Blind spots threaten recovery

A WHIRLWIND tour by President Emmerson Mnangagwa to our neighbours was capped with a maiden appearance at the World Economic Forum in Davos, Switzerland, last week.

The Brett Chulu Column

There is growing optimism that the foreign providers of capital and the big international political players who have treated Zimbabwe like a leper may finally come around. That optimism needs to be balanced with realism.

There are worrying blind spots our government is nursing that can either derail or delay our progress to the much-awaited economic nirvana.

Here are three blind spots our government needs to be aware of:

Zimbabwe is attractive

Government seems to feed on the narcissistic attitude that Zimbabwe is too sexy to be ignored.

Attractive opportunities constitute only 33% of the decision to invest.

We are still falling short on the remaining 67%. This is a serious blind spot government needs to be alive to. This residual 67% is split as follows: 38% for financial performance and 29% for quality of leadership. This is what recent research conducted by the respected Results-Based Leadership Institute led by Dave Ulrich recently inducted into the prestigious Thinkers50 hall of fame.

This model has been applied to nations. Down South, the largest economy in Sadc, faced a series of credit ratings downgrades until they reached junk status in terms of foreign-denominated debt, triggering a spike in international interest on new debt, and the rand losing value against the greenback. Three broad factors were cited by credit ratings agencies: deteriorating fiscal performance, deliberate weakening of financial institutions such as Treasury and political instability.

Zimbabwe will not be favoured with different criteria.

Mnangagwa’s consistent message that Zimbabwe is open for business will be tested against the three criteria, nothing more and nothing less.

Financial performance

Capital providers want to first see if our government is managing its own financial affairs prudently before they can give us any money.

International capital wants to be assured of a return of their capital and return of that capital (profit). They look to the past to see if this has been happening. Unfortunately, we have not performed well in that regard.

We incurred an over-expenditure of close to US$2 billion, which is close to 50% above budget. That tells the investor that the government has no capacity to pay back what it owes. That sort of fiscal indiscipline shocks potential investors.

Government took about 70% of funds lent by our banks last year, crowding out the private sector. We are running an out-of-size debt compared to our productivity as a nation. We are sitting at US$13 billion of national debt split as US$6 billion domestically and US$7 billion foreign.

Two aspects of this debt unnerve potential investors. First, the debt is climbing rapidly due to accumulating interest for foreign debt and rampant borrowing in the domestic market. At the end of 2015 our national debt was US$10,8 billion and in a space of two years has hiked over US$2 billion. Second, we have breached the 70% GDP statutory limit. Finance minister Patrick Chinamasa expects us to be in breach of the 70% GDP limit for the next three years.

Zimbabwe scores poorly on the financial performance investment decision criterion. The message that Zimbabwe has plenty of opportunities is drowned by poor historical financial performance.

Based on this historical performance international providers of capital would want the new government to correct both the poor fiscal performance and its root cause. Commitment is not what investors are looking for; they want that commitment to translate into tangible performance. That data is not yet there. Until then, expect no dollars crossing into Zimbabwe.

Clearly, international capital will wait and see until fiscal performance shows marked improvement. That cannot be done in a single year. What the government needs to do is to return to the scrapped Mid-Term Fiscal Policy Statement in order to shorten the cycles of reporting fiscal performance to interested publics, more critically, the international providers of capital.

Quality of leadership

Quality of leadership gives confidence to international capital that their capital and its returns will be protected directly by government through legislation and impartial judicial action.

On the quality of leadership performance, we have historically been found wanting, with a litany of poor and even catastrophic judgement calls.

The new government is cut from the cloth of the old regime in terms of its human capital. Investors want a clear demonstration that the old DNA has been replaced in the new government. The new government will not earn the trust of the international community overnight. Any form of deception and dissembling on the part of the new government will not earn it trust with the international financial and political community. Without this trust the taps of foreign direct investment, debt treatment and the international political goodwill we so badly need will remain tightly closed.

Every promise the government makes will be logged and tracked. Every promise fulfilled will swell the trust or confidence account with the international community. The international community will not be convinced by one-off and selective fulfilment of promises; they are looking for evidence of a pattern of government making good on its promises, no matter how minor.

The joint CE of South Africa’s energy giant Sasol was interviewed by the CNN on December 2 last year. He was asked by Richard Quest if Zimbabwe would be considered as an investment destination in Sasol’s expansion plans into Southern Africa. He was clear that it was early days. He referenced confidence, a euphemism for trust as a key investment decision criterion. He explained that Sasol invests for 30 to 40 years and so they would not want to invest in a country where the rules are not clear and where the rules change frequently. He speaks for almost every investor.

Already, the government is damaging its confidence-building drive by not sticking to its word. Cars were not to be bought for chiefs as pronounced by Chinamasa in the budget statement. Cars have been bought for chiefs. I am not against chiefs being bought cars. The point is that no one put a gun to the head of government to make the pronouncement on not buying cars. The point is: do not make rush promises and do not make promises you do not intend to fulfil.

A pronouncement on retirement of civil servants who have reached retirement age was boldly pronounced in the budget statement. One vice-chancellor, who long reached retirement age, was given an extension. It is these seemingly little breaches of promises that provide the real test of whether the new government can be trusted fully by the international community.

Mnangagwa has promised to compensate white farmers. He cannot renege. He has promised to decisively deal with corruption. He cannot be selective. He has promised to pay US$1,8 billion in arrears to the World Bank and the African Development Bank. He can’t pull back. He has promised to accept international observers for elections. He has promised elections this year. He cannot hold them next year or after if he wants to be trusted.

Mnangagwa promised free and fair elections. He must fully deliver on his promise. If he does not, his government will not be trusted to abide by any of its promises. He has promised to rejoin the Commonwealth. By so doing, he has tacitly promised to stamp out corruption, uphold the rule of law and respect property rights; these are part of the criteria for admittance into the sisterhood of the Commonwealth.

He must deliver on all these promises or we are kaput.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer reviewed international journal.