THERE is a belief in Zimbabwe that the best ideology for development is “capitalism”, but Zimbabwe is faced with two opposing versions of capitalism: the Keynesian capitalist model and the Economic Structural Adjustment Programme (Esap) model. Which one is better or are there good and bad aspects to each? Part I, published last week, dealt with the Keynesian model, and Part II deals with the Esap model.
The Esap model of capitalism
Esap claimed to be a more modern and more advanced system of capitalism. It was formulated in advanced industrial economies in the West in response to falling profits as a result of over-expansion of manufacturing industries and the introduction of advanced industrial technologies which increased both quantity and quality.
But Esap did not provide the economic stimulus that characterised Keynesian capitalism, which allowed the state to support economic growth and employment creation.
Esap forbids the state from supporting the economy through subsidies. State subsidies in Zimbabwe for maize, the staple diet, ceased in 1996. Food shortages followed. Subsidies for education and health services were substantially lowered after the Zimbabwe Democracy and Economic Recovery Act (Zdera) and they were replaced by charging commercially viable fees. The protection of domestic manufacturing industries was removed, forcing Zimbabwean industry to compete with China and South Africa, which had recently modernised their industries.
Esap resulted in political destabilisation caused by increased unemployment and the increased price of food. It led to the closure of 300 factories a year. (From study by Robert Alexander Lee, Structural Adjustment in Zimbabwe, a thesis submitted to Wesleyan University, 2000).
This de-industrialisation was a serious blow to the economy and was not sufficiently compensated for by the increased Western donor aid which accompanied Esap.
De-industrialisation has now continued for almost two-and-a-half decades. Empty and derelict factory sites are dotted all over the urban industrial areas.
The shortage of food was compensated for by the provision of food aid by the United States and the European Union through their surplus food mountains, distributing them through non-state organisations. Zimbabweans did not starve, but charity had replaced food production and self-sufficiency.
The increased Esap grants did not alleviate the gradual deterioration of the food farming industry as not only did State subsidies stop, but State marketing through the Grain Marketing Board (GMB) could no longer assist the two million small scale farmers.
Zimbabwe had been favoured with donor aid for 20 years, and had become very donor dependent. These additional funds enabled the state to maintain the inherited socio-economic status quo of having two economies, a small modern formal urban economy controlled by the middle class elite; and a large rural peasant population, 70% of whom remain pauperised.
The bureaucracy initially doubled at Independence, but a phenomenal increase again occurred after the imposition of Sanctions and the establishment of a coalition government with the MDC after 2009. The coalition government entailed a large expansion of posts to include members of the opposition.
The US Congress Regulation, Zdera, was imposed in 2001, and renewed in 2019. It forbade the IMF and the World Bank from granting loans and grants to Zimbabwe, but many Western countries have extended Zdera to cover all banking facilities. Depriving Zimbabwe of foreign banking support has had a devastating impact on economic growth in Zimbabwe.
Sanctions meant that economic growth was difficult if not impossible. Job creation could not increase without some economic growth.
But it was possible for the state to create tens of thousands of jobs by expanding the civil and security services. The expansion of the civil service meant that politicians could create jobs within their constituencies, mainly through the Ministries of Education and Youth, through which tens of thousands of school drop outs could be employed.
This doubling of the civil service without a doubling of the national income lowered the average salaries drastically. The expansion of the security services was heavily influenced by the repeated threat of the Blair government to launch military attacks on Zimbabwe, allegedly to rescue European farmers who had lost their farms and faced harassment and intimidation. This threat only receded when both the British Army leaders and the Frontline States refused to support this initiative.
The expansion of state employment resulted in doubling of the number of employed, but removed investment into maintenance and construction, into materials, and into planning and supervision. The efficient state of the 1980s and 1990s became an inefficient and ineffective State after the combination of Esap, Zdera and hyperinflation.
The foreign direct investment (FDI) promised through Esap did not occur, partly because of three decisions made by the State: to join in the Democratic Republic of the Congo (DRC) War in 1998 and the unilateral takeover of about 11 million hectares of commercial farm land held by about 6 000 European farmers in 2001.
The third decision was the indigenisation policy which ruled that 51% of all businesses worth more than ZW$500 000 had to be owned by Zimbabweans. This was whether the Zimbabwean partner could invest in the business or not.
The regulations even state that the minister in charge of indigenisation could select the Zimbabwean partner if necessary. These decisions had far-reaching effects on Zimbabwe.
Participation in the DRC war showed that Zimbabwe indeed had a superior military and air force, which succeeded in putting down the rebel attempt to remove the Laurent Laurent Kabila state. The rebels were supported by two neighbouring countries, Rwanda and Uganda. There were elements of Hutu and Tutsi tribalism in this war.
Hutus and Tutsis inhabit a number of East African countries, so the conflict was bound to involve several countries. However, Zimbabwe does not share a border with the Democratic Republic of Congo (DRC). Its involvement in this war can be viewed partially in terms of the nationalist foundation of Zanu PF, strengthened by the Southern African Development Community (Sadc) view that there should be mutual military assistance against rebel attacks, and the fact that the DRC has enormous mineral wealth, which could be tapped by a powerful military, such as Zimbabwe’s.
Zimbabwe’s economy was badly damaged by Esap, and an opportunity to provide jobs for soldiers and pilots as well as wealth to military leaders was welcomed by the Zimbabwean state.
Apparently, Kabila had offered the Zimbabwean military control over its mines, an offer which pleased the Zimbabweans but seriously offended the American, British and Canadian companies which had been given control of the mines by Kabila.
Economic and political failure resulting from Esap was balanced by military success, but military success led to “sanctions” imposed by the US through Zdera. These “sanctions” imposed serious banking controls over Zimbabwe, initially through the International Monetary Fund (IMF) and the World Bank, but adopted by most Western States and banks.
Esap means actual cuts in workers’ wages, including those of the 550 000 government employees. Despite regular increases in government salaries, this has not caught up with inflation.
The unemployed and workers on basic wages are even more affected by Esap, which had led to a quarter of a million children not attending primary school, and another quarter of a million of the age group not attending secondary school. This means Zimbabwe is entering a new period of high illiteracy, a problem that had already been solved in the first 20 years of Independence, but will now recur. In addition about 20% of the age group cannot afford to pay for the Grade 7 examinations.
The 2017 O-level results show only 46 113 passed five subjects, 11,5% of the age group (Zimstat Education Report 2017). Thus Esap has directly led to lower education achievements. The same is true of other earlier achievements such as health and a clean water supply.
The major failure of Esap is that it deliberately excludes investment into the manufacturing industries and only encourages investment into primary industries such as agriculture and mining. But even these two areas have suffered from low investment, with tobacco being the main agricultural crop that has benefitted. It is possible to include some aspects of Esap whilst preserving some of the achievements such as primary education for all, health and a clean water supply. There is no reason why these achievements should have been sacrificed.
The issue of government’s participation in expanding the economy is more controversial. The command agriculture experiment over the past three years has shown high corruption by those in charge. This is clearly a problematic model, especially since the civil service through the Ministry of Agriculture was excluded.
Meanwhile the manufacturing industries have continued to shrink, now utilising only 27% of capacity. State support for key industries is nevertheless critical, particularly in terms of supporting domestic and export industries.
A key industry which can be undertaken by the private sector is the manufacture of tractors, especially smaller and simpler models suited to the two million communal and resettlement farmers. Such tractors and agricultural machinery would also be attractive to the millions of small scale farmers in the region. It could introduce a new industrial investment area which would have a huge domestic as well as regional markets.
Chung was secondary school teacher in the townships (1963-1968); lecturer in polytechnics and university (1968-1975); teacher trainer in the liberation struggle (1976-1979); civil servant (1980-1987); former minister of education (1988-1993); UN civil servant (1994-2003). These weekly New Perspectives articles are co-ordinated by Lovemore Kadenge, immediate past president of the Zimbabwe Economics Society. E-mail: firstname.lastname@example.org and cell: +263 772 382 852.