Stockbroker’s take on Zim deal

Stockbroker's take on Zim deal
What the power sharing deal could mean for the economy.

15 September 2008 12:25

As has been widely reported in the press, Zimbabwe's political parties reached a power sharing deal. The deal paves the way for a government of national unity with Robert Mugabe relinquishing some of his executive power to Morgan Tsvangirai, leader of the opposition Movement for Democratic Change (MDC).

The main points of the deal are: President Robert Mugabe with two deputies from Zanu PF; Prime Minister Morgan Tsvangirai with two deputies from MDC-M and MDC-T; Mugabe, as head of state and government, to chair cabinet of 31 ministers; Tsvangirai to preside over a council of ministers, supervises ministers, formulates and implements policies, sits in National Security Council (JOC) and heads government business in parliament;

Zanu PF to have 15 ministers and eight deputy ministers, Tsvangirai’s MDC faction 13 ministers and six deputy ministers and the Arthur Mutambara faction three ministers and 1 deputy minister; Provincial governors to be shared among the three parties;

If an elected representative (MPs and Senators) dies or is recalled by their party 12 months from the day of signing, none of the other parties to the deal will contest the byelection;

The “inclusive government” will remain in power for a maximum five years. A review of the power-sharing deal will take place in 18 months, and every year thereafter; New constitution after 18 months.

The deal will be officially signed next Monday, to allow time for regional leaders to attend the ceremony.

The efficacy of this deal will only be shown by time.

The key issue will be the ability of the parties to formulate, agree and execute policy, and in this light the practical interaction between Mugabe, as head of cabinet, and Tsvangirai as head of the council of ministers is core. On paper this looks like a cumbersome structure that could, if the parties so choose, result in stultification of the reforms so clearly needed. The agreement does, however, provide an impasse to the political paralyses of the last six months, and a prospect of arrest of the economic decline of the last (lost?) decade.

Two items are at the top of the agenda. The first is the addressing of the economic problems and the second the development of a new constitution. Zimbabwe’s constitution has had 18 amendments, and in fact the nineteenth will be enacted to pave the way to the agreement just reached.

It is most likely also to significantly reduce the size of government – Zimbabwe does not need, and can not afford, a parliament of over 200 members, with a senate on top of it! Our belief is, therefore, that fresh elections will be held in around two years. You have to believe that any constitution agreed upon will allow for free and fair elections with international monitors!

The economy is the more pressing issue. Clearly tough decisions will have to be made soon, and in this regard we will be very interested in the composition of the economic ministries in the new government. The de-politicisation of the Reserve Bank of Zimbabwe is vital, as is the stopping of the printing presses. Central government will need some assistance in meeting necessary obligations currently covered by credit creation, such as salaries for the civil service. Local press have stated that Mbeki was mobilising financial resources, venturing that he had managed to negotiate with the African Development Bank to provide US$1 billion to help resuscitate Zimbabwe’s economy. The ADB themselves have promised financial assistance if a deal was reached but did not mention figures. They have, however, said the ADB was prepared to reschedule or cancel Zimbabwe’s debt and coordinate international assistance for Zimbabwe.

Such measures will be of great assistance, as will restructuring of other donor debt. The key though, will be fostering an environment for investment. In this light, our first prize would be the complete removal of exchange controls, a policy we believe was on the preelection agenda of the MDC.

We believe that almost all of the economy is priced a prevailing parallel rates (currently around 25 000, in line with the Old Mutual Implied Rate), reflecting both huge scarcity and considerable friction costs, and that the removal of exchange controls would see the effective currency firm fairly quickly. Donor support is one thing, but we believe investment flows will come very quickly, and broadly anticipate the following:

EMA portfolio flows ($200 million in 3 months) Investment capital ($1 billion in 12 months, $6 billion in 5 years) Donor Support ($3 to 5 billion) Local recapitalisation ($1 billion over 2 years) In short, the parties to this agreement have a wonderful opportunity to forge a new Zimbabwe. The devil, however, is in the detail and we eagerly await developments, particularly with regard to the economic dispensation.

* Sean Gammon is from Imara

Post published in: Economy

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