The Mail and Guardian
MAYA FISHER-FRENCH
JOHANNESBURG, SOUTH AFRICA – February 27 2009
Although South Africa can technically afford to give Zimbabwe the R6-billion that Prime Minister Morgan Tsvangirai has reportedly asked for, it would have to be part of a broader financial bail-out package if South Africa does not want to throw good money after bad.
Yet assistance from other countries has not been forthcoming as potential lenders are not convinced that Zimbabwe is on a real road of change while Robert Mugabe still holds power.
Stanlib economist Kevin Lings says the national budget does make provision for a contingency reserve, which this year is budgeted at, coincidentally, R6-billion. This money is put aside each year in case of a natural disaster such as floods where government needs to provide urgent assistance to its citizens.
Lings says government did indicate last year that this reserve could be used for other types of disasters when it considered using the reserve as an emergency bail-out for Eskom. Zimbabwe’s case could be argued as a disaster, which has a significant impact on South Africa’s financial and political stability, but this would leave South Africa short, should natural disasters hit our shores.
Lings says a figure of R6-billion is not significant, accounting for only 0.25% of GDP and pushing our budgeted deficit from 3.9% to 4.15% of GDP. However, it could impact on South Africa’s cost of funding. This year the South African government will be going to market to raise R185-billion. Given the scarcity of capital globally, any additional borrowing could increase the total costs of South Africa’s funding needs. “South Africa can afford this loan; the question is whether this will be a continual drain,” says Lings.
Efficient Group economist Dawie Roodt says that for Zimbabwe to recover, the country would need a significant injection of cash and that South Africa could not go this route alone. “Others will have to chip in as well, such as the United States, the United Kingdom and even the International Monetary Fund [IMF],” says Roodt, who adds that this will only happen if the political solution is accepted.
The US and Europe have already stated that they would want further evidence that the rule of law and democracy are in place. With the Zimbabwean government using a constitutional loophole to keep MDC politician and deputy agricultural minister designate Roy Bennett in jail after being granted bail, it is yet to demonstrate a respect for the law.
Although details of what Zimbabwe has requested from South Africa are not official, reports have suggested that the R6-billion request would be used to cover the Zimbabwean government’s obligations to civil servants and other essential items for the next six months. If R6-billion would only stave off the bills for six months, the magnitude of financial assistance will be far greater. Tsvangirai said before his meeting last Friday with Finance Minister Trevor Manuel that Zimbabwe would need in the region of $5-billion to help fund the economy’s recovery. Donor organisations estimate that figure to be closer to$10-billion.
Roodt says that follow-up loans will be needed and it is these loans that would start to impact on South Africa’s credit rating and financial stability.
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Lings says that a normal channel for a small country requiring financial assistance would be the IMF, but Zimbabwe probably sees its African neighbour as a friendlier creditor. “There would be financial and political conditions attached to an IMF loan,” says Lings, who adds these would include regular report-backs and visits by IMF teams to ensure compliance. “At this stage these conditions may be too onerous for Zimbabwe.” South Africa as a soft touch will not go down well with South African citizens, who would rather see the money spent at home to deal with our own unemployment and poverty crisis.
It is clear that a more detailed and fully comprehensive package, which includes other lenders, would have to be in place before it would be financially sensible for South Africa to sign off on any financial assistance, yet there may be political pressure for the South African government to show its support and legitimise the Zimbabwean unity government by putting our money where its mouth is.
During his budget address earlier this month Manuel said South Africa stood ready to coordinate financial support for Zimbabwe once Tsvangirai was sworn in as prime minister. Manuel made it clear that South Africa would use its influence to co-opt other countries into a rescue package.
According to Reuters, Manuel said: “There are a number of countries that stand ready to assist; we have to lean on them to help the Zimbabweans deal with the worst ravages.” He also added that he had raised the issue with some of the G7 countries and hoped to put together a larger financial package. This week the treasury declined to comment on a financial package, stating that it would require firm proposals to be put to the national treasury.
Apart from political pressure, South Africa has a vested economic interest in the recovery of Zimbabwe. Most of the products and service would be sourced from South Africa, such as fertiliser and plant equipment. South African firms would be involved in the re-building of infrastructure.
But South Africa will have to tread this path very carefully. Already questions have been raised about the misuse of the R300-million agricultural aid package South Africa gave to Zimbabwe last year. Zimbabwe should not make the mistake of thinking that South Africa will hand over money unless there are guarantees that these funds will be used in a proper manner and not to buy Mercedes-Benzes for ministers, as has already happened this week.
Going into an election year, government will have to convince South Africans that taxpayers’ money is better spent in Zimbabwe than on our own poverty alleviation needs. The rise in xenophobic violence would suggest that many South Africans will have little sympathy for Zimbabwe’s woes, although the hope that millions of Zimbabweans would return to their country, if it stabilised, could provide the government with an angle to sell the deal.
More ministers than offices
Last week Zimbabwe swore in its biggest government ever. When fully constituted, the new government will have 71 members.
This week, new ministers received new Mercedes-Benz luxury sedans and Nissan SUVs. Government officials refuse to reveal how much will be spent on the ministers. Further spending is also planned on vehicles for 300 members of Parliament.
The ministers know first-hand how deep in the red Zimbabwe is — they arrived at government complexes to take up their posts to find there was not enough office space for all of them. Those who did get offices had no furniture, stationery or staff.
A senior Western diplomat in Harare said aid to Zimbabwe’s new unity government is on condition that reserve bank Governor Gideon Gono is sacked and more substantial political reforms are made.
Sweden’s ambassador to Zimbabwe, Sten Rylander, on Tuesday said donors wanted Gono replaced first as they could not trust him with aid. Rylander claims Gono “diverted” $400 000 his country had given to Save the Children for humanitarian work in northern Zimbabwe. He also accuses Gono of having misappropriated funding from the Global Fund for HIV/Aids.
“We cannot just release funds; we are waiting for sound policy changes, the rule of law and sound macroeconomic policies,” he said.
“We are waiting for policy change; we cannot rush in with aid. The government has to deal with the leadership in the central bank and that has to be done urgently.”
Under Zimbabwean law, only President Robert Mugabe can fire a central bank chief.
Other diplomats who spoke to the Mail & Guardian are also concerned about the bloated size of the new government, which at 71 is the biggest Zimbabwe has ever had. Donors also want to see an independent anti-corruption commission set up to check graft before any substantial financial aid is granted.
Prime Minister Morgan Tsvangirai appeared at the weekend to be addressing these concerns, saying on Sunday: “I wish to announce it today and now that our government will not tolerate any form of corruption. Corrupt and unscrupulous business people will be sought out and will be prosecuted in their numbers.”
On Western scepticism of the new government, Tsvangirai said they should “accept that Zimbabweans have a right to choose and they have decided that the inclusive government is the only way out”.
Tsvangirai has estimated the long-term cost of rebuilding Zimbabwe at up to $5-billion. A coalition of Western donors, set up two years ago to prepare for a transition, estimates that Zimbabwe needs up to $10-billion to stabilise its economy. This includes funding for reinvestment in infrastructure, restoring farm production and supporting its currency.
There is no concrete information from the Zimbabwe government itself on what aid has been pledged in total and how much of it has already been received. Gono says the country has secured $500-million in credit lines from international financiers, who he has declined to name.
Gono has said, however, that the financiers are worried by apparent conflicting signals on policy from leaders of the coalition government. He said the credit lines had been extended after Zimbabwe instituted the currency and economic reforms announced in January.
Patrick Chinamasa, who as acting finance minister last month presented a $1.9-billion national budget for 2009, said Zimbabwe had received $200-million in budgetary support from “international cooperating partners”, whom he also did not identify.
Since January, Zimbabwe has allowed the use of foreign currencies across the economy, authorising US dollar trade on the stock market and in the informal economy. Controls on the repatriation of earnings by foreign investors have been lifted as have restrictions on the sale of farm produce and gold.
Although there has been some support for these reforms from donors, there has not been enough to encourage real aid to start flowing.
Donors are, however, more open to direct support to humanitarian sectors such as health and education. David Coltart, the education minister, told the M&G that he needs urgent support of $438-million for the next six months. But he concedes that “in the current economic climate and in the context of world recession, that is a completely unattainable figure”. He was confident, however, of raising $80-million to pay teachers.
There is little support from either Zanu-PF or the MDC for adoption of the rand. Leaders are wary of having to cede economic policy and political independence to South Africa. A senior Mugabe aide said adopting the rand would turn Zimbabwe into “a giant supermarket of South Africa, the way many countries in the rand zone are currently”.
Tsvangirai himself has said he supports the existing policy allowing the circulation of multiple currencies over adoption of the rand. — Jason Moyo