State need to reform or risk sinking

 

 

 

State need to reform or risk sinking

The 2007-08 farm mechanisation saga continue to hog limelight after a leak revealed beneficiaries of the scheme. For over 12 years the beneficiaries of the US$200 million scheme have been kept secret by the state. Some were of the view that the controversial scheme was behind the 2015 RBZ debt assumption bill, which was then passed by parliament. The bill passed allowed for the state’s assumption of over $1 billion in RBZ debt. A less significant portion of the debt however dates as far back as pre independence era. The former governor of RBZ, Dr Gideon Gono has come out in defence of the exercise saying given the circumstances prevailing in the country at the respective time, there was no other alternative. He said given sanctions and a generally declining economic climate, government decided to pursue a radical move inorder to empower its newly resettled farmers through availing farming implements so as to spur production.

Rightfully so, Zimbabwe’s economy is largely dependent on the Agriculture and Mining sectors, which collectively contributed over 40% of GDP. While the contribution of agriculture has been coming off over the past 2 decades, due to low production, it remains a pivotal sector in the country’s quest to redeem economic stability. Between 2001 and 2008, Zimbabwe’s GDP was sliding in successive years and much of the impact emanated from a slowdown in Agriculture, which fed into other value chains in manufacturing. The imposition of sanctions particularly ZIDERA in 2003, post the land reform and Bretton Woods’ institutions disqualification of the country after it had defaulted on its outstanding obligations all drove the economy to a near collapse.

The purpose of this piece is to ascertain whether the exercise done by the RBZ at the behest of government was noble or not and what the country could possibly do better in future instances when faced with similar challenges. The very exercise of land reform was in itself a controversial one in that it had a number of miscalculations which had a huge cost on economy. By violently replacing white commercial farmers, the country forego agriculture production. These were skilled farmers with decades of experience, capital and established markets. The rush to redeem land without due diligence at the point of invasion led some to believe the government had other motives other than that of economically emancipating the natives.

Looking at the respective period, the politics of the land had changed as a strong labour union had morphed into a formidable opposition against Robert Mugabe’s ZANU PF. The need to pacify comrades and sway a rural population are some of the reasons touted as having underpinned the move to speedily invade farms amid a dwindling political base. These manoeuvres also came after the late 90’s War Veterans Compensation Scheme which together with funding of the DRC, almost collapsed the Zimdollar. This is the background against which the 2007-2008 Farm Mechanisation scheme was undertaken. Government saw it as a necessary measure to redeem an ailing economy, which it had largely contributed in bringing down.

In all economies globally government take necessary measures to intervene through the monetary or fiscal leg, whenever the economic situation has adversely deteriorated. For example, global economies have put through facilities to the tune of over $10 trillion led by the US at $2 trillion in coming up with packages to cushion the citizenry and the economy. Outside of bailouts and social grants governments may intervene through subsidies in select sectors. State intervention is thus a necessary tool in averting potential economic loss. However, whenever such measures are undertaken, a cost benefit analysis should be done to ensure that possible gains and losses are clearly laid out.

In all economic undertakings there is clear opportunity cost and decisions taken should see to it that the opportunity cost is not greater than the benefit derived from the option adopted or undertaken. For example, the Farm mechanisation undertaking was financed to the tune of US$200 million, which was a syndicated loan sourced from China. The full amount was to be repaid with interest at a time the fiscus was grossly underperforming. It could be estimated that the opportunity cost of directing the loan towards farm mechanisation was higher. Looking at diminishing yields across all crops including tobacco and maize in formative periods following the exercise, it is apparent that the exercise may have largely been futile.

What could have gone wrong is the basis upon which the selection of beneficiaries was undertaken. Crude data readily in the public domain shows that while a cross section of farmers benefitted, from the political elites to ordinary citizens holding land, the values of equipment accruing to senior government officials particularly politicians and the judiciary was disproportionately higher. Well, it is said that the criteria were based on past production records and size of land held by beneficiaries as provided for by GMB and the Ministry of Lands and Agriculture. Of course these are good matrices, but it also makes it a curious case establishing what criteria was used in determining the beneficiaries of the land reform in the first place and the size of land each was to take. It is not debatable that the land reform was undertaken on partisan lines and within the partisan strata, hierarchy of power.

Of course, some non-political actors benefitted but none benefitted prime land and equipped farms. These could therefore not be expected to achieve high production volumes and better yields compared to chefs who shared among themselves, prime land. It is therefore folly to follow the rule of production records in the quest to determine who was to get in farming implements. Outside of the criteria used, is the aspect of transparency surrounding the exercise.

It is a standard globally that beneficiaries of publicly financed schemes should be publicly known. It helps ensure accountability and discipline in use of public resources. It is no wonder; the ruling elite was resolute in its stance of not wanting to publish the records. Governor Gono said this was based on client confidentiality, which assumes that the amount was initially expressed as loans. However, there is no record to prove that if this was the initial stance, beneficiaries were agreed and aware of this dynamic. In my view the ambiguity surrounding the matter emanates from the fact that the elites in cahoots with the RBZ have always wanted to keep the information as a secret. To achieve this, they had to first give an impression that the loans were expressed not as subsidies but loans due to be paid back. This would automatically qualify the subject as confidential. But after the 2015 RBZ Debt Assumption Bill, where the amounts were thought to have been reclassified to subsidies, government should have then published the information on beneficiaries to the public as it would have ceased to be confidential.

Gono also said the financing facility to the tune of US$200 million had long been repaid in full during his tenure. He therefore said that the amount is not part of the RBZ debt assumed by government in 2015. All these developments do not take away the fact that ultimately the exercise was financed by taxpayer’s money. He said the loan was repaid using amounts generated from RBZ’s internal activities mainly in foreign currency dealings. The Governor fails to realise that all amounts generated by quasi fiscal entities remain shareholders’ money and not management’s portion. If management innovate and generates money from its innovation, it does not take a dividend from the profit made. It is the prerogative of the shareholder to decide how best the funds are used and in this case the shareholder is the people of Zimbabwe. Zimbabwe cannot move forward unless these issues are tackled head on. The RBZ needs to be accorded a chance to be independent so that it achieves its mandate failure of which currency volatility and economic backpedalling remains the order. There is rampant gross incompetence and corruption in government coupled with governance deficiency of significant proportions which will continue to weigh on economic rebound if not addressed. Equity Axis