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Investment cabinet fails to deliver

Shakeman Mugari

WHEN President Robert Mugabe appointed his current cabinet in April after his disputed March election victory, he said 2005 would be a year of investment.

This was a follow-up to his “war cabinet” of 2003 and the “develop

ment cabinet” of last year. The public was told the “investment cabinet” would tackle head-on the current political and economic crisis to attract investment and achieve growth.

Mugabe’s statements gave the impression the economy would be in a better shape by the end of the year. They also suggested that Zimbabweans might for the first time in five years have a relatively happy Christmas and prosperous New Year.

Observers say it needed a great leap of faith to believe Mugabe. They say the economy is now in a far worse condition than it was in April.

We are faced with a collapsed economy when we were told it should have recovered by the end of the year. Inflation is now over 500%, up from 123% in January.

Government has forecast the economy to shrink by 3,5% this year when it initially claimed it would grow by 5% before it revised that to 2%.

The International Monetary Fund (IMF), which initially forecast a 7% contraction, now says the economy will shrink by 4,6%. All the other economic indicators — interest rates, budget deficit, national savings, and domestic and foreign debt — remain in negative territory. The situation next year looks increasingly grim.

Companies are still closing down. And the shortage of foreign currency, fuel, power, spares, drugs, food and basic commodities have not abated either. If anything, they have got worse, showing Mugabe’s growing proclivity to misjudge his policy pronouncements.

Instead of attracting investment, Zimbabweans saw government exerting more energy in destroying their investments, particularly in the informal sector. They saw a calculated assault on property rights and a further curtailment of civil and political rights.

This provided a powerful disincentive to foreign investment. The confiscation of farms protected by Bilateral Promotion and Protection Agreements, contempt of court orders, and the occupation of the Lowveld sugar estates have scared off investors in all sectors of the economy, including mining.

In the end it means for the fifth year running it’s going to be a miserable Christmas for Zimbabweans.

Christmas and New Year have now become irrelevant occasions in Zimbabwe. They come and go virtually unnoticed for the majority, except for the wealthy who can afford to go on holidays abroad.

Mugabe had claimed the economy would grow through increased investment and production in key sectors like agriculture, mining and tourism. However, events during the year show that the government spent more energy trying to scare away investors than bringing them into the country.

The formulation of unworkable policies, for instance on price controls, and intensification of repression — such as the arrests of political and civic activists as well as journalists — compounded the image of a failed state.

Recent Zanu PF annual conference resolutions to seize citizens’ passports and crack down on NGOs has aggravated the situation. Mugabe’s continued fight with the international community, including the United Nations, militate against investment. Zimbabwe is now more isolated than ever before and this will militate against its efforts to attract domestic and foreign investment to revive the economy.
Save for the few Chinese investments, Zimbabwe did not receive any major foreign direct investment because of its high political and economic risk. Companies which want to invest in Zimbabwe are still holding on to their plans while they assess the situation.

The year kicked off with government taking over tycoon Mutumwa Mawere’s Shabani Mashava Mine for allegedly failing to pay its debt to the state. The Reserve Bank also helped the state in taking over Trust, Royal and Barbican banks to incorporate them into the Zimbabwe Allied Banking Group.

The owners of the companies are still in court seeking redress but the government is committed to keeping them at all costs.

Operation Murambatsvina, which destroyed people’s informal business investments and homes, was also alarming to those who might have wanted to bring new investment into Zimbabwe. Thousands of small companies were swept away by the so-called clean-up.

When the United Nations (UN) raised concerns about the humanitarian situation spawned by Murambatsvina government lashed out accusing the world body of being an agency of the United States and Britain.

The government also passed the Constitutional Amendment No 17 Act which further limits democratic space and attracts negative publicity.

The amendment practically nationalised all acquired land and amounted to an attack on the judiciary by removing the courts’ powers of jurisdiction on land cases.

Fresh land invasions were also damaging. About 33 companies operating in Export Processing Zones closed after their land was invaded or due to the foreign currency crisis.

Then there was the problem of unstable macro-economic fundamentals. Inflation, which was 123% in January, has surged to 502%. The increase in inflation e he continues to wipe out people’s disposable incomes, one of the key ingredients for economic growth.

National savings crashed to about 10% of GDP, leaving the country with limited sources of funds. In an ideal situation savings should account for 25% of GDP. National savings are one of the major sources of domestic income and a favourite indicator for international investors. Disposable incomes determine people’s expenditure levels. Investors target countries where people have strong buying power because of their disposable incomes.

Government also continued on a spendthrift path splashing national resources on questionable institutions like the newly reintroduced senate when over three million across the country face starvation and have to survive on donor food handouts.

In the end, instead of being a year of investment, 2005 became a year of record disinvestment and de-industrialisation. And going by the current power dynamics, there is no sign that things will change any time soon.

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