Funding Zimbabwe’s economic revival

History should only serve to remind us where we have come from, but should never limit what we can become.

Guest Column by Vince Musewe

I notice that I could have left some of my judicious readers in the lurch last week with my suggestions with regard to funding agriculture revival and therefore economic revival through the issue of internationally-backed long-term bonds. Let me, therefore, take this opportunity to further explain how this could work and what the likely economic impact could be.

Please note that this is “a view” and there could be other solutions out there, but we must at least start the conversation. Let me also hasten to say that the ideas herein are as a result of the conversations I continue to have with other progressive Zimbabweans and are, therefore, not mine alone.

Zimbabwe needs patient and friendly long-term investment capital. That is not going to happen in the medium term if our political situation remains as it is and potential investors continue to load their decisions with country risk. However, notwithstanding that, we can lift ourselves by the boot straps by realising that we have an incredible asset that has very little value because no one has title to it; that asset is our vast arable and fertile land that lies hugely under-utilised, mostly misused or tragically unused; courtesy of Zanu PF’s fast-track land resettlement fiasco. We cannot sustain this situation any longer.

All these are critical and must be addressed as matter of urgency. My article last week dealt with the issue of how to raise funding for compensation. I will not delve into the other related matters here, simply because there are experts out there who are more qualified to deal with the subject matter.

The government of Zimbabwe has in principle accepted its responsibility to compensate land owners, subject to an agreement with the farmers on a compensation framework and securing the required resources.

Such framework must take into account the compensation for land and improvements, including the consideration of such issues as land valuation methodologies and mechanisms, land price information, the basis of levels of compensation to be paid for land and associated property acquired, interest payable and possible institutional responsibilities. Once these are resolved, compensation can then be agreed upon and paid.

The revival of the agriculture sector can be achieved by mobilising funds for compensation from the international community through a compensation model which removes the conflict over land rights; monetises lost value inherent in the land and other assets; ensures that the compensation is affordable; gives new farmers real bankable security of tenure; and establishes a market for land and other rural assets.

The caveat here is that this does not reverse current land ownership profiles after the fast-track land resettlement programme, nor is it a backdoor for white commercial farmers to get back into the sector.

Once paid off, white farmers would fall under a new land dispensation as everyone else.
Compensation for land is clearly an opportunity for Zimbabwe to hit two or more birds with one stone, namely; to remove conflict over land and also attract long-term investment capital into the country.

Financing the cost of compensation would be achieved through the issue of bonds underwritten by credible international agencies.

These bonds would carry a term of, say, 25 years, and an interest rate that would be related to international market rates at the time they are issued. They would be funded by international financiers specialising in such long-term paper. They would be negotiable only in Zimbabwe and denominated in US dollars, thus “locking in” huge amounts of capital in the country.

Now bonds are easy to understand, they are essentially a promise to pay the holder so much over a given period of time at a certain interest rate. The best route would be for them to be guaranteed by credible international institutions such as credible international financial institutions and others.

This will create confidence in the bond as a negotiable instrument where the promise to pay would be met even if the issuer defaults. It improves their quality, tradability and perceived value.

If we assume that the value of the assets involved is around US$7-10 billion, this will mean that when these funds are released into the economy, they will trigger significant macro-economic growth recovery and we would see an increase in liquidity in the banking sector; the re-establishment of an active market for land in rural areas with commensurate increase in bank lending to agriculture; an increase in local private investment capital; strengthening of property rights in the wider economy; funding for infrastructure and utilities development; a multiplier effect leading industrial recovery; and new employment creation. As I noted last week, these are the core objectives of ZimAsset anyway.

Above all, will be the positive impact on the economy due to the confidence that can be created. This will lead to an increased inflow of foreign investment capital in all other sectors of the economy; this is what Zimbabwe needs. We can, therefore, restore normal relations with the international community and reduce the country risk significantly.

In my opinion, President Robert Mugabe should seize the day and put the country back on track. By doing this, he can maybe leave office with a legacy that says he was not a perfect man, he made some serious and costly mistakes, but at least he corrected them to the benefit of all Zimbabweans.

The people of Zimbabwe surely deserve that and, after all, the people come first!

lVince Musewe is an economist and author based in Harare. You may contact him on
[email protected]