After 100 days, what metric will matter for investment, jobs?

President Mnangagwa

Chris Chenga
President Mnangagwa’s first one hundred days were not going to result in actual investment and jobs. That was an unrealistic metric; inconceivable for any observer cognisant of Zimbabwe’s political stature at the time that he took office.

Erudite observers would understand that any significant gains a new administration could garner were only going to be in context of attitudes towards the political level.

Attitudes are best measured in openness to dialogue; particularly Zimbabwe’s counter-parties offering platforms of engagement to measure if there could be complementary attitudes with the new administration. Sometimes “all talk” actually matters.

Investment and jobs before political resolution were always a reach to start with. Investors were never uninformed of Zimbabwe’s economic potential, if indeed it offered any.
They had simply been withdrawn and deterred by the risks that divergent attitudes at the political level bring.

For instance, how was a European/American company to invest in a Zimbabwean jurisdiction in which transactions into that jurisdiction expose that Western entity to punitive measures in its domicile? Not really possible.

Also, multinational corporations pursue business only at the consent of their home governments, which negotiate terms of trade and rules of commerce with governments of foreign pursued markets.

More often than not, multinational corporations only enter foreign jurisdictions at the consent of a home crafted governmental plan, as per the guidance of the foreign policy of their respective governments.

This is similar procedure for investment vehicles that allocate the taxpayer and investor funds of citizens of respective governments.

More simply, money belonging to American/European citizens — such as pension funds or other aggregated investments like equity in companies – is not going to enter a foreign country if there is no political cooperation between that country and American/European governments.

Thus, political cooperation precedes investment, and any resultant economic benefits such as jobs.

So, in a pragmatic political context, which was the first and only context that could be attended to in the first one hundred days of the new administration, there is indication that attitudes have to a large extent started to converge between Zimbabwe and its counter-parties at a political level. That is notable progress.

However, in the political dialogue thus far, one narrative that may become increasingly crucial has yet to be tabled; it will become apparent by the end of this presentation.
With hopes that political attitudes will continue to improve, perhaps Zimbabwe can start to assess the metrics which would start to matter over the next, however, days into the future.

Investors are not going to be convinced by Zimbabwe’s structural outlook as it stands today.

Structurally, Zimbabwe has a lot of work to do. At a governmental level, the country’s fiscal outlook remains awful.

Zimbabwe is so indebted that it does not have a credit rating at all. So the country loses out on the very first metric that long term investors consider. Countries with high debt obligations lose investors’ confidence.

Zimbabwe’s national debt needs to be resolved. Usually such nations have two choices. They must either pursue the pain of rationalizing their fiscal spending, which is otherwise the greatest stimulant of economic growth.

For instance, Zimbabwe must cut civil service expenditure and public subsidies. This option risks depressed growth in the near future. The other option is to print more money. Well, this increases the risk of inflation, which is more likely with a surrogate currency.

Neither a government spending rationalization nor monetary expansion propositions excite investor confidence considering our track record along both avenues. Many analysts have corroborated and spoke on these choices.

Moreover, a credit rating and debt assessment give a fair analysis of the productive credit available in a nation. The government is ineligible to borrow on standardized global markets. This is a long term problem.

Nation’s with large debt obligations relative to their economic size have less productive credit in the economy, and are more likely to be constrained in the kind of credit creation that brings about competitive yields for investors. For instance, borrowing in Zimbabwe is relative expensive at higher interest rates.

This is largely because of credit risk due to less likely productivity use that yields returns. This simply means when an entity borrows (gets credit), there is less chance of productive use of that credit to produce returns that result in payback and profit margin.

Again, companies operating in Zimbabwe can corroborate with this reality in terms of the banking sector, and can further testify as to the cost of capital in terms of raising finance. The high cost of credit and capital in Zimbabwe resonate with the sentiment that structurally Zimbabwe is high risk, and offers far less guarantee for investor returns.

Having considered the nation’s debt outlook which is at over 50 percent of annual GDP, and the burdens this places on credit creation and productivity in the economy, one becomes curious as to whether or not at the political level, the new administration has thought of pursuing debt relief! This is the absent narrative thus far.

Debt relief has been offered to numerous African governments before in the last few decades, particularly on the realisation that certain fundamental economic outlooks are unmanageable in the short term at a level of debt overhang.

As part of its strategy of political engagement, the new administration must try to finesse its way to considerations for debt relief.

This is evidently a hard task as all indications thus far, whether with the IMF/World Bank or with the land compensation suggestions, debt relief does not seem to be an option for Zimbabwe.

But, without debt relief Zimbabwe’s structural outlook does not create an encouraging scenario for its own citizens and any prospective international investors.
The current government debt outlook resembles itself in the low income base that has beset citizens who average less than $4 a day.

According to the World Bank’s own calculations, Zimbabwean citizens are now classified as low income, ever moving closer in ranking amongst other citizens of war ravaged nations in the Middle East and Central Africa.

Formal unemployment of over 90 per cent and the prospects of further reduced governmental spending over the next few years for such a dependent populace create a bleak outlook.

Indeed this debt relief cannot come for free, but it also cannot come at further debt as per the current Lima Strategy as pursued by Governor Mangudya and Finance Minister Chinamasa. IFIs such as the IMF and World Bank should be sober in their approach to Zimbabwe.

They must learn from the negative effects of other agreements with emerging nations such as the “Deauville Partnership with Arab Countries in Transition” which have resulted in civil discomfort and unrest. Zimbabwe is at a similar junction of hope.

It cannot be wasted. Perhaps a better approach would be agreement of measurable structural reforms on institutional governance, investment regulatory frameworks, and social service provisions.

On meeting these agreeable benchmarks, however they may be multilaterally agreeable, then Zimbabwe can be granted some debt relief to its current obligations.

This would be a more pragmatic and short term win-win for an economy which set on the right path could yield great financial and socio-economic returns for Zimbabweans and the global community simultaneously.

Without debt relief, Zimbabwe is faced with the two aforementioned options, of austerity or printing more money; both propositions do not give local and international confidence.


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