No country is an island. Okay, some are literally islands but no country is an island, figuratively. Still, some appear to be islands. Let’s leave the analogy then, what we are trying to say is that a country needs other countries to succeed.
Zimbabwe has been in trouble for the last couple of decades because we have been going it alone. There were sanctions imposed on the country and years after the serious ones were lifted, politicians continued to cite those as the reasons for our economy failing.
Sanctions have the effect of cutting a country off from the rest of the world. Of course it could be argued that in Zimbabwe’s case it is our policies that cut us off from the international community.
In this new Zimbabwe, there will be no recovery unless production increases. Production requires capital and that’s where the problem is, Zimbabweans currently do not have the money/capital. We need help from the international community.
We could look to the money lenders like the World Bank. Small problem, we already owe the World Bank and they won’t extend more to us until we make some repayments. It’s a case of, dude can you lend me a five bucks lest I go hungry for the night and the other dude is like, pay me back the $10 you owe me first and i’ll give you the five.
The second guy is not being unreasonable and the first guy knows it. You can’t keep lending to someone who doesn’t pay back unless you are running a charity. That’s Zimbabwe’s position with the World Bank in a nutshell.
Britain, our oldest friend, has seen the predicament that we are in and is not ruling out helping us. The British Foreign Secretary said they could pay the $10 we owe so we could get the $5, lest we go hungry for the night. This would be after they see how the democratic process unfolds in Zimbabwe.
Why not give us the $5 directly? Britain is not in the lending business and would rather leave that to those who are. The gesture would be merely to help a friend not to open an evergreen credit facility. This is especially true for a borrower who is notorious for defaulting on repayments.
But the offer or whatever you think it is shows the international community’s willingness to reengage Zimbabwe. Which is what we need. This being an island did not do us any good.
So Britain would help us settle our debts with the World Bank and other lenders so that we can borrow more. They would loan us the funds to clear the debt. We need the money but is this set up the best option on the table? Debts need to be repaid after all.
Should we go this route?
I know we are all excited by this new page Zimbabwe has turned. We have been promised accountability and progressive policies but let’s not forget that nothing happens overnight. Zimbabwe is not an attractive destination for investors just yet.
Even for the international lenders like the aforementioned World Bank, we still are a risky customer. That all leads to any debt we receive coming with not so favourable terms. In short it comes at a high cost. Paying back involves cash leaving the country. Can we really afford to be saddled with repayment obligations for millions as we try to rebuild the nation?
If not debt then what?
Right off the bat, the method is not going to be too popular because it’s more of a long term solution. We have suffered for too long as Zimbabweans, we kind of want immediate relief, which is understandable.
The solution is to make Zimbabwe an attractive destination for foreign investors. This involves changing our policies as regards indegenisation laws and even to other nuisances that drive investors away. Things like a corrupt police force do not inspire confidence.
The aim is to attract equity investment. The beauty with equity investment is that there is no fixed repayment of the capital required. It directly leads to funding of local businesses which in turn employ more people and increase production.
All at a cost much cheaper than debt financing. You do not have to pay back equity. You only get to share profits and if those are repatriated out of Zimbabwe that would be no problem at all. The problem with debt is that whether businesses in Zimbabwe have recovered or not the debt still has to be repaid.
Equity investors only get return on their investment if the Zimbabwean businesses start posting profits.
That’s the reason we are paying close attention to what’s happening on the Zimbabwe Stock Exchange.
One last look at Britain’s offer
While we appreciate that the international community wants to reengage with us I personally think the route we need help in is making Zimbabwe an attractive investment destination.
The offer to pay back the World Bank and others is still sweet in that we need to pay back what we owe. We also know that by paying back what we owe inspires confidence in foreign investors so that would help in attracting equity funding.
So the offer to loan us the funds to pay back those debts is an offer we should take regardless of which route we choose to take.
So paying back what we owe should be as a sign of good faith to the international community and not to open new channels of credit. I realise it might not be possible to forgo debt altogether but it should be minimised.