Page last updated at 23:54 GMT, Thursday, 12 February 2009

Can Tsvangirai fix Zimbabwe's basket-case?

Analysis
By Jorn Madslien
Business reporter, BBC News

Zimbabwe's Prime Minister Morgan Tsvangirai has declared that his first priority will be to fix the country's basket-case economy.

Morgan Tsvangirai
Prime Minister Morgan Tsvangirai's battles are only about to begin

It is a challenge of biblical proportions - even when leaving aside the problems of sharing power with President Robert Mugabe.

"The expenditure needs of government stretch from the North Pole to the South Pole while its revenue options are as terse as the shortest verse in the Bible - 'Jesus wept'," observes the All Africa news service.

With most of Zimbabwe's schools and hospitals closed, its roads and sewers in tatters, and with at least eight in 10 people out of work, there is no shortage of areas where expenditure can be clocked up.

But raising the cash is a trickier task.

Take Mr Tsvangirai's first promise to his people, that "every health worker, teacher, soldier and policeman will receive their pay in foreign currency until we are able to stabilise the economy".

Doing so would make sense, given that the US dollar and the South African rand have become the de facto currencies in Zimbabwe, with most shops refusing to accept the Zimbabwean currency as payment.

This has rendered the salaries currently paid to civil servants pretty much worthless.

In turn, many have been forced to seek an alternative income, whether from other jobs or by turning to corruption, while others have simply left the country.

No assistance

The question is not whether civil servants should be paid in a currency that will pay for their food, but rather where the government will get the money from.

Gold digger in Zimbabwe
The impact on Zimbabwe has been particularly severe
Economist Intelligence Unit

Unlike many other African nations which receive aid from wealthy nations, Zimbabwe saw the International Monetary Fund turn off the taps a decade ago.

Donors, led by the US and the European Union (EU), have said they will neither ease economic sanctions nor provide development assistance until it is clear that Mr Tsvangirai has truly managed to wrestle power from President Robert Mugabe.

First, the EU would want to see "tangible signs of respect for human rights, the rule of law, and macro-economic stabilisation", it said in a statement.

"We'll just have to wait and see," agreed US State Department spokesman Robert Wood, calling for evidence of "good governance and particularly real, true power-sharing on the part of Robert Mugabe".

Direct investment into Zimbabwe from abroad has also all but collapsed, which leaves the government with just one way to get hold of foreign currency, namely exporting.

Severe impact

In the recent past, more than half its export earnings have been generated by its platinum, gold, ferrochrome and nickel mines.

It would not work unless Zimbabwe accepted that South Africa would control its economy, which would make it virtually a province of South Africa
Azar Jammine, senior economist at Econometrix

In recent months, these earnings have plummeted as global prices for precious metals have slumped, with some mining companies mothballing operations till demand picks up again.

"The impact on Zimbabwe has been particularly severe, " according to the Economist Intelligence Unit.

"All four sectors are in serious trouble, partly because of the global downturn but also the collapse of basic infrastructure, especially electricity and water supplies."

Zimbabwe's other foreign currency earner, agriculture, is a shadow of its former self after the wholesale looting of farms by Mr Mugabe's cronies during the early 2000s, when productive and profitable farms were either actively wrecked or left to rot.

These days they do not even produce enough to feed the country's starving population.

"Seven million people are in need of food aid"," says Mr Tsvangirai, so it is clear that significant export earnings from agriculture are out of the question.

The country no longer has a tourism industry to speak of, and it could take years before visitor numbers pick up.

Indeed, to make Zimbabwe attractive to tourists, the country's deadly HIV/Aids and cholera epidemics will need to be tackled and the rule of law must be re-established.

'Unhelpful and unacceptable'

With little scope for raising sufficient foreign currency from exports, another solution has been put forward.

Zimbabwe should adopt the South African rand as its currency, South African President Kgalema Motlanthe has suggested.

Cholera patients
Zimbabwe's suffering people should not expect quick relief

But there are plenty of sceptics.

"It would mean that Zimbabwe would have to follow very different policies than what they've followed up to now," says Rudolph Gouws, chief economist at Rand Merchant Bank.

"This would require Zimbabwe to give up its monetary and exchange rate policy sovereignty," observes Alide Dasnois, economist with the Governance of Africa's Resources Programme of the South African Institute of International Affairs.

Such a move would also leave Zimbabwe with "a very tight fiscal space in which to manoeuvre and pull itself out of its misery", he reasons in an article in the Cape Times.

And as the rand would be overvalued relative to Zimbabwe's situation it would "destroy the competitiveness of its exports" and hence remove any chance of an export-led recovery, he continues.

As such, adopting the rand would "paint Zimbabwe into a corner in its bid to revive its economy", though this is not the main reason why it is an unlikely scenario.

"It would not work unless Zimbabwe accepted that South Africa would control its economy, which would make it virtually a province of South Africa," adds Azar Jammine, senior economist at Econometrix.

Mr Mugabe in particular would resist any dilution of Zimbabwe's sovereignty, while Mr Tsvangirai would see it as "an attempt by South Africa to be party to the agreement via the back door", Mr Lwanda reasons, insisting that adopting the rand would be "unhelpful and politically unacceptable" to Zimbabwe.

Political battle

An economic solution to Zimbabwe's woes is clearly not forthcoming at this stage, so expect Mr Tsvangirai to focus on his political battles.

He will have to fight on two fronts.

At home he will need to make the power sharing agreement with Mr Mugabe work.

While on the international arena he will need to convince both government leaders and investors that he has truly established himself as the nation's genuine leader.

Only then will sanctions be lifted and both aid money and inward investment begin to flow.

Without such input from the international community, there is little hope that Zimbabwe's economy can begin to recover and the country's humanitarian crisis be brought to an end.

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