Mugabe is warning off foreign firms

Will the new model work for Zimbabwe?

Following their recent election win, Robert Mugabe’s Zanu PF government has issued a new warning to foreign firms. They ran a full-page advertisement in local papers this week saying that their comprehensive election win was an endorsement of their “indigenisation plans” that will see all foreign owned companies forced to give up 51 per cent of their equity to black Zimbabweans.

It is expected that this means that Mugabe will force the remaining 1100+ white and foreign owned companies left in the country, as well as local banks with foreign interests, to hand over 51 per cent of their businesses to the Zanu PF government.

"Over the next five years, Zimbabwe is going to witness a unique wealth transfer model that will see ordinary people take charge of the economy," the adverts read.

Saviour Kusukwere, one of Mugabe’s ministers, revealed separately that the country planned to seize 51 per cent of foreign-owned mines, worth an estimated US$7bn without any compensation. He warned that mines that refused to surrender more than half of their assets would lose their licences.

Recent Economic Trends

Following the 2000 referendum, Zimbabwe experienced 7 years of negative economic growth, with GDP per capita figures falling from US$535 in 2000 to US$415 in 2008. Then after introducing the US dollar as it currency in February 2009, the country witnessed a resurgence, with GDP per capita levels rising to US$788 by 2012 (Source: World Bank).

However, despite this small improvement, most African countries have surged ahead of it over this twelve year period as reflected in the table below.

Timeline: Mugabe’s 33 years in power

  • Mugabe and his Zanu PF party took power following the 1980 general elections.
  • Following droughts in the country in the late 90s and slowing economic growth, Mugabe was coming under increasing pressure to step aside.
  • Mugabe then held a referendum in 2000 in order to extend his powers. This referendum was unexpectedly defeated by a new opposition party formed from a labour union movement, the MDC and its leader Morgan Tsvangirai.
  • Months after the referendum, the MDC ran a candidate in every district in the country and emerged with nearly half the seats in parliament.
  • Zanu PF responded by launching a campaign of violence to intimidate the MDC. It also destabilized the country by ordering the invasion of commercial farms by so called War veterans.
  • Following the invasions and general public outcry, new media laws were passed prior to the 2002 elections which led to the closure of all independent newspapers in the country.
  • Zanu PF won majorities in the 2002 and 2005 elections. These results were heavily disputed by the MDC and international bodies.
  • MDC leader Morgan Tsvangirai was severely beaten by government officials in 2007 and his bodyguard, Nhamo Musekiwa, was killed.
  • The MDC won a majority in the 2008 election but they did not achieve over 50 per cent of the vote and a run-off election was therefore required.
  • Prior to the run-off election, Zanu PF launched another campaign of violence against MDC supporters, forcing the MDC to pull out of runoff elections and effectively handing power back to Mugabe.
  • Susan Tsvangirai was killed in a car crash in 2009, which is believed by many to be the work of Zanu PF officials who were attempting to assassinate her husband Morgan Tsvangirai, who was in the same car at the time. He survived.
  • In a deal brokered by South African president Thabo Mbeki following the 2008 elections, Mugabe remained president and kept control over the army and the country as a whole.
  • Mugabe won the recent elections held on the 31st July 2013, taking over 60 per cent of the presidential vote and over two thirds of parliamentary vote. These results have been heavily disputed by the MDC, as well as by various independent bodies and the UK and US government. However, most regional powerhouses including the Southern African Development Community (SADC) and the South African government said the elections were free and fair. In fact, the only African country to officially speak out against the result was Botswana.
Robert Mugabe. Photograph: Getty Images

Andrew Amoils is a writer for WealthInsight

Photo: Getty Images
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There are risks as well as opportunities ahead for George Osborne

The Chancellor is in a tight spot, but expect his political wiles to be on full display, says Spencer Thompson.

The most significant fiscal event of this parliament will take place in late November, when the Chancellor presents the spending review setting out his plans for funding government departments over the next four years. This week, across Whitehall and up and down the country, ministers, lobbyists, advocacy groups and town halls are busily finalising their pitches ahead of Friday’s deadline for submissions to the review

It is difficult to overstate the challenge faced by the Chancellor. Under his current spending forecast and planned protections for the NHS, schools, defence and international aid spending, other areas of government will need to be cut by 16.4 per cent in real terms between 2015/16 and 2019/20. Focusing on services spending outside of protected areas, the cumulative cut will reach 26.5 per cent. Despite this, the Chancellor nonetheless has significant room for manoeuvre.

Firstly, under plans unveiled at the budget, the government intends to expand capital investment significantly in both 2018-19 and 2019-20. Over the last parliament capital spending was cut by around a quarter, but between now and 2019-20 it will grow by almost 20 per cent. How this growth in spending should be distributed across departments and between investment projects should be at the heart of the spending review.

In a paper published on Monday, we highlighted three urgent priorities for any additional capital spending: re-balancing transport investment away from London and the greater South East towards the North of England, a £2bn per year boost in public spending on housebuilding, and £1bn of extra investment per year in energy efficiency improvements for fuel-poor households.

Secondly, despite the tough fiscal environment, the Chancellor has the scope to fund a range of areas of policy in dire need of extra resources. These include social care, where rising costs at a time of falling resources are set to generate a severe funding squeeze for local government, 16-19 education, where many 6th-form and FE colleges are at risk of great financial difficulty, and funding a guaranteed paid job for young people in long-term unemployment. Our paper suggests a range of options for how to put these and other areas of policy on a sustainable funding footing.

There is a political angle to this as well. The Conservatives are keen to be seen as a party representing all working people, as shown by the "blue-collar Conservatism" agenda. In addition, the spending review offers the Conservative party the opportunity to return to ‘Compassionate Conservatism’ as a going concern.  If they are truly serious about being seen in this light, this should be reflected in a social investment agenda pursued through the spending review that promotes employment and secures a future for public services outside the NHS and schools.

This will come at a cost, however. In our paper, we show how the Chancellor could fund our package of proposed policies without increasing the pain on other areas of government, while remaining consistent with the government’s fiscal rules that require him to reach a surplus on overall government borrowing by 2019-20. We do not agree that the Government needs to reach a surplus in that year. But given this target wont be scrapped ahead of the spending review, we suggest that he should target a slightly lower surplus in 2019/20 of £7bn, with the deficit the year before being £2bn higher. In addition, we propose several revenue-raising measures in line with recent government tax policy that together would unlock an additional £5bn of resource for government departments.

Make no mistake, this will be a tough settlement for government departments and for public services. But the Chancellor does have a range of options open as he plans the upcoming spending review. Expect his reputation as a highly political Chancellor to be on full display.

Spencer Thompson is economic analyst at IPPR