A Difficult Dialogue: Zimbabwe-South Africa economic relations since 2000

Report Cover Photo: Crowds mob South African-owned Makro and Jaggers and strip shelves bare in Harare during “Operation Slash Prices” in July 2007

Report Cover Photo: Crowds mob South African-owned Makro and Jaggers and strip shelves bare in Harare during “Operation Slash Prices” in July 2007

Since the onset of the Zimbabwean crisis, the role of South Africa, as both a help and hindrance, has been continuously debated. In particular there has been a certain cynicism about South Africa’s policy of “quiet diplomacy” being driven by the economic interests of the South African state and its corporate sector. While this report argues that South Africa’s policy has been guided by the broader political concerns of the South African state on the continent, it is clear that the growing evidence of South African business concerns exploiting the conditions of the Zimbabwean crisis has to be looked at more carefully in terms of its on-going effects on South Africa’s strategy on Zimbabwe.

The collapse of Zimbabwe’s economy in recent years has been catastrophic. Zimbabwe’s gross domestic product (GDP) plummeted 40% from 1999 to 2003, since when it has continued to decline precipitously. The drastic shrinkage of the economy has been attributed to the collapse of the key contributors to the country’s GDP – agriculture, manufacturing and tourism – following the introduction of the government’s contentious fast-track land redistribution programme in 2000.

Manufacturing, mining and export sectors have declined steeply. Manufacturing, which at its height constituted 16% of GDP, has shrunk by more than 35%. Unemployment hovers near 80%. The Zimbabwean dollar is almost worthless from hyperinflation. Tourism earnings, once Zimbabwe’s second biggest source of foreign currency, declined form US$198 in 2004 to US$98 million in 2005, a decline of 49%. The mining sector has been faced with serious shortages of raw materials due to the dearth of foreign exchange. Production capacity has declined precipitously and production costs have increased hugely. The deterioration of agriculture, the mainstay of Zimbabwe’s economy which at its prime constituted 50% of exports, has had a disastrous impact on the economy.

Between 1998 and 2001, foreign direct investment in Zimbabwe dropped by 99%. The risk premium on investment jumped from 3,4% in 2000 to 153,2% by 2004. And Zimbabwe has experienced a tremendous drop in agricultural production, with maize, groundnuts, cotton, wheat, soybean, sunflowers, and coffee production contracting between 50% and 90% between 2000 and 2003. The country’s financial institutions are in disarray and its once productive farms sit idle. Thanks to the Zimbabwean government’s lack of fiscal discipline, Zimbabwe’s domestic debt has swelled considerably in recent years. In 2003, the ratio of domestic debt to GDP stood at 14.2%. In May 2005, the ratio had risen to over 16% of GDP.

The economic crisis in Zimbabwe, like economic crises in many African countries, has bred a political and social crisis. Operation Murambatsvina struck at the heart of Zimbabwe’s informal economy. With national unemployment hovering around 80%, the clean-up campaign aggravated the already unbearable levels of poverty, social suffering and hopelessness pervading Zimbabwe. A related social impact of Operation Murambatsvina has been the rise in homelessness caused by the government’s crackdown on ‘illegal structures and crime,’ with as many as 1.5 million Zimbabweans losing their homes in the clampdown.

Owing to unreasonable price controls and ballooning overheads, many retail outlets have not been able to stock foodstuffs and basic commodities such as sugar, maize meal, soap, margarine, toothpaste, salt, milk, bread, flour and cooking oil. The high demand for essential goods has led to high prices for basics, denting the incomes of workers already reeling from increases in transport and medical costs. Zimbabwean national life has been crippled by a deepening fuel crisis induced by a chronic lack of foreign currency and escalating international prices for oil. In addition to food and fuel scarcities, Zimbabwe has experienced constant electricity and water cuts.

The unprecedented economic crisis besetting Zimbabwe has forced many highly educated citizens to leave the country. Doctors, nurses, lawyers, bankers, teachers, civil servants and many other professionals have emigrated to countries such as Australia, Britain, Botswana and South Africa in search of a better life. The exodus of professionals has resulted in critical staff shortages and the collapse of key public service sectors, notably education and health. The health sector the government had resorted to re-employing retired nurses to help alleviate staff deficiencies in government hospitals. Zimbabwe’s public hospitals are estimated to have a shortage of 3000 nurses. This poses immense challenges for a nation where the overwhelming majority of the population depends on public health care, and where approximately 20% of the adult population is afflicted by the HIV/AIDS pandemic.

The response of the Zimbabwean government to this economic catastrophe has thus far added to the existing problems. In June 2007 the Government introduced Operation Reduce Prices, which according to the Reserve Bank Governor, Gideon Gono, in part, “fell prey to selfish predatory tendencies for certain players in the Taskforce implementation teams…….through a disproportionate course of activities geared to promote personal interests”. This admission adds to the growing evidence of rent-seeking activities that have been carried out by large sections of the ruling party elite and have contributed to the economic debilitation of the country.

Similarly with the recently passed Indigenisation Bill, there is strong reason to expect that the legislation which insists on 51% ownership of all foreign business passing into indigenous hands, will in fact add to the patronage base of the ruling elite without dealing with the more fundamental problems in the economy. Both theses responses speak more to the electoral opportunism of the ruling party and accumulation needs of the ruling elite than to the broader national interests of Zimbabweans.

The roots of the South African government’s policy of ‘quiet diplomacy’ or constructive engagement towards Zimbabwe can be traced to 1999 when Thabo Mbeki became South Africa’s president. The key objective of this policy has been to use non-violent means to “encourage” the Mugabe regime to bring about democratic change in Zimbabwe. Furthermore, the policy has been designed with the objective of “preventing a complete collapse of authority in Zimbabwe.”

South Africa’s policy of ‘quiet diplomacy’ has drawn severe criticism internationally, in South Africa and in Zimbabwe. Some have suggested that South Africa’s diplomacy has bordered on collaboration with the Mugabe regime. Concerns have also been raised about the incompatibility of Mbeki’s Zimbabwe policy with his proclaimed vision of an African Renaissance. Given Zimbabwe’s economic dependence on South Africa, domestic and international critics of Zimbabwe have urged South Africa to use its immense economic leverage coercively against Zimbabwe by imposing economic sanctions. Mbeki has adamantly opposed the implementation of sanctions against Harare, pointing that punitive economic measures would have potentially destabilising consequences, including a huge including a huge influx of refugees, disruption of trade links, and general chaos on the border.

This study has four main findings. First, South Africa’s policy towards Zimbabwe is extremely unlikely to change under the Mbeki presidency. Mbeki’s refusal to consider an alternative policy to ‘constructive engagement’ is rooted in several important considerations, including: a desire to shed South Africa’s ‘Big Brother’ image; a preference for multilateral, not unilateral, approaches to conflict resolution; a belief in African solutions by Africans; a quest to cement South Africa’s African identity; a sensitivity to domestic black opinion; a refusal to interfere in the internal affairs of another sovereign state; and constraints imposed by the challenge to South Africa’s leadership by other regional states. These are salient factors that Mbeki’s successor would have to weigh carefully before deciding on his/her policy approach to Zimbabwe.

Second, notwithstanding Zimbabwe’s political and economic problems, trade and investment ties between South Africa and Zimbabwe remain very strong. Perhaps because of its troubles, Zimbabwe remains South Africa’s most important trading partner in Africa. And the strong economic ties between the two countries are poised to continue into the future; South African companies are unlikely to pull out of Zimbabwe because of that country’s internal crisis. Many South African firms believe Zimbabwe is still a better and easier place in which to do business than many other African countries, and they have found ways to negotiate Zimbabwe’s largely dysfunctional economy in order to maintain a presence there in expectation of eventual political change and economic recovery.
Third, while the South African government’s response to the Zimbabwean crisis has been driven by broad political concerns, it is also clear that sections of the corporate sector from South Africa engaged in Zimbabwe have exploited the opportunities thrown up by the crisis in that country.

Fourth, although the South African business sector has supported the South African government’s policy of ‘quiet diplomacy’ towards Zimbabwe, it has urged the government to take a much tougher line and speak out more forcefully about the breakdown of the rule of law, human rights abuses, and economic chaos in Zimbabwe. This opinion has emerged particularly since SA business interests have also had to deal with the vagaries of the authoritarian Zimbabwean state. Whether the South African business sector can meaningfully influence the process of resolving Zimbabwe’s problems will depend on the degree to which the government is willing to accommodate its proposals and concerns.

A Difficult Dialogue: Zimbabwe-South Africa economic relations since 2000
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Tue, October 23 2007 » Economy, History, Reports

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