Tag Archives: debt

Compensation for land

In an important piece in the on-going Sokwanele debate on land entitled “The significance of land compensation for rehabilitation of Zimbabwe’s land sector”, Professor Mandi Rukuni, former chair of the Zimbabwe Land Tenure Commission and professor of agricultural economics at UZ, offers his thoughts on the compensation issue. As ever it is a measured, pragmatic stance and one with much merit. He makes a number of key points and maps out a way forward. It is worth summarizing the highlights.

He points out that existing legislation (from 2000) allows for compensation for ‘improvements’ only. This has been confirmed in the still-disputed draft Constitution, suggesting at least that the MDC agrees with this formula, although the Constitution allows for full compensation including for land for those farms governed by investment treaties. Around 125 farmers settled on this basis in the early 2000s before hyperinflation kicked in. Now others are contemplating this, among the former owners of the 1250 farms that have been surveyed and valued. Thus since the Fast Track programme, 210 farmers have been compensated for improvements. Compensation values which have been paid out vary from about $200,000 to $1.2 million, according to Rukuni.

But what would the total cost? In order for the agricultural economy to move forward and for investment to flow, with confidence once again being restored, dealing with the compensation issue is a priority. Under the existing law, compensation and so ‘quittance’ must precede the issuing of any new lease. Without compensation then, especially for the larger A2 farms, lease arrangements are impossible, resulting in continued insecurity for existing farmers.

According to government, the total settlement bill on this current basis would be US$1.5-2 billion. However, the Commercial Farmers’ Union disputes the legislation, arguing that compensation values should include land, improvements, interest and consequential damage. They estimate the total would come to between $6 and $10 billion. Clearly there is a big gap between the estimates. What then is a pragmatic solution? The fact that the government is serious about compensation is clear from the budget allocations up to 2014, over which period some $30 million has been earmarked for compensation. This is clearly not enough, and other support, including from the international community will be required, to resolve this. So, what else needs to be done?

Rukuni identifies two things for immediate action. First, valuations must be speeded up. Currently over 5000 properties still need to be properly valued, and if valuations are disputed, they must be dealt with in the Administrative Court. Second, a Land Acquisition Compensation Fund needs to be set up to allow swift and complete payment of all compensation. The fund would be made up of contributions from the national budget, contributions from international donors and development banks, and from transfer fees and ground rents from A2 farmers once leases were issued.

Above all, Rukuni argues for a pragmatic and flexible process. While there are some who will stick out for a full settlement and will continue to pursue this in any court that will hear them, there are many others – perhaps the majority – who want an end to the uncertainty. For many the economic collapse, as well as the loss of their farm assets, has resulted in severe hardships, very often in a vulnerable period of retirement, given the age profile of most former white farmers.

Rukuni comments, showing his frustration with all sides: “…frankly the country needs a more proactive leadership from both government and organized farmers on this matter. It is better for government and farmers to face donors with a negotiated position than the current huge gulf in positions”. In other words, he suggests, until there is a sense of joint movement on this donors, whose budgets are being squeezed in any case are unlikely to touch the politically charged prospect of compensating a few thousand white former farmers, prioritizing them above other perhaps more pressing humanitarian and development needs in the country.

Yet for the country to move forward some compensation deal, at least for the majority, is essential. This must emerge from a national consensus, driven jointly by former farmers and the inclusive government. This must represent a reasonable, not a maximum, claim, more likely in the ballpark of the government’s estimate. My personal view, expressed in an earlier blog, is that, rather than expecting the constrained national budget and aid budgets to bankroll this, any compensation settlement must be wrapped up in a deal around national debt. Yet sadly on this too, there remains little consensus. So, while the administrative and legal mechanisms for resolution exist, the political commitment from key players must be there too. Sadly, this may still be something that has to wait until a new political settlement is reached, hopefully in the next year, with a new agreed Constitution being the basis for moving forward on this thorny consequence of the land reform.

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Five questions for Morgan Tsvangirai

Zimbabwe’s elections must be held within a year. Already election manoevering is occurring. Everyone hopes that the violence and mayhem of 2008 will not be repeated. Free and fair elections on a new constitutional basis are essential. Most of the attention has been focused on the political machinations of the major parties, and the alliances, divides and clashes between factions, especially within ZANU-PF. But what about policy? Sadly in the fraught context of Zimbabwean political debate, the substantive, policy issues that should underpin political positions often get lost.

Here are five questions for Morgan Tsvangirai, Prime Minister and leader of the MDC-T grouping in the government. MDC-T won the parliamentary elections in 2008, and Tsvangirai would almost certainly have won the presidential election too had electoral violence and intimidation not been the victor. In the next year, Morgan Tsvangirai hopes to be the next president of Zimbabwe. I wonder what his policy positions are? The MDC-T website is not that revealing, and commentaries from party members are not always consistent. So, if anyone happens to meet Morgan Tsvangirai, here are some questions it would be really interesting to know the answers to.

  1. After your recent visit to China, what do you think China’s role will be in Zimbabwe’s transition before and after the next elections? (The visit was it seems more than the normal trade delegation. High level contacts were made. Is China really preparing for a transition, and will China move beyond its rhetorial position of not interfering in political processes? Does China have too many commerical interests in Zimbabwe now to accept continued chaos? Will China really contemplate dumping its long-term partner since the liberation movement? Of course no-one will be able to answer these questions, but the changing position of China may be more important than the positions of the EU, UK, or US in the coming years).
  2. Is coalition government in Zimbabwe a permanent and necessary feature in order to encourage inclusive, national development? (The GNU cobbled together in the aftermath of the disputed elections of 2008 was a compromise. There is much debate as to whether it was right for the MDC to get involved. They probably had no option. But with Zimbabwe’s politics so divided and divisive, is coaltion government not the most likely outcome of any political contest in the near future? In Europe it’s the norm, and we even have a coalition government in the UK (replete with warring factions). Will the MDC accept a new government of national unity under a new constitutional arrangement after the next elections in order to maintain national unity, or is going it alone and reconfiguring politics forever the only route?)
  3. Given that the MDC has confirmed that the land reform is irreversible, what alternative narrative on land can the MDC offer to counter that of ZANU-PF which will appeal to rural constituencies and is not dominated by white commercial farmer interests? (I have commented before on the policy vacuum in the opposition around land and rural development issues. The MDC’s contribution appears to be led by a very narrow perspective – Roy Bennett and Eddie Cross. Both come from a very particular position and history, and seem unable to grasp the implications of the changes brought about by land reform, frequently harking back to the past and not looking forward to the future (see the latest from Eddie Cross). Yet in important respects, the land reform provides an opportunity for the opposition movements. An emerging ‘middle farmer’ constituency now exisits on some of the thriving A1 and (some) A2 farms. These are not ‘cronies’, beneficiaries of patronage, but people with land wanting to make something of their businesses. They are sceptical of the land grabbing elites, and are potential if not current MDC supporters. But what does the opposition offer to counter the violent, nationalist narrative of ZANU-PF? A return to the assumed hey-day of commercial agriculture, or something different? Where are the opposition intellectuals who can offer an alternative narrative that will appeal to a wider rural consituency? In the longer term the MDC will have to win elections by being more than ‘not ZANU-PF’. It needs a progressive alternative narrative on land that it can articulate as policy).
  4. When should donors like the UK remove ‘restrictive measures’ and other ‘sanctions’, including the block on funding going to resettlement areas? Do these measures do more harm than good in political terms? (This is a long-running discussion on which I have commented before. There appears to be some movement, but as with all complex diplomacy it is slow and painful. Meanwhile people have to live, schools have to be run, and a generation is missing out. Weaning Zimbabwe from aid dependence is a good thing of course, but clearly there are major challenges of investment right now, and even if it is only the diplomatic signalling rather than aid flows per se, this will have a big impact. Meanwhile of course, on a very different basis, the Chinese and others are engaging altering the playing field perhaps for ever).
  5. How will Zimbabwe deal with its debt? Does a HIPC deal make sense, or can Zimbabwe channel mineral revenues effectively to reduce it independently without resuming a reliance on the IMF, and its associated conditionalities? (Again I have commented on this issue before. But dealing with debt is going to be key for any new government. Add in the debts associated with settling the compensation for improvements on the former white commercial farms taken over under fast track land reform (an additional USD1.5-2 billion), the total is not far off $9bn – a massive amount given the capacity of the economy. The trade off between going it alone versus signing up with the IMF is a real one, and will affect the economy and politics for decades, as did the ESAP era of the 1990s).

So if you happen to bump into Morgan Tsvangirai, Tendai Biti or others, do pose these questions, and let us know via a comment on the blog what you found out! Or if you have answers to or perspectives on any of the questions above, do feel free to share them.

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Dealing with the national debt – and farm compensation

Zimbabwe has a massive national debt. This is currently estimated to be $7bn. If Zimbabwe is to gain the necessary support from international finance institutions, commercial lenders and others, it has to deal with it. Of course some debt is perfectly acceptable, but it has to be serviced, and with debt exceeding GDP this is difficult, as debt servicing takes up too much government revenue. And of course when debt is not serviced, then confidence in the economy plummets and investment does not flow. It’s a catch-22: ask the Greeks, Irish or Portuguese – and even the British and Americans.  Dealing with the national debt is therefore crucial to national recovery.

With the catastrophic economic collapse through much of the 2000s, exacerbated by appalling fiscal discipline and accelerating hyperinflation to early 2009, the economy was in a real mess. So all credit to Tendai Biti in his role as finance minister for getting things back on course. The change in currency (abandoning the Zim dollar) was critical, but so have other measures. Growth is estimated to be 9%, and investment is flowing back into the country.

So what should be done about the debt? This a crucial element of longer term recovery, and will allow government financing of key areas. Rebuilding the agriculture sector following land reform is a vital task, but without funds recovery while positive is much, much slower than it might have been. If compensation for land improvements is rolled into the debt estimate (currently estimated at $3bn for a full settlement), then payouts to those (white) farmers who lost land through the land reform could be managed, as part of the debt settlement. Some of this could be paid back, with one suggestion being that A2 farmers pay 30% of the cost upfront into a fund, and the remainder is paid off over time as part of land taxation.  Payments for A1 farms are less likely and so would have to financed separately. Such a solution, as part of a debt deal, would unblock a whole range of issues in the agriculture sector, allowing security of tenure and investment to flow again. The wider political-diplomatic dividends would be substantial.

There are two views as to what to do about the national debt. A Jubilee Debt Campaign report reviews these options, and lays out the pros and cons. One option argues that a local solution should be found, whereby minerals revenues (which are large and growing) should be channelled towards debt write-off and external financing should come with no (or few) strings attached. When Zimbabwe’s economy was at its low point, China continued to provide (tied) finance – for the fertiliser and tractor programmes of the Reserve Bank, for example. China’s banking and loan finance arms are now widespread across Africa, and very active in Zimbabwe. But is this enough, and will the minerals tax take flow as smoothly as suggested towards debt repayments?

Another view is to go for an international debt write-off under the HIPC (Heavily Indebted Poor Countries) mechanism. Under an international deal, the compensation issue could be incorporated and calculated as part of the HIPC deal. However, this would require adopting IFI conditions, and undertaking a poverty assessment to show that reform could be directed to poverty reduction. This is a route a number of African countries have gone down, including some now doing rather well, including Zimbabwe’s neighbour, Zambia.

Some argue though that the HIPC route would be disastrous. Those making this case – as ever in Zimbabwe is a strange combination – include hardline ZANU-PF politicians who argue that this would undermine national sovereignty and debt relief campaigners who are worried about the conditionalities that would be attached. Should Zimbabwe suffer another ESAP period, just as things are looking better?, they ask. The Jubilee Debt Campaign report argues:

“The Zimbabwean story highlights many dangers of basing economic development on the use of foreign loans. We support calls for poverty and inequality to be reduced primarily through mobilizing domestic resources and reducing the outflow of resources through illicit flows, tax avoidance and multinational company profits, as well as debt repayments”.

The report argues against an immediate debt relief solution. Instead they argue that a first step must be a full debt audit to see who paid for what in past debt. While it is important that both the processes of taking on debt and writing it off should be clear, transparent and accountable, it is not that clear to me at least what the benefits of uncovering the rights and wrongs of all loans since 1980 would be.

In the report a number of different past loans are highlighted. For example, the World Bank financing of the Forestry Commission in the 1980s is offered as a case of a ‘bad’ loan. The returns were not significant and the money was wasted it was suggested. Having been involved in forestry debates in this period, there is plenty to critique, but I am not sure that a World Bank loan was irresponsible, as the Commission was trying to regear itself to serve the whole country and had to concern itself with fuelwood and trees in the communal areas.  Another example is the sale of land rovers to the Zimbabwean army. But again remember in the 1980s, the UK provided much support to the creation of a professional army following the war. All of these ended up with the racking up of debt.

But these were perhaps not the main economic misdemeanours that have led to the current crisis. This had its origins in the structural adjustment programme, and then a series of politically driven decisions which led to reckless fiscal indiscipline (from the war vet payouts to Gideon Gono’s frenetic printing of money), and a massive growth in corruption, linked in particular to minerals revenues.

While arguing for transparency and accountability in future financial dealings makes much sense, a long drawn out audit of the past probably doesn’t, particularly if it delays yet further resolving the debt issue through a negotiated HIPC route (a solution which, while problematic on some counts, is definitely not all bad in my view). And there is no time to lose. The lack of finance in the Zimbabwe economy over the past decade has limited recovery and created poverty. As argued elsewhere, a lack of economic recovery also stymies democratic renewal. Addressing the debt issue must be a priority therefore. And, if linked to dealing with the resolution of the thorny compensation issue, then an array of tenure, finance and security issues can be dealt with in the agriculture sector, releasing the full growth opportunities of the land reform.

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