Political risk the curious case of the tail wagging the dog

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In the wake of the presentation of Governor Gideon Gonos Monetary Policy Statement in early 2007, MDC-T spokesperson Nelson Chamisa was quoted in a local business newspaper as saying:

This is a statement that politics is the problem in this country. Until we unlock the political logjam it is not possible to talk of any meaningful transformation. The economy is only a tail of the body and the body is politics. This is a challenge to politicians to take the responsible role to bring about a new Zimbabwe.

Coming from a politician, such a statement was not unexpected. In fact, I would consider it downright predictable. While I agree politics then and as now is the logjam that must be unlocked, I have to question the logic that the economy is only a tail while politics is the great, big, mighty body.

I also have to wonder if he still feels the same way about the tail and the body after all these years. In this article, I proffer the argument if that is the case, then there are sufficient grounds to seek reversal of the status quo.

Without wading into a political debate which I am not prohibited from doing by the way we have to acknowledge politics of a country directly impacts on its risk profile, ultimately affecting its access to credit and its viability as a destination for foreign direct investment.

My theory is that in Zimbabwe today, we actually have a curious case of politics holding everyone at ransom and being the tail that is wagging the dog. I am, however, under no illusions about attempting to de-link politics from economics because it is a difficult exercise, much like attempting to separate conjoined or Siamese twins. One of them or both may die in the process.

For those who believe that such a separation is possible, the events of October 2009 would have provided ample evidence. When the MDC-T announced partial disengagement from the government of national unity, the Zimbabwe Stock Exchange benchmark industrial index fell by 15% in a week, the mining index by 22,2% while overall market capitalisation lost 11% of its value.

If a country insists on brewing uncertainty through unwarranted acts of brinkmanship, there is price to be paid. Ask the Americans. In 2011, while the Democrats and Republicans haggled over whether to increase the debt ceiling or not without due regard to consequences, the country teetered on the brink of bankruptcy and for their pains, America lost its AAA rating. Something had to give.

Recently, an investment director for Sub-Saharan Equities at UK-based Silk Invest was asked what she thought might be the risks facing investors in 2012.

If this question were asked a decade ago, said Funmi Akinluyi, the first risk I would have highlighted would have been political risk. But with the increase in successful election processes and the emergence of democracy across Africas largest economies, I believe this risk has declined.

Her answer was thoughtprovoking and made me acutely aware how we in Zimbabwe are stuck in a time warp and lag so far behind in the political risk stakes we are practically living in the past.

Our manifest inability to align our politics and our economics are a real drag on efforts to hit the sweet spot of optimal development.

After Chamisas distant pronouncement, several other politicians have publicly flogged the issue of delinking politics from the economy. Notably, Finance minister Tendai Biti observed:

We have not delinked our politics from the economy so much so that when the politics sneezes; the economy does not only catch a cold but goes straight into intensive care. How tragic, one might say.

In late 2010, Industry and International Trade minister Welshman Ncube also weighed in and argued the countrys continued negative perceptions were being compounded by the fact that politics and economics in the Zimbabwean context are inextricably tied, which need not be, he said.

While I understand the Ministers frustration, I have to disagree with him. Politics and the economy cannot be separated, methinks.

Rather, as suggested at the Confederation of Zimbabwe Industries 2011 National Budget breakfast meeting, what we have to seek is the middle ground where the politics of the country is conducted in such a way that it does not deliberately foment uncertainty for partisan political gain.

If that key ingredient is missing, the $2 billion worth of projects approved in 2011 by the One-Stop-Shop will remain nothing but a tale of good intentions and the target to increase the countrys FDI stock to 20% of gross domestic product will continue to be a pie in the sky.

I know that Tony Blair is a much derided fellow in certain circles in Zimbabwe, but I think his heart is in the right place.

In his essay Not Just Aid How Making Government Work Can Transform Africa, he nicely puts the relationship between politics, leadership and development in perspective and observes: Africa doesnt just need game-changing technologies: it needs game-changing leadership, and we need to support it.

The support needed, he contends, should be provided by people and organisations that, without compromising their impartiality, are comfortable with politics.

Like any other reform, developing capacity is about choices and choices are political. However technocratic we might try to make it sound, every capacity development intervention is political to some degree because it creates winners and losers, strengthens some rather than others and pits reformers against the status quo.

Yet the risk of being too political is sometimes overblown while the alternative risk of interventions failing because they do not understand or engage with the politics of reform is often understated.

Well, there you are. What is your take? Can politics be truly delinked from the economic development agenda? Weigh in with your insights on

omen.muza@gmail.com.

Omen N Muza writes in his personal capacity. He is a banker and managing director of TFC Capital (Zimbabwe) (Pvt) Ltd.