal of the land reform programme is not on the cards. What is mentioned instead is compensation for dispossessed farmers. The source of funds for this compensation programme is yet to be revealed.

One of the most significant statements in the budget statement is the administration’s plans to scrap the controversial Indigenisation and Economic Empowerment Act (IEEA). As from April 2018, only diamonds and platinum will be subject to the 51 percent local ownership requirement. This is encouraging news for potential investors but the passing mention of a new local content policy framework is a reminder to proceed with caution.

Meaningful progress in the areas of media and electoral reform and voter intimidation as well as addressing the liquidity crisis and implementing planned changes to the indigenisation policy within the first 6 – 8 months of 2018 will be an indication that a shift has taken place. Execution in other areas over the following years will provide greater clarity about whether renewed hope in the country – as a viable investment destination, contributor to regional economic growth and a place for locals and foreigners to live and thrive – is warranted.

An Abrupt End

Former president Robert Mugabe has loomed so large in the country’s political landscape and the national psyche that it seemed almost inconceivable that he would step down voluntarily. What we witnessed last month was a unique combination of a number of factors that ultimately led to the ousting of one of the continent’s last strong men.

These factors – foreign currency, food and fuel shortages; rising inflation; stagnant (and in most cases) non-existent civil servant wages; limited economic prospects for the majority of the population; and crippling corruption and maladministration within state institutions – had existed for several years and posed a threat to the Mugabe administration before. Mugabe’s wife – former First Lady Grace Mugabe, was nicknamed Gucci Grace for her love of designer brands and outlandish spending – was unwittingly a key factor in her husband’s downfall. Her attempts to increase her influence within the ruling Zimbabwe African National Union – Patriotic Front (ZANU-PF) and pave the way for a dynastic rule helped to accelerate her husband’s political demise.

Coup-not-coup

President Emmerson Mnangagwa’s ascension to the presidency was expected. The methods, however, were not. A long-time protégée of Mugabe who had served the party and the president faithfully for over four decades was the most likely candidate to succeed Mugabe, particularly after he fired former vice president and party stalwart Joice Mujuru in 2015. Defence minister Sydney Sekeramayi was once touted as a possible challenger to Mnangagwa but little ever came of this.

Mnangagwa’s dismissal from the vice president post and the ruling party on 7 November 2017 and the army’s rumoured increasing concern about the continued viability of a Mugabe president (and indeed the potential of leadership by Gucci Grace after the 2018 national elections) triggered the “coup-not-coup” that we witnessed in early November. After Mnangagwa’s dismissal, army chief Constantino Chiwenga commented that the army would “step in” to address what it viewed to be purges within the party aimed at shoring up support for Grace Mugabe and her faction, commonly referred to as the G-40 (Generation 40).

ZANU-PF is the political wing of a military movement. The party rose from a military grouping and this DNA will remain in the party, inform its outlook and influence its decision-making and actions for the foreseeable future.

The developments from 15 November 2017, when the army made a statement on the state broadcaster, onwards have been well-reported. What is notable is the progression of events after the army declared its selective intervention in non-military affairs. The army’s actions are interesting because they hint at the nature of the current administration. There were strong undertones of preparation, restraint and strategic thinking over what was an emotionally turbulent and politically significant week in the country’s history.

The army’s statement was as carefully worded as the actions that followed. The constitution remained intact; the cabinet and president remained in place; and the country’s borders remained open. There was a strategic imperative for all of this. Taking any actions that would have been seen as a coup would severely have limited Mnangagwa and the army’s sphere of action.

It would have forced regional neighbours to take action – look to the African Union’s actions in response to coups in Madagascar and most recently, Burkina Faso, Mali and the Gambia for the likely response and impact – and compelled the international community to refuse to recognise (what would soon be) the new administration. This would have resulted in further international isolation and economic hardship for the country.

Old Wine in New Bottles?

Mnangagwa has presented himself as a moderniser of both the country and the party. His public statements, targeted at both citizens and members of the international community, are hitting all of the right notes. The extent to which this marks a genuine break from the past remains to be seen. Let’s look to two recent developments for signs of possible change – the new cabinet and the 2018 budget.

Mnangagwa announced his new cabinet on 1 December 2017. He reduced the size of the cabinet from 27 to 21 posts. This cabinet received considerable criticism for including members of the previous administration and for its lack of opposition party members. A number of issues need to be considered when looking at this cabinet.

Firstly, it is important to note that according to the constitution, the president can only appoint a sitting member of parliament (MP) to cabinet. S/he has the discretion to appoint five additional people who are not MPs; the president’s choices in this instance were therefore limited. However, Mnangagwa has shown himself to be responsive to public pressure. He fired the newly appointed Primary and Higher Education

Minister Lazaraus Dokora after public outcry over his appointment (for previous poor performance) and replaced him with MP Paul Mavhima.

The second consideration when looking at the cabinet is that the country is going to the polls in 2018. With this in mind, it is likely that Mnangagwa considered that it would take too much time to get new ministers (especially non-MPs) up to speed with the technical and political aspects of running a successful ministry.

His administration has less than a year to leverage any goodwill derived from Mugabe’s departure and translate that into a win at the polls; non-performing ministers and poorly run ministries will not help in this regard. This new cabinet will need to prove itself quickly and with limited resources.

Regarding the inclusion of opposition party members, there is some speculation that some members of the opposition were approached but that their demands for inclusion in the cabinet were seen to be excessive. Barring reports that members of Morgan Tsvangirai’s Movement for Democratic Change (MDC-T) are currently in the US to lobby for the international community to push for electoral reforms before the 2018 elections, the opposition’s voice has been relatively quiet.

For close to two decades, their goal has been the removal of Mugabe; this served as a mobilising force and a basis for policy formation. This victory – ousting Mugabe – was supposed to belong to the opposition; they have put in the most (visible) work. However, things do not always go according to plan. Mugabe was ultimately pressured to resign by party members and after mass demonstrations calling for him to step down. The opposition was a part of this but ultimately not the instigator. They cannot lay sole claim to the “we ousted Mugabe” narrative. This, along with limited co-operation between small parties, will cause some soul searching and hopefully trigger a re-set before the elections. If they fail on this front, the election is ZANU-PF’s to loose.

Counting Pennies

Finance Minister Patrick Chinamasa delivered his budget speech a week after the cabinet announcement.

Its tone echoes that of Mnangagwa’s recent public addresses. It places great emphasis on enforcing discipline (a word that has made a number of appearances in the president’s statements) in the management of public finances and the fiscus in general. The main areas of focus for 2018 according to the budget statement are stimulating local production; public enterprise reform; belt-tightening across all spheres of government; improving the business environment; encouraging and protecting foreign investments; and fulfilling debt obligations.

The 2018 budget statement is quite frank about the country’s current situation and its causal factors. For example, it acknowledges the burden of the civil servant wage bill on the budget. The goal is to reduce it from current levels (85 percent) to 70 percent in 2018 and subsequently 65 percent of total revenue. The decision to reduce the number of ministries from 27 to 21 is part of a wider attempt that includes retrenchments to reduce the wage bill.

Agriculture and mining remain the economy’s building blocks and are the subject of a range of planned interventions. A reversal of the land reform programme is not on the cards. It would have been incredibly difficult to get ZANU-PF to go back on this policy. It would also be deeply unpopular with the majority of the population despite the economic upheaval that followed the first land invasions.

However, some sort of accommodation seems to have been achieved. The government will strengthen the 99 year leases granted to new farmers while compensating dispossessed farmers. No details were provided about the source of funds for this compensation programme. Increasing technical and financial support to small-holder farmers; investing in sector-specific infrastructure; and finding funds for the compensation programme will go some way in strengthening the sector’s performance.

One of the most significant statements in the budget is the administration’s plans to scrap the controversial Indigenisation and Economic Empowerment Act (IEEA). As from April 2018, only diamonds and platinum will be subject to the 51 percent local ownership requirement. Furthermore, the IEEA will no longer apply to the wider economy. This has immediate and positive implications for a range of sectors including the financial services and tourism sectors.

It also addresses concerns held by some investors about how to reach the local content threshold with their preferred commercial vehicle and local partner. However, this does not remove the need to understand potential local partners, particularly against a backdrop of a very fluid political situation and the prospect of a firehouse sale of relatively cheap assets (including public enterprises).

It is also important to keep in mind that passing mention is made of what is simply referred to as a new local content policy framework aimed at “stimulating the use of local factors of production”. Time will tell if this is the IEEA by another name.

Outlook

The ZANU-PF special congress took place this weekend. The agenda was short, with the two main points being the confirmation of Mnangagwa as the party’s president and first secretary as well as the party’s presidential candidate for the 2018 elections. For the first time since 1963, Mugabe did not attend the congress. Ironically, this special congress was meant to be a platform for his wife and the G-40 to entrench themselves in the party. Instead, the congress served to consolidate Mnangagwa and his faction’s power.

Unlike neighbouring South Africa’s ruling party congress, the ZANU-PF congress did not give clear indications of the extent of party reform or shed further light on policy direction.

We believe the budget has sent very clear signals. The proof will be in the implementation. In addition to Chinamasa’s pronouncement, we believe the following will indicate genuine reform and changes in the political and operational environment: electoral and media reforms; an absence of pre-election intimidation and violence; prosecution of public officials and private individuals found to be guilty of corruption; repercussions for government officials responsible for maladministration of state-owned entities (SOEs); privatisation of non-performing SOEs; reducing the number of civil servants and clearing up the civil service payroll to remove dead and/or non-existent employees; respect for property rights; greater support for local companies; overall improvements to the investment climate; and gradual steps towards debt repayment.

A daunting task but progress in a handful of these areas will help to shore up local and investor confidence in the new administration. How likely is it that the government achieves this? The answer is that it depends on which issue and by when. We believe that some of the most pressing issues include media and electoral reforms as well as tackling voter intimidation. An improvement in the liquidity situation would defuse some local tension while implementing planned changes to the indigenisation policy will go a long way in sending positive signals externally.

Progress in these few areas (in the absence of a significant deterioration in other areas) would be encouraging and is largely possible within the first 6-8 months of 2018. We believe that movement in these areas would indicate that some sort of shift has taken place. Addressing the remaining above-mentioned issues over the next few years will test the extent to which this change is genuine and long-lasting.

Article compiled by: Simiso Velempini, Senior Director and Head of K2 Intelligence’s Africa Practice

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