The Finance Minister blames the high costs of inputs for Zimbabwe’s lack of competitiveness – as if these costs somehow ‘just happened’. Let us be clear: they are the direct result of systemic inefficiencies and low levels of productivity that have been created by government policies that have little to do with “ease of doing business reforms”.
Patronage and Productivity
Here we come to the very heart of the problem, which the Finance Minister knows, but dares not admit. It is simply this: economic policies and programme have never been devised to benefit Zimbabwe and its people as a whole. They have been devised specifically to reward ruling party supporters with jobs, resources and benefits. Their purpose is to buy loyalty and votes to safeguard the President and ZANU(PF)’s self-ordained right to rule in perpetuity.
With this in mind, the ruling party first built a state-administered economy in place of a market economy. Then, using his autocratic powers of appointment, the President deployed senior party loyalists to capture and subvert all state institutions. Their mission has been to lay their hands on the nation’s resources to reward supporters and punish opponents.
By turning the state’s economic institutions into a vast patronage network – jobs could be allocated to party loyalists throughout the civil service, state authorities and enterprises, as well as to party-affiliated companies. Land could be nationalised and parcelled out. And, through indigenisation laws and joint ventures, cronies could wrest control of banks, mines and businesses from well-resourced but politically expendable groups, at little or no cost.
Since loyalty to the party remains the paramount criteria to benefit from the patronage system, productivity and production have inevitably suffered. Land redistribution is a prime example. Any black Zimbabweans affiliated to the party – be they war veterans, civil servants, politicians, military officers, policemen, judges, or whoever – are encouraged to dispossess highly productive Zimbabwean farmers, who happen to be white. Neither a lack of training and skills, nor a lack of experience and resources, precludes entitlement to farmland. Not even production is a prerequisite. As the First Lady put it, “Even if we don’t farm on the land; that is not a problem. As long as you have it and it’s yours.”
This perverse attitude pervades the entire patronage system. The party’s control of state authorities and enterprises allows its predatory culture to seep deep into large swathes of the mining, manufacturing and commercial sectors of the economy. Its narrative speaks of an all-caring government that ‘rescues’ companies that have been ruined and abandoned by the private sector, and of ‘protecting’ consumers against unscrupulous capitalists. However, its real intention is to reward party-appointed directors and managers with inflated salaries and benefits that bear no relation to their abilities, responsibilities or performance.
Even as the Finance Minister makes us pay the duties that protect inefficient state-sponsored companies from competition, these crony capitalists have no incentive to reduce costs or improve productivity. After all, the patronage system handsomely rewards these political appointees who invest nothing and risk nothing. And as the system does not hold them accountable for production or profitability, they are secure in their jobs and in the knowledge that their debts will be assumed by government – and paid by taxpayers.
A State-controlled Private Sector
Most of what now passes for the private sector is actually controlled by huge and inefficient state-owned mining and industrial conglomerates. The Zimbabwe Mining Development Corporation (ZMDC) controls the entire Marange diamond mining industry and its companies through joint ventures. Yet it failed to account for billions worth in diamond revenues. It has now simply ordered the diamond companies to amalgamate to form the Zimbabwe Consolidated Diamond Mining Company. ZMDC also owns three copper mines that are no longer viable.
The Industrial Development Corporation of Zimbabwe (IDCZ) owns interests in motor assembly plants, Willowvale Mazda Motor Industries and Quest Motors. It owes shares in – to name a few – Sino Zimbabwe Cement Company, National Furniture Industries, Chemplex Corporation, Almin Metal, and Amtec. Yet, to give a measure of the scale of its corporate mismanagement, the IDCZ lost $56m in 2013 alone, and is now insolvent. Other state-owned companies like Hwange Colliery, the Rainbow Tourism Group, the Cold Storage Corporate and the scandal-ridden National Oil Company of Zimbabwe and the National Social Security Authority, limp along. Others, like David Whitehead Textiles, CAPS, and ZiscoSteel lie in ruins.
Rather than letting these woefully unproductive and uncompetitive companies collapse under the weight of their own mismanagement and debts, the government sets out to ‘rescue’ them – at the taxpayers’ expense. The most recent acquisitions by government include a struggling telecommunications company, Telecel, for $40m, and Cottco, an insolvent cotton contracting and marketing company, for $57m. The government also intends to revive CAPS, a debt-ridden pharmaceutical company that collapsed four years ago. And who has been sent to the rescue? None other than the bankrupt IDCZ!
All these state enterprises and authorities, which are the milch cows of party-appointed directors and managers, also spawn private companies owned by these same appointees, their friends, or members of their families. Within this web of incestuous party-business relationships, it becomes a simple matter of sharing the spoils of scams and shady deals.
It is not just the Finance Minister’s import duties that protect uncompetitive state companies from international competition. State authorities intervene to protect state-owned companies from domestic competition.
When Zimbabwe’s leading independent company, Econet, began laying fibre to bring ever-faster internet connections to Zimbabweans, the government suddenly guaranteed a $200m Chinese loan for its uncompetitive state-owned telecom company, NetOne, to do the same. It then used the Posts and Telecommunications Regulatory Authority of Zimbabwe (Portraz) to force Econet to share its much larger and more developed infrastructure with government-owned companies NetOne and TeleCel. When Econet demurred, Portraz showed its teeth – and bit. It ordered telecom companies to cut their charges significantly. Portraz claimed that it was ‘protecting’ consumers and encouraging ‘market efficiency’. Its real purpose, though, was to cut a successful business competitor down to size without the slightest regard for the resulting job losses.
This patronage system of rewards or punishment has poisoned the businesses environment. It confers benefits without returns or, put differently, it incurs costs without production. It is this inefficiency that has created the high costs and low productivity that make Zimbabwe so uncompetitive. The Finance Minister’s much-vaunted “ease of doing business reforms” cannot reduce costs while the ruling party deliberately cultivates red tape and unaccountable bureaucracy to allow patronage and corruption to flourish. We cannot entrust economic reforms to the very political animals that benefit from a predatory culture of their own making.
The solution to Zimbabwe’s future prosperity lies in a culture of inclusive politics and building a competitive economy that is founded on well-established economic principles, practices and incentives. The third article in the series will explain how.
Dale Doré is a member of Transform Zimbabwe’s Presidential Advisory Team