Category Risk Management

Zimbabwe: So long Robert Mugabe

23 November 2017 Coface

On November 21st, after 37 years as Zimbabwe strongman Robert Mugabe, 93 years old, resigned from the presidency. Mr Mugabe’s resignation came one week after the army seized several institutions in the capital, Harare, although the army denied it was a coup.

The army’s bloodless intervention was triggered by Emerson Mnangagwa’s dismissal on the 6th November to clear a path to power for Robert Mugabe’s wife, Grace Mugabe. Betrayed by the army and rebuked by his own party – the Zimbabwe African National Union – Patriotic Front (ZANU-PF) – Mr Mugabe leaves behind a country entangled in an economic crisis.

Emerson Mnangagwa, 75 years old, will take over as interim leader and is likely to be ZANU-PF’s candidate in the presidential election next year. With over 90% of the workforce unemployed, public infrastructure in disarray, with frequent shortages of cash, food and fuel, the new leader of Zimbabwe will inherit an economy in the doldrums.

“Lacoste” vs. “Gucci”

As the world’s oldest leader, Mugabe’s physical and mental prowess has declined over the past few years. Nevertheless, vowing to run for re-election in 2018, his succession battle became the key to access to power, with his two opponents being vice-president Emerson Mnangagwa – known as “the Crocodile” – and Zimbabwe’s first lady Grace Mugabe – labelled “Gucci Grace” for her taste for luxury items.

In October, Mnangagwa claimed that Mrs Mugabe attempted to poison him with ice cream. Each candidate to the long-serving president succession had their own faction within the party with the G40 faction backing Mrs Mugabe. On the 6th November, Mr Mugabe sacked Mnangagwa – who had long been tipped as Mugabe’s most likely successor – for being “disloyal, disrespectful and deceitful” – and in doing so, cleared the path for the first lady.

Fallen in dis-Grace

A week later, the army rolled into Harare, took control of the state broadcaster, and blocked access to key institutions. They also confined Robert Mugabe to his residence, the “Blue Roof”. Close to some generals in the army, Mnangagwa and his faction were quickly identified as being behind this move. Mrs Mugabe’s ambition to become president outraged the military because contrary to Mnangagwa, she played no part in “the war of liberation” in 1980.

Willing to make a smooth transition, General Constantino Chiwenga declared that the move was not a coup and no violence was reported. The army tried to maintain a sense of normality in Harare so as to avoid an intervention from the African Union or neighbouring South Africa.

A few days after the military intervened, the ZANU-PF sacked Mr. Mugabe from the party presidency, and hundreds of thousands took to the street to demand his departure. Mr. Mugabe attempted to resist his downfall and refused to step down in a speech given on the 19th November. However, two days later and a few hours after Parliament announced that it was starting an impeachment proceeding against its ruler, Mr. Mugabe sent a letter of resignation to Parliament. Mnangagwa was subsequently appointed interim leader.

From crisis to crisis

Over the 37 years Robert Mugabe spent in power, Zimbabwe went from one economic crisis to another. This has been especially true over the past two decades. Considered one of Africa’s most advanced economies 20 years ago, the entire economy has since collapsed.

The Central Bank’s extravagant printing of Zimbabwe dollars, in order to compensate revenue shortfalls stemming from the (violent) expropriation without compensation of white land-owners, led to one of the worst episodes of hyperinflation ever recorded. Subsequently, in 2009, the country ditched the Zimbabwe dollar to adopt a basket of currency, dominated by the US dollar.


A crisis in legacy

The adoption of this basket of currency brought some sense of stability, but foreign currency sources depleted as the current account deficit widened and capital inflows remained dismally low. Confronted with a fresh liquidity shortage, the Reserve Bank of Zimbabwe started to print “bond notes” in November 2016. Officially at par with US dollars, “bond notes”, nicknamed zollars, are in practice, a new Zimbabwean currency that is rapidly depreciating.

One of the few gauges of the “bond note” exchange rate is the comparison of the share price of the insurer Old Mutual in London and in Harare. The so-called Old-Mutual Implied Rate swung to a premium after the central bank announced it would start printing the “bond notes” in May 2016.

The central bank’s vows to maintain parity are not in adequacy with the export levels and capital inflows – as a result, the currency continues to depreciate. Depreciation and the printing of money raise the spectre of a return to hyperinflation. Many Zimbabweans have turned to the volatile Bitcoin to avoid inflation and escape capital controls.

With a little help from the international community

One of Mugabe’s companions over the past four decades in the ZANU-PF, Mnangagwa, is unlikely to bring dramatic change. However, considered a pragmatist, he could reinitiate a dialogue with international institutions, which would break from Mugabe’s reluctance to engage with foreign creditors – as demonstrated by the dismissal of the Finance Minister last October, after he pleaded for debt relief and loans to restart the economy at the annual meeting of the IMF and the World Bank.

Mnangagwa’s visit to China (where he took part in military training in the 1970s) a few days after he was dismissed is also a reminder that the new government could rely on China for aid.

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