Zim finance czar’s mission impossible

By Peta Thornycroft

Zimbabwe’s new finance minister is not a Zanu-PF man and he did not need the job — but he will need all his qualifications and the president’s backing to implement the measures needed to fix the economy.

Mthuli Ncube knows he is going to have a tough time as Zimbabwe’s new finance minister: he is taking over an economy that has been profoundly abused and looted.

Ncube’s appointment by President Emmerson Mnangagwa to his slightly smaller cabinet  has been widely applauded. He is not part of the ruling Zanu-PF party and he once tried to raise funds for opposition leader Morgan Tsvangirai, who died in February.

Ncube has an impressive CV: chief economist and vice-president of the African Development Bank; a PhD in mathematical finance from Cambridge University. He is well known regionally and has superb international connections — which he will need as he looks for bailouts from international financial institutions.

But, importantly, Ncube doesn’t need the job. He was living in Switzerland when the call came asking him to return home to fix the economy.

Some would say he is taking on an impossible job, but perhaps the challenge is part of the attraction for him. He knows he has to reform the overvalued US dollar-based local currency and negotiate a way to manage the country’s $20bn debt.

So where to start? Well, he has to find $2bn to pay off arrears to the World Bank and his old employer, the African Development Bank, so he can restart talks for Zimbabwe to rejoin the International Monetary Fund. Many presume he will find this money at the Cairo-based African Export-Import Bank, which has been bailing out Zimbabwe for the past few years.

He knows some reforms will not make him popular. Zimbabwe has 550,000 civil servants who eat up about 90% of revenue. Ahead of the election in July, Mnangagwa awarded them 17%-22% increases, something economist Tony Hawkins says will cost the country about $600m a year.

Vice-president Constantino Chiwenga, former head of the armed forces, also dipped into the public purse ahead of the polls by raising soldiers’ retirement age from 65 to 70. It was Chiwenga who saved Mnangagwa’s life a year ago, when he was allegedly poisoned at a rally for Robert Mugabe. He also organised the coup that brought Mnangagwa to power.

But recently, Mugabe reconciled with Mnangagwa after he sent a Gulfstream jet to pick up former first lady Grace Mugabe in Singapore, where she was having medical treatment, and bring her home for her mother’s funeral. So the police, parts of which have remained loyal to the former president, will almost certainly return to the streets from which they have been missing since the coup.

Mnangagwa was shocked when two soldiers shot dead six civilians at an opposition protest in Harare two days after the polls. He has appointed a commission of inquiry, to be chaired by former SA president Kgalema Motlanthe.

In short, Mnangagwa may be feeling more confident, and he is expected to do his best to accommodate Ncube as he implements policies that are going to hurt many.

Economists say Ncube will have to end Mnangagwa’s subsidies, such as “command” agriculture under which the government provides free inputs to farmers who are then obliged to sell their crops to the state. Last season Mnangagwa ensured farmers were paid $390 a ton for maize — far more than SA and Zambian farmers get.

Ncube will also have to end bonuses paid to exporters. And, of course, there is a serious shortage of foreign currency to buy essential imports.

“Devaluation is an urgent priority, since without it economy-wide distortions will constrain business efficiency in markets that have become a haven for politically well-connected rent-seekers,” according to Hawkins, writing in the Zimbabwe Independent.

Physical dollar bills are trading at about $1.85 against electronic cash, and about $1.45 for local cash known as bond notes.

But there are almost no cash notes in any supermarket tills or banks. Deals are done everywhere: outside hotels, in the streets, in hardware stores, with cement producers, for air tickets and in property transfers.

After he was sworn in, Ncube said: “[Currency reform] works with fiscal policy because the two are linked. Fiscal reforms, fiscal consolidation and currency reforms work together to create the stability … They are two legs of the same body. We will be looking at the issue of bond notes and … at other options beyond bond notes.”

He has also spoken of using the rand, as the dollar has made everything, including exports, extremely expensive. – Financial Mail

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2 thoughts on “Zim finance czar’s mission impossible

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