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28/07/2007 | Last Pre-Election Parliamentary Session Opens in Zimbabwe with Controversial Bills

Global Insight Staff

Parliament opened yesterday for the last session before the March 2008 elections to debate the merging of parliamentary and presidential elections, the creation of a new national incomes and pricing commission and indigenisation and nationalisation laws.

 

Global Insight Perspective

 

Significance

In the last parliamentary session before the March 2008 elections, bills on the transference of majority ownership to black Zimbabweans, the creation of a national pricing commission and important constitutional amendments will be debated.

Implications

The bills being debated in the parliamentary session will have weighty implications for the Zimbabwean political and economic landscape in the coming years. Indigenisation and nationalisation laws are an obvious disincentive to investment, and the country can ill afford to further deplete productive capacity. Similarly, a pricing commission dictating price movements across the board would be an important and most likely negative development for firms seeking to maintain profit in the current climate of expanding credit and falling domestic production.

Outlook

The ruling Zimbabwe African National Union—Patriotic Front (Zanu-PF) maintains a 37 seat majority and the opposition Movement for Democratic Change (MDC), although apparently uniform in opposition to the proposed laws, is fundamentally disunited and therefore disorganised. It is thus probable that the laws will pass, in which case presidential and parliamentary elections will take place simultaneously in 2008, and the already-inhospitable investment climate will become even more hostile. However, exceptions and uneven implementation may lessen the impact.

Pricing Commission

Parliament will debate a bill for the creation of a National Incomes and Pricing Commission, which would issue directives on economy-wide prices and wages. The administration has argued that the Zimbabwean economy is the victim of foreign and mercantile subversion, i.e. groups undermining the welfare of Zimbabwean consumers and national development through profiteering, and therefore raising prices out of all proportion with costs. Under operation Dzikiza Mitengo (Reduce Prices) Zimbabwean firms have already been exposed to the painful effects of enforced price reductions. Since price cuts have been mandated and vigorously policed, Zimbabwean businesses have complained that they are forced to sell goods at prices substantially lower than the price of inputs. Businesses are unable to perform at a loss indefinitely, and in this context firms are faced with either failing to implement the law or eventual closure. Estimates of arrests so far range into the thousands. The immediate effect of compulsory price reductions may be a fall in the rate of inflation from being in excess of 6,000% year-on-year (y/y) at present to lower levels by the year-end. However it is not a sustainable policy. Government continues to print money to finance fiscal outlays and production continues to fall under the burden of government policy and poor agricultural performance.

Indigenisation and Nationalisation

President Robert Mugabe did not issue any new details on the proposed indigenisation and nationalisation laws in his opening speech. Any exceptions will become apparent at a later date. As it stands, the indigenisation law would require that all proposed and projected investment in Zimbabwe contain at least 51% ”indigenous” Zimbabwean ownership. With regard to existing investments, the government will seek to create the same distribution of ownership by way of a fund to finance black African acquisition. Observers will wait anxiously for details on broader nationalisation, which the president has threatened to use against firms failing to apply directives on price and production levels. The very real fear facing Zimbabweans is that this legislation will proceed in the same vein as the land reform that began in 2000. In particular, that the law will be applied according to prominence in the ruling party and proximity to Mr Mugabe, and that the end result will be a further fall in productive capacity with the now all-too-familiar implications for the economy.

Simultaneous Elections

In addition to merging the electoral calendar, the constitutional amendments bill will reduce presidential terms from the current six years to five. Ostensibly, the motivation is cost minimisation, as general elections would allow government to reduce the cost associated with legislative and presidential elections. The bill includes a clause allowing parliament to elect a new president should the post become vacant between elections. It has been argued that, on the assumption that Zanu-PF maintains a parliamentary majority, the clause could allow President Mugabe an exit route after the March 2008 polls whereby he could shape the choice of successor. The proposition has some value in that pressures on the president are mounting and will continue to do so as the other economic directives come into effect, and it is possible that in a year's time he will want to take the opportunity to jump ship and maintain some dignity. More importantly, he will wish to leave in the knowledge that his successor is not likely to authorise trial for crimes committed while he was in office. However, the president has as yet shown no appetite for ceding power. Rather, Mugabe has proven himself an astute political manipulator, and the hint of an abdication may well be the full extent of his intentions vis-à-vis the get-out clause.

Outlook and Implications

Zanu-PF has a parliamentary majority and unless there is a rebellion (for which there are no indications as yet) the laws will probably pass. That being the case, foreign investment in the country will become increasingly insecure. Foreign bets on the economy will look more to the post-Mugabe era than the current context. Further details on the law will become apparent, but at present the economic bills will mandate that all proposed investment has majority indigenous Zimbabwean ownership, and that firms failing to implement price directives may well be nationalised. Nationalisation of domestic and/or foreign enterprises will result in a loss of Zimbabwean productive capacity, and the government is not in a financial, technology or skills position to replace the lost investment. With regard to the constitutional amendments, the president's get-out clause following general elections, while significant, should not be over-hyped, as President Mugabe's commitment to maintaining power is absolute.

Global Insight (Reino Unido)

 


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