[A-List] Zimbabwe: how does it survive?

[Michael Keaney]

How Zimbabwe defies economic collapse
By Greg Mills
Financial Times; Mar 10, 2004

President Robert Mugabe of Zimbabwe shows little sign of buckling to
external and internal pressure to end his 24-year reign. Despite the
widening of sanctions by the US, European Union and Australia, and
unprecedented criticism of his government last month by George W Bush, US
president, Mr Mugabe has dismissed hopes of compromise with the opposition
Movement for Democratic Change. A stalemate over disputed elections in March
2002, in which Mr Mugabe claimed victory over the MDC's Morgan Tsvangirai,
has paralysed the political process - a situation that Mr Mugabe, after
celebrating his 80th birthday last month, appears content to live with.

Amid the toughening sanctions climate, Zimbabwe appears even closer to the
brink of collapse. The economic situation alone ought to have provoked a
massive public backlash. With inflation touching 700 per cent, the black
market exchange rate 100 times the official level of Z$55 to the dollar, and
widespread food shortages, the average Zimbabwean is much worse off today
than three years ago, when the farm invasions instigated by Mr Mugabe's
government began.
Why has it not collapsed completely over three particularly grim years? Why
have hungry, angry people not risen up against Mr Mugabe and his ruling
Zanu-PF?

There are three main reasons. First, Zimbabweans today are passive political
actors. The traumas of Zimbabwe's war of liberation from white rule and Mr
Mugabe's subsequent purges of the minority Matabele tribe has kept the MDC
committed to a non-violent, democratic transition. The brutality of the
state's security forces, also, makes a popular uprising unlikely. A second
explanation is that, despite sanctions, there has been relatively little
external involvement to assist democratic forces within Zimbabwe.

Last, Zimbabwe's economy has been transformed into a feudalistic,
politicised system, reliant on a combination of fear and reward.
Nonetheless, it still operates - for a shrinking, elite circle. For this
elite, the fact that 99 per cent of Zimbabwe's 13m people may have suffered
as a consequence is irrelevant. Despite - and sometimes because of - the
economic collapse, such circles are making big money in at least five ways.
The first is via direct patronage, including the redistribution of seized
land and the lending of money at preferential interest rates as low as 15
per cent, against a market rate of more than 50 times higher. Second, an
artificial exchange rate peg has created a massive, informal currency
market. Third, the collapse of state fuel procurement means entrepreneurs
provide the country's daily requirement of several million litres - and
importers can easily double a $10,000 investment on one tanker load. Fourth,
the existence of at least three exchange rates is a licence for
state-sponsored fraud: the official rate, the exporters' rate of Z$824 to $1
and the black-market rate. Of foreign exchange earnings through, say,
exports, half is banked at the Z$824 rate and the remainder at Z$55. Some of
this money is exported overseas or used to buy luxury goods - Zimbabwe is
still Africa's largest market for Mercedes cars after South Africa; and the
Reserve Bank makes enormous profits.

Last, state pension funds, state enterprises and other monopolies offer
additional opportunities to the politically connected.

The gradual deterioration of the economy has created a feeding frenzy,
particularly in the absence of guarantees that elite offenders will be
prosecuted. Mr Mugabe has been demonised as the architect of this collapse.
But, while he must bear most of the blame, his removal would not fix this
situation. Nor would efforts to revitalise institutions of governance such
as the Reserve Bank.

No doubt many Zimbabwean business people hope for the departure of some
foreign investors, especially in retailing, mining and manufacturing. The
sale of local assets at discounted values creates further patronage
opportunities. Investors who want a solution that features a functioning
economy must withstand such pressure to sell assets.

Thus Zimbabwe under Mr Mugabe - just like Rhodesia under Ian Smith - works
rather well thank you, but only for a small number of people. The longer it
remains on this course, the more difficult it will be to return to economic
normality.

The international community could assist this process through close scrutiny
of the foreign assets of the elite, to create the sort of leverage and
external pressure that has been lacking until now.

The writer is national director of the SA Institute of International Affairs