HomeOpinionMortgaging assets: wrong policies militate against economic revival

Mortgaging assets: wrong policies militate against economic revival

Shakeman Mugari

TROUBLED regimes faced with economic crises usually resort to self-destructive strategies that eventually sink the government they are devised to save.

When vote-rigging and propaganda fail as life-prolonging methods, such regimes degenerate into outright dictatorships. They will engage in populist policies to give the impression that they are doing something to solve the economic crisis.

Policies like price controls, nationalising private property and printing money become key facets of their survival strategy. President Robert Mugabe has tried all these without success.

This failure has come despite some innovations.

Perhaps government’s biggest innovation thus far has been the adoption of one of the oldest practices in the Shona culture — kuzvarira — as an economic survival strategy.

Kuzvarira is the last line of defence for a family man in the village who spends the better part of the farming season quaffing at the community brew while his neighbours are busy in the fields. When hunger strikes, the man will give his young daughter to the neighbour as wife in exchange for a few bags of grain. In desperate times unborn babies can be pawned to save the family from starvation.

The Domestic Violence Bill might be fighting that practice but President Robert Mugabe and Reserve Bank governor Gideon Gono seem to believe the concept could be transformed to form part of a national strategy to solve the current economic crisis.

Mugabe is not like the lazy villager but a busybody who commits his energy towards implementing wrong policies.

The land reform, the war in the DRC, war veterans payouts are cases in point, and so was the creation of the senate.

Judging by political statements from the presidium and Gono, it is clear government has decided to mortgage minerals and state assets in a bid to resolve an intractable crisis. Since January government has been dangling its mineral resources and other state assets to lure investors.

The idea is to use minerals and state companies to meet short-term needs like fuel and foreign currency to import essentials like food and drugs.

It was in this spirit that Mugabe visited Iran two weeks ago to negotiate a deal to get fuel from the Middle East. His major bargaining chip — as has become the norm in these desperate times — was that Zimbabwe had unexploited minerals that it could mortgage for fuel from Iran.

Media reports last week said Zimbabwe promised the Iranians an array of minerals, mainly uranium and platinum.

Analysts say mortgaging state assets and natural resources does not work. They say it is a survival strategy of desperate nations that fail to produce enough foreign currency to meet their needs.

It is a stop-gap measure that will leave the country poorer in the end because it cannot negotiate fair value for its minerals.

Businessman Luxon Zembe said mortgaging assets would entrap the country in perennial debt.

“We are going into these deals because we don’t have much choice. Nations from whom we are begging have an upper hand,” said Zembe. “We are going to them as weaker partners and therefore we don’t have much,” Zembe said.

Government has applied the same strategy to get investments and aid from China and Russia. Specific terms of the deals have been shrouded in secrecy but there is little to show for them.

Already Zimbabwe is in another US$50 million fuel deal with a French company, BNP Paribas, which involves tying up part of Bindural Nickel Mine’s mineral production as security. The facility has however failed to make an impact. Fuel shortages have worsened.

Shares in state companies have also been used as sweeteners to get offshore investors to set up shop in Zimbabwe. There have also been minor deals with countries like Indonesia, Malaysia and Singapore whose benefits have not been seen.

China, according to the sketchy details that government has released, will get Zimbabwe’s chrome and tobacco in exchange for mining equipment.

There have also been state media reports that the Chinese will set up a thermal power station in the Dande area. The government has also promised them stakes in parastatals if they renovate the ageing infrastructure in the state companies.

Tel*One and Net*One have been earmarked as potential investment areas for the Russians.

However, a similar deal between Zimbabwe and Libya struck in 2002 for the supply of fuel collapsed, leaving the country poorer. Zimbabwe surrendered six farms and stakes in CBZ and the RTG to the Libyans as surety. There were also promises to supply agricultural products to Libya. The deal worked for a short period before collapsing after Zimbabwe failed to pay.

The irony of it is that Mugabe is using the same destructive tactics to try and save an economy he has single-handedly pushed over the cliff.

Economic commentator Eric Bloch said while the deals might work in the short-term, they were doomed. He said there were other means of attracting investors than pawning unmined mineral resources and national assets.

“The bottomline is that we must produce enough foreign currency by resuscitating our industries and the agriculture sector,” Bloch said.

Zimbabwe has been pushed into a situation where it has to offer a pound of flesh to get investors because it does not have a conducive environment to attract them. Investors have been shunning Zimbabwe because of its poor human rights record, lack of respect for property rights and a suborned judiciary.

Investors are concerned about the unstable political situation and government’s policy flip-flops. All this running around to Asia and the Middle East seems to be part and parcel of the denial mode that government has adopted since the crisis started seven years ago.

It was because of the land reform that the country’s agricultural production slumped by more than 60% leading to foreign currency shortages. Tobacco production has gone down by 75% over the past six years. Tourism, one of the major foreign currency earners, went down due to security risks caused by government’s wholesome takeover of conservancies and farms.

Uncertainty still hangs over the mining sector after government’s announcement that it will take a 51% free stake in foreign-owned mines. It was due to government’s hostility towards the International Monetary Fund and the World Bank that the country failed to secure balance-of-payment support to stabilise the currency, hence the economy.

It’s government policies that have driven companies into closures and stifled potential investments.

“The first objective should be to get policies right and revive the key foreign currency generating industries before we start parcelling out minerals,” Bloch said.

“Mending bridges with the IMF and World Bank could be a starting point towards getting credit at fair rates and proper conditions.”

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