Monday, 9 February 2015

The Inconvenient Truth About Sanctions

I HAVE been compelled to write about this subject because it seems that the sanctions excuse is now getting out of hand, even this transparent fig leaf cannot cover what’s there for all to see. The current government is trying to rewrite history by airbrushing their misdeeds of the past. They are now trying to pass on all manner of excuses to hide their obvious incompetence. We have to draw the line somewhere. Now, whilst objectivity is not a word associated with our political discourse in Zimbabwe, I’m going to try to provide an objective analysis using empirical data at hand to see if indeed sanctions were to blame for our economic collapse.

Now let’s take a simple look at Zimbabwe’s economy from when we gained our independence in 1980 to now. This is best summarized by the graph below, which shows our annual gross domestic product (GDP) since then.
The Inconvenient Truth About Sanctions

GDP explained

The GDP of a country is a simple calculation GDP = C+I+G+NX. Where C is consumer spending (what you and me spend in Zimbabwe), I is investment (on capital equipment, machinery etc), G is government spending (salaries, goods & services), and NX are the net exports. So for example if our exports are $2 billion; government spends $2 billion on salaries; we the consumers spend $2 billion; and we have $2 billion of investments in Zimbabwe (highly unlikely), then the GDP adds up to $8 billion. This is only an example for examples’ sake and is not the current situation. From the graph above we can see that a picture tells a thousand words. It is clear to see that Zimbabwe’s economy has always been a “roller-coaster” ride of sorts since independence. There were sharp falls in 1984, 1992 and 1998 and 2008. I’ll explain the reasons for the earlier dips later on; the answer has always been hidden in plain sight.

GNU Government

The first thing which jumps out at you in this graph of our GDP is the period between 2009 and 2013. I was flabbergasted to read about the intellectual hebetude of a Zanu PF official who stated (poker faced) that the GNU government was the worst thing that ever happened to Zimbabwe. Really?! From the graph above I think that what the minister meant to say was that the GNU was the worst thing that could have ever happened to Zanu PF. Many bare backsides of incompetence were exposed for all to see. The economic stagnation which has now set in, with the hemorrhaging of jobs and companies closing down ad infinitum, cements the fact the GNU was actually the best thing that ever happened to the Zimbabwean economy in a long time.

By concentrating on turning the economy around and providing the ordinary Zimbabwean with some respite, the MDC failed to address the uneven political field which would be their undoing in the 2013 elections. And who knows what might have been, had the GNU not been hamstrung by the extra deadweight that was (and still is) Zanu PF. If anything, this is the one time when the economy of Zimbabwe grew at a breathtaking pace, albeit from a low base. And thanks to the economic policies implemented during that time, the Zimbabwean GDP is higher now than at any other time pre or post 1980.

This recovery was artificial, however, as it did not address the high unemployment. But this is more to do with our current democratic set up, where the wealth and political power is still concentrated in the hands of a few, the political elite, our black colonialists. This is why I continue to champion inclusive democracy (as per my previous articles) to address this imbalance. And this is why I loathe our politics, because it always gets in the way of our economic development.

We still mistakenly believe that it was simply the change to the multi-currency system which turned the economy around. This was only part of the solution which eradicated the hyper-inflationary problem, but this is not what made revenue collection possible, what reopened schools, hospitals and got food back on the supermarket shelf and grow the country’s GDP at real rates of 6% in 2009, 11.4% in 2010, 11.9% in 2011 and 10.6% in 2012.

The fiscal discipline and rational economic policies devised by one finance minister during that time is what made this remarkable turnaround. Yet the tragedy of our politics has resulted in him being castigated and vilified for his supposed craving for power and wanting a break from the past. Our brains seem to be more attuned to praise and worship politics, rather than the all-important rational politics of service delivery, accountability and self-sacrifice. Zimbabwe is truly the land of the blind.

The root of our economic collapse

Yet even the blind can see from the graph above that something went horribly wrong in 1998, which caused a sharp decline in our GDP, more profound than even the fast track land reform in 2000. So what caused such an abrupt fall in our GDP? Well, there were four main factors: the payout to the War Vets in 1997, the severe drought of 1997, our excursion into the DRC war and the printing of money to finance the DRC war.

The drought was a force majeure beyond our control, however the War Vets payment was political and simply a case of misplaced priorities. Whilst I do not dispute that the War Vets should have been paid, I dispute the one-off amount, which should at least have been staggered to reduce the impact on the economy. It was an unfortunate chain of events that we never fully recovered from for well over a decade.
To illustrate how devastating this was, below is our GDP before and after this critical period:

January 1996 GDP US$7.11 billion
January 1997 GDP US$8.55 billion (+$1.44b from previous year)
January 1998 GDP US$8.53 billion (-$0.02b from previous year)
January 1999 GDP US$6.40 billion (-$2.13b from previous year)
January 2000 GDP US$6.86 billion (+$0.44b from previous year)
January 2001 GDP US$6.69 billion (-$0.17b from previous year)
January 2002 GDP US$6.78 billion (+$0.09b from previous year)
January 2003 GDP US$6.34 billion (-$0.44b from previous year)
January 2004 GDP US$5.73 billion (-$0.61b from previous year)
January 2005 GDP US$5.81 billion (+$0.08b from previous year)
January 2006 GDP US$5.76 billion (-$0.05b from previous year)
January 2007 GDP US$5.44 billion (-$0.32b from previous year)
January 2008 GDP US$5.29 billion (-$0.15b from previous year)
January 2009 GDP US$4.42 billion (-$0.87b from previous year when we hit rock bottom)

So even before the fast track land reform began in 2000, we managed to wipe $2.13 billion off our GDP between 1998 and 1999! Why does no one ever emphasize this part of our economic history? Western politics, and our own internal politics, has always pointed to the fast track land reform as the main reason for our economic decline. I beg to differ. The common factor between 1998 & 2008 is the printing of money. As already stated above, we started printing money to finance the hole left by the war vets payout and continued printing money to finance the war in the DRC in 1998. We then continued to print money to finance the second part of the DRC war in 2000 that led to Zimbabwe experiencing severe foreign exchange shortages in 2000. These forex shortages were also exacerbated by the difference between the official rate and the black market rate.

So the timing of the land reforms was an act of madness and seemed to be a knee jerk reaction to the impending economic disaster that was waiting around the corner. No rational person would dispute the idea of redistributing land to indigenous Zimbabweans. However, the impact of the fast track land reform could have been mitigated by a competent government practicing fiscal discipline and a monetary policy which curtailed the printing of money, and obliged those who had received free inputs to pay them back.

If Sanctions imposed in 2002 were supposed to have devastated our economy you certainly can’t see that from the GDP figures above. The effects, if any, seem negligible at best and practically non-existent. I’d go a step further and say sanctions were a blessing in disguise as they stopped our external debt from ballooning to unmanageable amounts. At the moment we are struggling to pay back the US$10 billion we owe, where would be now if we had been extended unlimited lines of credit, we’d certainly be worse off. Look at Greece now.

And, lest we forget, in 2004 a system of auctioning scarce foreign currency for importers was introduced, which temporarily led to a slight reduction in the foreign currency crisis, but by mid-2005 foreign currency shortages were once again severe. The currency was devalued by the central bank twice, first to 9,000 to the US$, and then to 17,500 to the US$ on 20 July 2005, but at that date it was reported that that was only half the rate available on the black market.

Who can also forget the period between 2006 and 2008 when we experienced the reckless RBZ governor’s selfish, cruel and ill-informed policies of printing bearer cheques, then sending his runners to buy forex on the streets all the while limiting bank withdrawals for workers to the equivalent of $3 daily? People could not buy a coke with the bank limits he imposed whilst he & these runners made millions.

Surprisingly enough, it was in this period that we experienced hyperinflation which led to our economic collapse with us hitting rock-bottom in 2008. This was then followed by the disputed elections which the MDC won by 73% yet were forced into the GNU by the losers. The greed of a few, led to the destruction of a whole economy and the loss of our own currency. This had absolutely nothing to do with sanctions and everything to do with greed.

Don’t underestimate the effects of droughts

To ensure we can eliminate any other possible factors which may have influenced the trend of our GDP since 1980, we also have to look at the population growth to see if this affected our economic growth in any way. Zimbabwe’s population was 7.3 million in 1980; it grew to 8.9 million in 1985, then 10.5 million in 1990, 11.7 million in 1995 and then to 12.5 million in 2000. Due to the onset of the HIV & Aids pandemic and mass emigration, the population flat-lined for a decade and in 2010 it was still at 12.5 million. With the myriad of other problems of this decade, it is not a surprise that there was no economic growth normally associated with a population growth.

Admittedly, I was a bit confused by the anomaly of the “roller coaster” type annual GDP that we’ve had since 1980, as this did not seem to be affected by population growth. I decided to dig deeper to see what was causing this recurring phenomenon. I decided to look at the GDP annual growth rate (different from annual GDP above), which I hoped would provide me with a clearer pattern and a possible link to major events which caused our GDP to fluctuate so dramatically. The annual growth rate is also easy to calculate, it’s simply “new GDP” minus the “old GDP” divided by the “old GDP”. The pattern that emerged from the graph below of the GDP annual growth rate seems to correlate with successive droughts we’ve had since 1980.

Droughts in Zimbabwe

1981-1982 Drought in most of southern Africa
1983-1984 Severe droughts for entire Africa, our GDP fell from US$7.76b to US$6.35b (-18%)
1985-1986 Effects of the drought still being felt, GDP fell from US$6.35b to US$5.64b (-11%)
1986-1987 Dry conditions resulting in drought, however GDP grew on the back of mining.
1991-1992 Severe droughts in southern Africa,
1992-1993 Effects of the drought still being felt, GDP fell from US$8.64b to US$6.75b (-22%)
1994-1995 Severe drought in some cases surpassing the impacts of the 1991-92 droughts.
1997-1998 Drought in Zimbabwe, though it turned out to be less severe than expected, GDP fell from US$8.53b to US$6.4b (-22%).
2001-2002 There was a drought in most southern parts of Africa.

A cautionary note when interpreting the results of the annual growth rates from the graph above which can be obtained from the World Bank; for some reason the annual growth (recession) rate from 2002 is supposed to be -12%, and in 2003 the annual growth (recession) rate seems to be exaggerated at about -18%. If you look at the GDPs provided by the same World Bank during this period, the figures don’t seem to add up. Hopefully someone can explain this to me.

It is clear from the above that droughts in Zimbabwe have had the most impact on our economy and seem to wipe off between 10 to 20% of our GDP every time, depending on their severity. What I find most alarming is that we seem to be totally oblivious to this fact that droughts have caused havoc, mayhem and destruction to our economy in the past. Trying to build an economy based on agriculture, when recurrent droughts are our Achilles heel, is downright stupid and suicidal. Every single time we have a drought, there are food shortages and our GDP plummets, yet we continue with the “vana vevhu” mentality.

If the soil is burying us each and every time we have a drought why are we blindly continuing to rely on agriculture? Zimbabwe’s manufacturing sector has also always been linked to agriculture, which also explains the substantial impact this has had on our manufacturing sector. We need a new economic model based on an industrialisation which it totally decoupled from agriculture. We have not had a serious drought since 2002, and we have not had a severe one since 1997. Recent studies have raised the alarm at Zimbabwe’s decreasing rainfall pattern and we are due a severe drought in the not too distant future, it could be this year or the next based on previous patterns. What are we doing about it?

It seems that Zimbabweans in general are now suffering from a social, collective and selective amnesia. We have now forgotten 2008. We have forgotten the wheelbarrows of trillions of dollars we needed just to buy bread, no food in the supermarkets, long queues for fuel, long queues for banks, shutting down of schools & hospitals, over 5.5 million (half the population) people needing food aid in the rural areas where they were competing with wild animals for mazhanje. And to cap that year off we had the 2008 elections and the accompanying violence.

Despite all of the above, the ruling party now claims that sanctions are to blame for everything and that they cost the “country”, meaning Zanu PF, a loss of US$27 billion. Really?! ZimAsset strangely enough needs US$27 billion to implement. Is this a magic number? Is this the money and assets which our black colonialists have externalized, and which the West has now frozen or confiscated? Please do explain. How else do you come up with such a thumb suck approach to a figure of US$27 billion? This doesn’t even correlate to our normal GDP growth rate with our economy functioning at full throttle? How much did their corruption, misrule and economic mismanagement cost us the citizens of Zimbabwe?

Sanctions – the inconvenient truth

Now with the simple empirical data I’ve provided, and putting stupidity aside for a second, are sanctions to blame for our economic collapse? Before I answer that “rhetorical” question, let’s also be objective in our analysis of sanctions and admit that they were not just “travel restrictions” as has been repeated various times. The Zimbabwe Democracy and Recovery Act (ZIDERA) was signed into law by George W. Bush in 21-December-2001 and came into effect in 2002. It was sponsored by the late Jessie Helms who oversaw its movement through the committee stages in the US congress. Helms was a racist, well known for his opposition to the black civil rights movement in the US, his defence of the apartheid regime in South Africa and his support for Smith’s government in Rhodesia.

Despite what the MDC might say, the act allowed for much more than specific targeting of certain (well over 100) Zanu PF party members. It called for American officials in the IMF, World Bank and other multilateral development banks and agencies to “oppose and vote against any extensions by the respective institution of any loan, credit, or guarantee to the government of Zimbabwe” and to vote against any reduction or cancellation of “indebtedness owed by the government of Zimbabwe”.

This law meant “Zimbabwe”, not just Zanu PF, could not access lines of credit from the International Bank for Reconstruction and Development, the International Development Association, the International Finance Corporation, the Inter-American Development Bank, the Asian Development Bank, the Inter-American Investment Corporation, the African Development Fund, the European Bank for Reconstruction and Development, the Multilateral Investment Guarantee Agency and, perhaps most surprisingly the African Development Bank. When Simba Makoni tried to secure a position with the AfDB a couple of years back his appointment was blocked by a veto wielding US official, and he wasn’t even part of Zanu PF then. ZIDERA was the most significant sanction; along with the sanctions imposed by the UK, the EU and Australia.

Having said this, the sanctions had no effect whatsoever on our economy, it was a case of shutting the barn door when the horse had already bolted. For any argument to hold true, you have to eliminate all other factors. When Sanctions were applied in 2002, the GDP was at US$6.78 billion. Despite the drought from 2002 to 2003, GDP fell slightly in 2003 to US$6.34 billion and then fell again in 2004 to US$5.73 billion. This fall was all attributable to the land reform programme, and the resultant fall in agricultural production, especially tobacco which had been a major forex earner.

What was remarkable was the fact that GDP did not plummet as it had done in previous years of severe drought as this should have had an equivalent impact. What caused the economic collapse between 2004 and 2008 was the reckless printing of money and nothing else. No amount of spin can change facts. The only thing which sustained the small GDP was remittances from the diaspora. The difference between genius and stupidity is that stupidity has no limits, and stupidity is the talent of misconceptions which explains the utterances of those who dare to say “sanctions are the cause of our economic troubles”. It’s OK when this kind of stupidity is confined to a single person; however it seems that this has taken on a new dimension of teamwork in stupidity.

Please do mention sanctions again; as the saying goes it’s better to remain silent and be thought a fool than to speak and remove all doubt. Strangely enough, under the same sanctions the GNU government, with the finance ministry under a competent finance minister, the economy recorded rapid growth (without external funding or FDI!) at rates of 6% in 2009, 11.4% in 2010, 11.9% in 2011 and 10.6% in 2012. So the question is – do Zanu PF admit that they are incompetent and clueless as to how to overcome these supposed “sanctions”? If so then just hand over the reins to those who have proven that they can deal with these “sanctions” without even breaking their stride. And of course let’s just ignore the following “notable” corruption cases since 1987 which have never seen the light of day nor has anyone ever been prosecuted for them:

1987 — Ziscosteel Blast Furnace Scandal
1987 — Air Zimbabwe Fokker Plane Scandal — $100 million
1986 — National Railways Housing Scandal
1988 — Willowgate Scandal
1989 — ZRP Santana Scandal
1994 — War Victims Compensation Scandal
1995 — GMB Grain Scandal
1996 — VIP Housing Scandal
1998 — Boka Banking Scandal
1998 — ZESA YTL Soltran Scandal
1998 — Telecel Scandal
1998 — Harare City Council Refuse Tender Scandal
1999 — Housing Loan Scandal
1999 — Noczim Scandal
1999 — DRC timber and diamond UN-reported scandals
1999 — GMB Scandal
1999 — Ministry of Water and Rural Development Chinese Tender Scandal
1999 — VIP Land Grab Scandal
2001 — Harare Airport Scandal

How did sanctions force managers & CEO’s to steal from parastatals? I’m all ears! And now we have the RBZ debt of US$1.3 billion that the government is trying to pass onto the few tax payers left. Where the rule of law applies, it is the beneficiaries of these loans that are supposed to pay back the loan, if they cannot do so then they should have their property attached or thrown in jail. But what else can you expect from our current government. The rule of law and common sense do not have any place in our politics.

It is quite self-evident that in politics, stupidity is clearly not a handicap. What these intellectually challenged entities do not seem to realize is that their short term gain will be our collective long term loss, just as it was with the printing of money and our eventual economic collapse of 2008. Nothing in the world is more dangerous than sincere ignorance, conscious stupidity and greed, or a combination of all. This is what we have in or government. What sanctions?!
Sanctions: The inconvenient truth – New Zimbabwe
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