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Zimbabwe’s economy goes from bad to worse

Zimbabwe’s economy continues to decline, with inflation spiralling and the new local currency losing value by the day. The IMF’s recent report makes grim reading, with negative growth recorded for last year, and an expectation of effectively no growth, growing inflation and a devaluing currency into 2020. The underlying macro-economic instability has been made worse by major climate impacts during 2019 – both the drought and cyclone Idai. The situation is bad, and getting worse.

With the failure of government to address the required reforms, the prospects of renewed external support with the necessary debt write-offs look minimal. The stand-off with the international community continues, with international sanctions and a lack of investment continuing. With external public debt rising to over 50% of GDP, much of it in arrears, there is little chance of the Zimbabwean state repaying. Bail-outs at some point will be required, and the scale of investment needed for basic infrastructure and services is estimated at US$16 billion. But instead of Zimbabwe, Somalia seems to be the focus of favourable terms, with Zimbabwe being left to decline further.

The embedded corruption at the heart of state failure becomes intensified as the economic chaos deepens. Those able to profit from parallel currency deals and leverage resource from state-led programmes are the elite few, connected to the political-military elite. And who suffers? Ordinary people, and especially the poor. The consequences of economic collapse are most felt in the urban areas, where safety nets are non-existent. While those in the rural areas have their own production to fall back on; even though this year the effects of drought have hit rural livelihoods hard too.

As the state tries to ameliorate the situation, things only get worse. For example, the Finance Minister announced the creation of ‘garrison shops’ so a restive army could buy goods on favourable terms. It was supposed to be financed by a levy on civil servants. But another parallel economy only creates opportunities for hoarding and profit, and punitive taxation on already struggling people causes resentment. Policy is being made on the hoof. Almost as soon as it was announced, it seems the tax was rescinded, or deemed voluntary, and so a big unbudgeted expenditure was added to the inflation pressures.

The uncovering of the massive rent-seeking in the milling industry, directly fuelled by state-sponsored grain buying for food relief, has exposed the problems. An apparently well-meaning policy is naively implemented, and those in the system exploit its benefits ruthlessly. In this case, with many alleged connections right to the top. The sense that those in charge are wholly out their depth or exploiting the system for their own benefit (or possibly both) is palpable. The IMF review team, in appropriately guarded language, clearly felt this.

Mentioned only obliquely was the cause celebre of this chaos – command agriculture. The corruption at the heart of this programme has been widely exposed, not least by the Public Accounts committee, chaired by opposition MP, Tendai Biti. Around US$3 billion is alleged to have been misused, through a complex web of government funding, private companies and military involvement. A recent ZDI report has highlighted the nexus of corruption at the heart of the party-state and military.

Under normal circumstances a public-private partnership for contract financing of commercial agriculture would have some credibility – just as would subsidised produce for the armed forces or state purchasing of grain through milling companies. But circumstances aren’t normal in Zimbabwe. Despite attempts at restructuring, the grip of corruption is so intense, and often led by networks close to those in power and running these initiatives, that these apparently sensible schemes become the basis for significant extraction, no matter what their worth.

No-one has quite got to the bottom of the command agriculture story as yet. The political economy is clear, but there have certainly been benefits. In our study areas for example, command agriculture resources have unquestionably resulted in boosts in production, especially on A2 farms. Repayments have been inconsistent, but many have been pursued rigorously. Not everyone can get away with just exploiting the system. But this is the point – it is just a few that continue to profit, getting massively rich while the rest suffer.

Is there a way out of this downward spiral? Attempts by the technocrats in the state to do what is required are foiled with each move it seems. Policies seem to be concocted at random, desperately responding to situation that is out of hand. One day it was illegal to sell fuel in US dollars to protect the local currency, the next day it is permitted across the country. Secret printing of money to offset US dollar losses in the mining industry solve one problem, but create many others.

The loss of trust in the government by key players – the IMF, western donor governments, even the Chinese – is clear. Sanctions (or other ‘restrictive measures’) are still in place, with influential players within and outside Zimbabwe arguing that they should remain until the regime changes. Investors are shying away, despite the occasional positive effort to rebuild key parts of the economy. Moves to create political coalitions across the divides are viewed with great scepticism given the experience of the Government of National Unity from 2009-13. It’s stale-mate. Some are holding out for an ‘uprising’ (usually those sitting in comfort firing off tweets), while others think it will have to get much worse before there is a change.

It is not a happy story, and given the dire food security situation this year, the consequences for livelihoods are severe. In agriculture, the glimmers of progress seen up to 2016 on the back of greater economy stability are fast being stamped out. Things are currently very fragile, and most farmers are holding back on investing further.

Today, like Somalia, Zimbabwe has a collapsed economy with vanishingly little state capacity, but, unlike Somalia, seems to be unable to convince the IMF, AfDB or other donors and investors to provide support. Another shock – whether further drought, the spread of coronavirus or something else – may create cascading, disastrous effects, with the elite being able to escape, while the poor (and this now includes a large portion of the population) will have to bear the brunt.

This post was written by Ian Scoones and first appeared on Zimbabweland

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Two speeches for ‘new era’ Zimbabwe

From http://www.zimbabwesituation.com

Over the last few weeks I have been in Zimbabwe, visiting our field research sites in Mvurwi, Matobo and Masvingo. It has been an exciting period, with fast-moving developments. The euphoria of November has given way to the realism of December, and with this some emerging sense of what the ‘new era’ might bring.

Two speeches have dominated the news – first the inauguration speech by President Mnangagwa and, second, the budget speech last week by reinstalled finance minister, Patrick Chinamasa. Of course actions must follow words, but overall I find the tenor and content broadly positive, and I remain cautiously optimistic that a corner has been turned.  In this blog, I will offer some excerpts from and comments on both, focusing only on land and agriculture issues.

The inauguration speech was well crafted, aimed to send messages to different audiences from each paragraph. Following a respectful acknowledgement of the former president Robert Mugabe, he rejected the sanctions imposed on the country, creating a ‘pariah state’. He argued for letting ‘bygones be bygones’ and for the need for everyone to accept the historical realities and politics of the country, particularly in relation to land reform. Land – and the irreversibility of land reform, but the importance of investment and effective utilisation – was emphasised right up front in the speech in the following important passage:

“…given our historical realities, we wish the rest of the world to understand and appreciate that policies and programmes related to land reform were inevitable. Whilst there is a lot we may need to do by way of outcomes, the principle of repossessing our land cannot be challenged or reversed. Dispossession of our ancestral land was the fundamental reason for waging the liberation struggle. It would be a betrayal of the brave men and women who sacrificed their lives in our liberation struggle if we were to reverse the gains we have made in reclaiming our land. Therefore, I exhort beneficiaries of the Land Reform Programme to show their deservedness by demonstrating commitment to the utilisation of the land now available to them for national food security and for the recovery of our economy. They must take advantage of programmes that my Government shall continue to avail to ensure that all land is utilized optimally. To that end, my Government will capacitate the Land Commission so that the commission is seized with all outstanding issues related to land redistribution”.

The following comment on compensation was the one that was picked up by the international press. It of course represented no shift in position, as compensation for ‘improvements’ on the land (but not for the land itself) has long been accepted, although payments have been extremely slow:

“My Government is committed to compensating those farmers from whom land was taken, in terms of the laws of the land. As we go into the future, complex issues of land tenure will have to be addressed both urgently and definitely, in order to ensure finality and closure to the ownership and management of this key resource, which is central to national stability and to sustained economic recovery. We dare not prevaricate on this key issue.”

Reference to the ‘laws of the land’ clearly relates to the Constitution, which as an all-party agreement confirmed this policy position. What was different in this speech was the tone, and the public commitment. While policies may have not changed, the PR machine and sense of urgency clearly has. This is excellent news, given that compensation has long been a major outstanding issue, preventing closure on the land reform, and resulting in on-going sanctions being applied around still ‘contested land’.

While the inauguration speech was inevitably thin on detail, more was offered in the budget statement last week. Chapter 7 focused on ‘support for agriculture’, with the budget rather optimistically expecting the sector to grow by 15.9% on the back of a really good season. Re-emphasising the importance of agriculture in the President’s inauguration speech as the ‘mainstay’ of the economy, issues of land utilisation, land tenure and boosting production were emphasised.

Chinamasa’s statement summarised the challenges of ‘new farmers’ thus, “On average, the new farmer had been encountering constraints which became a hindrance to full productive utilisation of the land, bordering around capacity, resources, and elements of insecurity over tenure. The result was much idle farmland, and unaccountability on the part of the farmer with regard to use of acquired land holdings for farming in support of domestic food security, supply of agro-inputs and exports”.

A number of remedies were offered:

On land tenure: “To give confidence to beneficiaries that their occupancy is guaranteed, and cannot be withdrawn willy-nilly, through the indiscipline of either youths, political leaders, traditional leaders or senior officials, Government is undertaking to institute measures to strengthen the legal standing of Offer Letters and 99 Year Leases. This enables the much needed farm investments, improved utilisation of land and, therefore, production”. This is good news, and also a relief that the lease/permit option remains preferred over a mad titling spree advocated by some. The budget emphasised the need to speed up farm valuations and surveys, so that the issuing of leases can be speeded up, supported by the Surveyor General (and drones!).

On land audits and under-utilised land: Through the process of land auditing “issues of multi-farm ownership, idle land and under-utilisation of land are going to be identified. Idle land represents dead capital and promotes speculative tendencies, if not checked on the part of the land holders. As a result, the economy loses on optimal agricultural production”. The Zimbabwe Land Commission is charged with this responsibility, and the budget speech urged the long-awaited audit to move forward.

On Command Agriculture: “The thrust is on full, efficient and sustainable utilisation of allocated land, for increased investment on the land and production”. The role of ‘anchor companies’ (such as Sakunda) as part of a strategic public-private partnership is emphasised,. Such companies provide “access to capital and markets, sharing of best practices, farming knowledge and transfer of expertise, mutually beneficial to both parties. More specifically, the identified anchor companies have the critical roles of providing access to capital, training the small scale farmers and coordinating marketing, including exporting”. Interestingly, Command Agriculture is seen as a “transitional inception intervention”. There is a recognition that, pending allocation of leases and the release of private finance (especially for the A2 farms), collaborative financing models, involving the state and the private sector are needed. “In the interim, the new farmer would need to be incubated as they learn the ropes and overcome learning-by-doing inefficiencies that entail yields lower than would obtain with best practices, making a case for transitional producer prices higher than import parity levels.” As discussed in an earlier blog, a key issue is how long – and how politically necessary – such an ‘interim’ phase is required, as the cost of defaults and $390 per tonne of maize is huge.

On ‘leakages’ and abuse: An extended section of the speech focused on leakages in the Command Agriculture and Presidential Inputs Scheme, recognising the problems of corruption that have been widely reported. A decentralised electronic data management is proposed, along with the capacitation of Agritex offices and ‘command centres’. Investigations of abuse are promised, whereby “culprits will be quickly brought to book”. Clearly Command Agriculture is a high-profile plank of economic policy for the ‘new era’ (at least for now) – extending from maize and wheat to include soy beans and livestock in the coming season. In line with the wider rhetoric around stamping out corruption, military discipline and well-designed logistics operation will be applied it seems, with Air Marshall Perence Shiri firmly in charge.

On loan repayments: The budget speech highlighted (in the context of course of a very good rainfall season) the loan repayment pattern of Command Agriculture. For maize, “loan recoveries are running at 66%, with the Command Agriculture Revolving Fund registering repayment receipts of US$47.4 million in loan recoveries from farmers. This is against an anticipated repayment target of US$72 million. Out of the 50 000 farmers contracted to produce maize under Command Agriculture, 33% fully paid their loan obligations, with 22% having partially paid their obligations, while recoveries others are being made as they deliver to GMB.” A broadly similar pattern is reported for wheat. Let’s see what the final figures are once all crops are delivered, but for a state loan scheme such returns are not bad, although clearly could be improved, with over 10,000 farmers not having paid anything by 23 November. To that end: “To encourage our farmers to continue paying back their debt obligations, all fully paid farmers are being prioritised in accessing inputs under the 2017/18 Command Agriculture programme.” This sort of financial discipline is encouraging, and is certainly reflected in conversations I had with a number of A2 farmer beneficiaries of the scheme who are committed to repayments, and are actively being chased for them, despite their apparent status or political connections.

On private finance: With Command Agriculture presented as temporary, what alternatives are suggested? “As we move forward, private sector and commercial bank finance will be required to fully take up its rightful role of adequately underpinning agriculture, particularly, A2 commercial farmers”. For this, the A2 99 year lease is seen as crucial, although continued politicking around this continues. For smallholders, contract farming arrangements are highlighted.

On compensation: Not much detail was offered here, other than a recommitment to paying compensation in line with the Constitution. The statement indicated monies were to be set aside, both for normal compensation and for those areas appropriated that were under bilateral investment treaties. The amounts were however not specified; clearly there is hope that donor support and debt rescheduling will help.

In sum, the policy directions proposed by both speeches are certainly on the right track. The opposition complained that their ideas had been stolen, highlighting a converging consensus on many policy issues. The challenge will be to make the grand ambitions happen, so far with extremely limited resources; although of course with the hope of new injections of donor funds and lines of credit. Central to the challenge for land and agriculture will be to combine all elements in a new, effective land administration and financing/support system. The new minister of Lands, Agriculture and Rural Resettlement and his team, as well as the independent land commission, all have their work cut out. Hopefully some of the ideas shared in this blog and from our research over the years will help in charting a way forward.

This post was written by Ian Scoones and first appeared on Zimbabweland

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Command agriculture and the politics of subsidies

Command agriculture – a major, private-sector-backed subsidy programme implemented by the Government of Zimbabwe – has been hailed as a massive success, especially following the huge maize harvest reaped this year (see last week’s post). President Mugabe recently described command agriculture as ‘beautiful’.  The programme, led by the Vice President, Emerson Mnangagwa, with the ministry of agriculture and support from the armed services, involved the delivery of fertiliser (along with seed and fuel) to farmers in higher potential areas, and especially with larger land areas (targeting 2000 farmers with 200 ha or more of arable land) and irrigation facilities. Sakunda Holdings (and others) backed the scheme reputedly to the tune of $160m, and government implemented it on the ground, requiring those receiving the package to repay by delivering an ambitious five tonnes of maize per hectare funded to the Grain Marketing Board (GMB).

The command agriculture programme is being repeated again this coming season; this time with even more ambitious targets, and again with backing of Sakunda. Apparently 45,000 have registered and high crop outputs are expected. While much of the hype is wildly unrealistic, the programme has become core to an increasingly centralised approach to agricultural planning and development in Zimbabwe, as advocated by the VP. There are now ‘command’ approaches mooted for livestock, fisheries, wildlife and more. Given the VP’s background, these all follow the model of Chinese central planning, executed with military logistics and support. Hailed by the Chinese ambassador, it has been an enormous operation, taking up the energies and time of extension workers and apparently up to 1000 members of the army across the country.

The programme has not surprisingly come under intense scrutiny, and has become embroiled in the on-going soap opera of internal ZANU-PF political machinations, with a lively media spat between Higher Education minister Jonathan Moyo (of the G40 faction – and apparently a direct beneficiary), who denounced command agriculture, and the Lacoste faction who vigorously back the programme. The commander of the defence forces gave a robust defence too. Given the scale and ambition of the programme, there have been ‘leakages’ – and some high-profile cases of those abusing the system – and the delivery was not always smooth, with many not receiving the full package on time.

But despite everything – and significantly because of the excellent rains – the programme seemingly delivered. I cannot find reliable data that details how much of the 2.15 million tonnes of maize produced in the 2016-17 season (as well as improved soya production too) is attributable to command agriculture (some say 1 million tonnes), nor any results of detailed economic evaluations, but the basic point is that if you throw inputs (notably nitrogen fertiliser) at improved seed in well prepared soil, and there’s good rainfall, increased outputs will result. There is no agronomic surprise there. But with the GMB buying maize at $390 per tonne, way above world prices, and questions about how the financing works, there are clear concerns. The big question is of course, how sustainable is this approach for the longer term – economically and politically?

How sustainable?

This is the concern raised by economists and other policy analysts, including the IMF. There are precedents of course. This is not the first time Zimbabwe has embarked on massive agricultural subsidy programmes. Indeed the successful origins of white commercial agriculture in the country were built on huge subsidies from the state. Is this just a well-timed kick-start to the struggling A2 farms, which have lagged behind due to lack of financing, allowing them to find their own feet, as white farmers did before? In the 1980s and 90s, there were regular fertiliser subsidy (or cheap credit) programmes aimed at boosting communal area agriculture, resulting in a short-lived ‘green revolution’ in the country. In the 2000s, subsidy programmes – from Taguta to the mechanisation progammes led by the Reserve Bank – were attempts at spurring growth in the sector following land reform, but failed due to poor implementation, patronage and corruption.

More widely in the region, Malawi had a period of intensive investment in (mostly) maize production through the FISP (Fertiliser Input Subsidy Programme). This produced a significant growth in production, with Malawi becoming a regional exporter of maize. The same occurred in Zambia, through a range of programmes across successive governments. All of these subsidy programmes however became fiscally unsustainable, and while producing food and reducing import bills became very, very expensive, taking up significant proportions of national expenditure (with opportunity costs elsewhere – in schools, health services, road building and on). A bad rainfall year (or even a middling one) may unravel things quickly, loading more onto an already crippling national debt.

Subsidies and politics

Subsidies are always political. They are ways of directing political power and patronage to particular groups, who those in power want the support of. In the 1980s, it was the communal areas, who had backed the liberation war, with the political compact being that rural people (and their votes) needed securing. In the 2000s, it was the new resettlement farmers (notably A1 smallholders) who required support, as they were the base that ZANU-PF had to rely on in a succession of contested elections.

Today, while an economic-technocratic position of commercial boosting production is well articulated, the focus is on larger, more connected A2 farmers who are being favoured. As the core of the middle class, professional, business and security service elite who benefited from such land, but had not been using it effectively, securing their support politically, and ensuring greater economic viability of A2 farms (while securing food for the nation) had become a political imperative. And given the positioning of the VP and the ED/Lacoste faction, very much in line with a political dynamic unfolding now.

A more strategic view?

As with the support of emerging white settler agriculture by the colonial government of Rhodesia in the 1930s and 40s, this may be seen in the future as a successful investment. Long-term commitment by states to transformation – through innovation and core support – is increasingly seen as essential in any economic strategy. Gone are the days of the Washington Consensus when subsidy was always a dirty word.

But a wider strategic debate about such investment (including more broadly finance and credit in agriculture) and approaches to exit is needed, separating it from the complex machinations of intra-party politics and faction fighting. As with Zambia and Malawi (and India and so many other countries besides where electoral politics is heavily reliant on a rural vote), extricating the state from subsidy addiction is tough. Phasing out a fuel or fertiliser subsidy can result in protests, and an electoral backlash. Patronage and dependency relationships get set up, and peoples’ political careers and parties’ fortunes, become tied up with subsidies.

Zimbabwe urgently needs a more thorough-going debate about what type of subsidies make sense for rebuilding agriculture, avoiding the ideological knee-jerk that all subsidies are bad, but at the same time countering the tendency of patronage lock-in that subsidy programmes, tied to political cycles, always generate.

This post was written by Ian Scoones and appeared on Zimbabweland

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