Gideon Gono
Title: Consesus Building, Social Contracts And The Role Of Visionary Leadership And Strategic Management In Socio-Economic Turnarounds
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INTRODUCTION ­ THE UNIVERSE OF HUMANITY AND CONTEMPORARY GLOBAL FORCES
A snapshot of the world economy at any given point in historic time starkly reveals that
the disparities between rich nations and poor nations has not narrowed and in most cases
has widened, with innumerable societies living under extreme poverty. The United
Nations defines extreme poverty as that case where on average an individual lives under
US$1 per day.

In trying to understand the root cause of this "sticky" nature of poverty, several factors
emerge which sit at the foundation of socio-economic retrogression. These factors are:

(a)
The extent to which the world order has under-estimated the importance of
historical and initial conditions of given regions, given countries, and of a given
people. The central thesis here is that initial conditions set up an important
dimension that either springs nations to prosperity or dent a peoples regenerative
capacity in growing and developing their economies. This point will be developed
further in the Thesis;

(b)
The absence of or skewed nature of the dialogue and consensus building
platforms at national regional and international levels. A look at the history of
global flash points of civil unrest, wars, and social decay reveals that one of the
critical missing links are episodes of communication break-downs which fostered
civil strife and wars;

(c)
The worlds underestimation of the centrality of Visionary and Principled
leadership in instilling the essential fabrics of cohesive discipline, integrity,
loyalty and hardworking among the people;

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(d)
The inert greed of richer nations, richer regions, richer villages and richer
individuals that invisibly propels the phenomenon of "the curse of natural
resources" where predominantly cases of abundance of natural resources have
historically turned out to have been a paradoxical source of economic deprivation
and civil strife for the weaker sections of society;

Extensive documented economic histories of both developing and
contemporary industrialized economies is fraught with cases where
availability of abundant natural resources can actually become the seed for
chaotic disharmony among a countrys nationals, as well as with other
external countries and institutions. A case in point are the multiplicities of
civil wars that erupted in many parts of the world on the back of such minerals
as diamonds (Sierra Leone) and oil (The Middle East, Nigeria);

In the case of Zimbabwe, the prevalence of high-value minerals and vast tracts
of arable land has been a defined source of both internal and external
frictional tensions. The Land Reform program had to be implemented as an
inevitable course, against the background where the majority of Zimbabweans
had continued to squeeze a living from non-productive, rocky patches of land
into which they had been driven by the former colonial masters;

(e)
The role of religion and societal notions of spirituality in polarizing humanity also
remains a largely underestimated causal force in explaining the global tensions
that characterize the world we live in today;

(f)
The amazing deficiency of the strategic "9 Cs" in societal progression. In his
book "Where Have All The Leaders Gone?", Lee Iacocca identified the strategic
Leadership 9Cs as:


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That leaders at all levels in society have to show CREATIVITY through
thinking outside the box;
That leaders have to show CURIOSITY through stepping outside their
comfort zones and listening to good advice;
That leaders have to be effective COMMUNICATORS through ability to
face reality and telling the truth;
That leaders have to have CHARACTER by knowing what is right and what
is wrong;
That leaders have to have COURAGE through commitment to frank
dialogue;
That leaders have to have CONVICTION characterized by an inner burning
passion for what they do to progress their societies;
That leaders ought to have CHARISMA through the ability to inspire others;
That leaders have to he COMPETENT through knowing what they are
doing; and
That leaders in society must show COMMON SENSE in all that they do.

Corporate leaders, village leaders, church leaders and political leaders must,
therefore, embrace the 9 Cs so as to directly make positive installments in the
dismantling of the strains to humanity;

(g)
General inertia to implementing set programs at the household, corporate,
governmental, regional or global levels. Often the reasons for this inertia range
from sheer fear of making mistakes; deliberate avoidance of doing what is right
for selfish political expediency, laziness; mere lack of competency; or unbridled
pursuit of selfish options that lead to undue self enrichment;

(h)
The lack of or delayed global response to natural calamities such as droughts,
diseases, floods, Tsunamis, earthquakes and global warming;


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(i)
Limited global consensus on the ideal formula and strategies to form an effective
response to the hazards of money laundering and terrorism; and

(j)
Poverty, as a social ailment that strengthens the magnetic fields of geopolitical
tensions and exploitative tendencies within humanity.

Confronting these centrifugal global forces at the local micro, national macro and
international level occupies the minds and hearts of contemporary societies, giving
character to what distinguishes one village from the other; one province from the other;
one country from the other and one continent from the other. In the case of Zimbabwe,
the countrys 27 years of political independence have largely been marked by a slow and
protracted struggle for economic empowerment of the majority of Zimbabweans,
culminating in the countrys Land Reform Program that swung into full gear in year
2000, albeit there had been earlier attempts in this regard. What followed this tipping
point in the history of the country will take generations of literary thinking and writing to
fully capture, as all sorts of vilifications and conspiracies seem to have been triggered
from this attempt by Zimbabweans to rectify injustices from their painful colonial past.

For one to fully appreciate the manner and texture of why interests may clash in societies
thereby warranting the interventions of THE ART OF CONSENSUS BUILDING,
VISIONARY LEADERSHIP AND STRATEGIC MANAGEMENT, an often effective
starting point is the appreciation of the basic intersection of the resource availability
space and the boundless horizon of human wants. By their nature, resources are typically
scarce, meaning that they are available in amounts and forms that are insufficient to meet
the unlimited human wants. This dichotomy of boundless human wants competing for
space on limited resources is the root cause of all human strife. Reconciling the two, thus,
requires a minimum level of optimal consensus building, under a well defined scale of
preferences that attaches greater priority to most needy areas.

A further complication arises in coming up with that scale of preferences that lists
societal priorities towards which the scarce resources are to be channeled. Others would

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rather that role be assigned to the bare knuckles of market forces; whilst others have faith
in the collective thinking of centralized planning, under which Government decides the
broad profile of resource allocation in the economy, with minimum allowance for free
play of market forces of demand and supply. More predominantly, however, most
economies have tended to rely on a preferred mix of the two poles; that is, allowing
market forces to apply where it is deemed most appropriate but at the same time,
implementing some structured command allocations where the need to protect vulnerable
groups of society is an overriding objective.

Historical and contemporary socio-economic thinkers have often made the mistake of
wanting to prescribe one version of resource management and allocation as the most
ideal, one size fits all prescription under which all economies, regardless of their local
conditions, must adopt in managing their economies systems. Just as there are cultural
diversities; just as there are diverse initial conditions for nations; just as religious values
differ; and just as the endowments of natural resources differ; different economies and
different societies necessarily respond differently to different stimuli. Ignoring this fact
renders any attempt to thrust the one size fits all approach largely ineffective in achieving
the primary objectives of macroeconomic stability, economic growth, tranquil co-
existence of humanity and general prosperity of societies. The one size fits all approach,
thus, is one of the modern tragedies of contemporary thinking in the management of the
affairs of humanity.

From the classical postulates on the political economy of nations rooted in the works of
Adam Smith (1723-1790) and Carl Marx (born 1818), and later expanded by successive
economists, the following core factors of production have been identified as central in the
prosperity of nations:

(a)
Land, capturing all the gifts of nature that are at the disposal of a people;

(b)
Labor (human mental and physical effort in the production process);


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(c)
Capital (all man-made factors of production); and

(d)
Entrepreneurship (the risk-taking phenomenon by investors who set aside current
income for future production).

Defined from first principles, land captures all the God-given natural resources at the
disposal of a country in its socio-economic endeavors. This includes mineral deposits,
waterways, forests, arable tracts of land, gas reserves, sands that go into construction and
quarries, among many other variants.

Gylfason et al (2001) argued that: "Natural resources are an important source of national
wealth around the world; yet experience shows that natural riches are neither necessary
nor sufficient for economic prosperity and progress". This view clearly reflects the
tragedy which characterizes most developing nations where the abundance of natural
resources does not translate into buoyant economic growth, with the economies instead
registering subdued development.

The converse to this observation implies that on the success arena, it is conceivable and
empirically proven that some countries which do not have abundant natural resources can
and have done phenomenally well in graduating their economies into super-powers of
wealth and societal wellbeing. Examples of such countries that have developed
mountains of economic fortune with minimal natural resource endowments that
immediately come to mind are:

(a)
Hong Kong;
(b)
Japan;
(c)
South Korea;
(d)
Luxemburg;
(e)
Singapore; and
(f)
Switzerland.


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These countries fit well within the cohort of the worlds richest countries and yet they
clearly do not owe much of their national wealth to natural resource endowments.
Converse to this spectrum are many countries, particularly in Africa that are vastly
endowed with natural resources and yet their growth and development record has
remained largely impaired and sluggish over the past century. Without doubt,
fundamental historical factors, such as the corrosive effects of years of grueling colonial
occupation and plunder to a large measure, explain this slow pace of socio-economic
advancement.

In the case of Zimbabwe, the country was under the yoke of colonial occupation for close
to a century and during this period, virtually all forms of wealth emanating from the
countrys natural endowments was a preserve for the few minority. This brings into the
fore the strong view that the pace of socio-economic progression in a country cannot be
analyzed in isolation from the primary initial historical conditions forming the roots of
that country. Initial conditions, thus, define and characterize the extent and depth of the
"catch-up deficit" which a country has to plug off before giving meaningful fruits of
prosperity to the majority of its people through macroeconomic policy interventions.

For a people to better organize their core factors of production; that is land, labor, capital
and entrepreneurship, there must be a supportive regional and global context that acts as
reinforcing glue, rather than a source of hemorrhage to internal efforts. Where either the
region or the global context in which a country exists is exerting conspiracies and
pressure, through for instance the whip of declared and undeclared sanctions, for
whatever reason, the tendency is that well meaning internal policies may be rendered
ineffective, leading to adverse unintended consequences on the majority of the people.

The debate on the efficacy of sanctions in dealing with extra-national or intercontinental
disputes has grabbed the attention of the world for many decades now, with others
arguing that such sanctions are meant to punish those that are deemed to be in default in
so far as the ideals of governance or conformity with international law is concerned.
Increasingly, however, the same world is awakening to the observed reality that by and

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large, such sanctions and the resort to brute force are generally blunt instruments that
have unimaginable collateral damage on multitudes of innocent children, the old aged,
the disabled and well meaning members of society.

Increasingly, the world is awakening to the shrill calls for a re-look at the intervention by
the USA in Iraq; calls for a re-look at the attitude of the world on the Sudanese
Humanitarian crisis; calls for a new formula on the Middle East crisis; calls for global
centers to take bold steps to halt the fast paced dragon of global warming; calls for the
total restructuring and reforms of the multilateral institutions such as the United Nations,
the International Monetary Fund (IMF), and the World Bank; calls for an agreed
framework on how to deal with the global threats of terrorism, without leaving too much
discretion to singular powerful nations; and calls for sanctions on Zimbabwe to be lifted.

Predominantly, these calls, noble as they are, are remain largely unanswered due to the
multiplicity of conflicts of interests among global players, most of which have their
origins rooted in the exploitation of natural resources.

THEORETICAL DEBATE ON THE LINK BETWEEN NATURAL
RESOURCES AND SOCIO-ECONOMIC GROWTH AND
PROSPERITY

In a startling piece of empirical research, Gylfason and Gylfi (2001) contented, rather
counter-intuitively, that "natural resources are an essential exogenous factor that can
hamper economic growth through macroeconomic channels as well as through
institutions." (p.2)

On the flip side of this counter-intuitive spectrum of thought lies the hypothesis proffered
by Acemoglu, Johnson and Robinson (2001) who argued that living conditions during
colonial epochs dictated whether Europeans decided to settle down in the colonies and
build European institutions there. Under this postulation, a countrys economic

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performance depends on current institutions, which depend on past institutions, which in
turn depend on living conditions in colonial times.

In their formulation, Acemoglu et al (2001) argue that once institutions are accounted for,
there is no room left for other explanations of economic growth having to do with
economic policy or geography. In reality, however, there is a simultaneous feed between
a countrys institutional orientation and the breed of natural resources it has. For instance,
in countries that have ports and access to fishing in the open seas, the structure of their
economies will tilt more towards fishing and ship cargo handling institutions, which
would not be found in land-locked countries. This way, natural resource endowments
dictate the institutional framework.

In their well publicized study, Sachs and Warner (1995) sought to unravel the link
between natural resources and economic growth, using time series data across a number
of countries. Their findings, which at first sight is puzzling was that good growth
performance appears incompatible with a share of natural resources in excess of 15% of
national wealth. In Sachs and Warner (1995) the following two clusters of countries
emerged.

The Growth ­ Natural Resources Nexus

Economic Growth


Low
High

Low

Cluster B: Botswana,


China, Indonesia, Japan,
Dominance
Korea, Malaysia,
of natural
Mauritius, South Korea
resources
High
Cluster A: Chad, Madagascar, Mali,
in national (more
Niger, Sierra Leone, Zambia, and
wealth
than
Central African Republic, Zimbabwe,
25%)
Democratic Republic of Congo (DRC)
Source:
Adapted from Sachs and Warner (1995)

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Under Cluster A, the countries have high natural resources prevalence, yet they
experienced low economic growth over the sample period. Cluster B countries on the
other hand have a narrow natural resources spectrum and yet they registered phenomenal
economic growth. The above results, which emerged from data analysis over the period
1965 to 1998 prompt the searching question: what factors lie behind the different growth
performances between the two clusters?

Need for savings and investment

In trying to answer this question, Zoega and Gylfason (2001) argued that the key factors
distinguishing the two clusters are savings and investment ratios. The empirical data
showed that in the high endowments ­ low growth cluster, their savings and investment
ratios were very low, at under 5%; whilst the natural resource-free, high-growth group
had savings and investment rates of 32%. This result is intuitive given that on their own,
natural resources can not propel a countrys growth performance if not transformed into
productive wealth through extraction.

But to extract, a country needs investment. To have investment from own sources, a
country needs to have a strict saving culture. Thus, the policy prognosis is that a country
must vigorously promote investments that would work to transform natural endowments
into real wealth. Where internal savings are relatively low, when compared to the needed
investment, the internal savings gap has to be closed by the attraction of foreign
investment inflows.

Technological progress push

Nordhaus (1992) carried out a rigorous research study which showed that the steady-state
growth rate of output per capita in an economy with natural resources is proportional to
the rate of technological progress adjusted for a "population growth drag" due to

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diminishing returns as well as a "natural resource depletion drag" due to declining levels
of exhaustible natural resources. The role of science and technology, research and
development, therefore needs no over-emphasis in the quest to steer economic growth
and development to high thresholds.

The "curse" from natural resources

In another sterling piece of contemporary natural resource accounting, Auty (2001) and
Gelb (1998) contented that one reason why economies with high natural resources may
actually face subdued economic growth prospects is that huge natural resource potentials
may create opportunities for large-scale corruption in the economy which diverts
resources away from more socially fruitful economic activity. This view finds support in
the work of Tornell and Lane (1998) who constructed a theoretical model that showed
that terms of trade windfalls and natural resource booms may trigger political interaction
among powerful interest groups, which if not resolved may lead to civil wars. Also
Collier and Hoeffler (1998) show empirically how natural resources increase the
probability of civil war.

Knight, Loayza and Villaneuva (1996) also present a vivid adverse dimension caused by
natural resources and that is the high prospects of foreign governments imposing
sanctions or invading the endowed country with destructive consequences, aggravated by
high outlays into non-productive defence by the victim nations.

The wars in Sudan, Iraq and the heartless sanctions currently imposed on Zimbabwe,
following the countrys implementation of the Land Reform Program, can not be
convincingly separated from these countries rich endowments with valuable natural
resources. A new approach to the resolution of differences must, therefore be designed;
one that recognizes and distills away the implicit interests by super-powers to plunder
natural resources from the victim countries in the midst of "laboratory-generated"
conflicts, they themselves will be steering.

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The Dutch Disease

Another logical explanation of why natural resources can counter-intuitively invite slow
economic growth is the Dutch disease phenomenon. A natural resource boom and the
attendant surge in raw material exports, if not carefully managed, can drive up real
exchange rate appreciation which in itself can kill manufacturing and services exports in
the home country.

The name Dutch disease emanates from the experience that occurred in Holland in the
1960s when they discovered vast gas reserves. The export revenues from the gas enclave
saw the exchange rate of that country strengthening, which weakened the generality of
Hollands manufactured export base.

The effects of this Dutch disease are well illustrated in Corden (1984); Gylfason;
Herbertsson and Zoega (1999); Sachs and Warner (1999), with the most debilitating ones
being the creation of medium to long-term unemployment, as well as systematic de-
industrialization. Countries that have high rates of natural resources occurrences must,
therefore, be careful that erratic booms and busts in these sectors do not inject poison on
the rest of the economy through the real exchange rate feed.

False sense of security

Rodreguez and Sachs (1999) also bring up an interesting dimension that is often caused
by the abundance in a countrys natural resources. These luminary authors argue that
abundant natural resources may imbue people with a false sense of security and this can
impair policy-makers need for good and growth-friendly economic management
programs, including free trade, bureaucratic efficiency, institutional quality and
sustainable development.


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In the case of Zimbabwe, the vast resources of platinum, coal-bed methane gas, coal,
nickel, chromites, and diamonds, among many other minerals must be carefully managed
so that they do not become unexploited sources of a false sense of security. Minerals, like
any other natural resource are only useful to the extent they have been dug out and
converted into absolute exchangeable wealth.

The Research Thesis

The foregoing landscape of contemporary forces in the global environment paints a
platform where societies require new thinking and new approaches to the resolution of
strategic questions of how to stabilize economies; how to reconcile regional and
international differences and on how to achieve set goals, be it at the household, factory,
governmental or international level. Such new thinking has to infuse the core tenets of
how consensus can be built; core tenets of how to get people to saying "yes" in coming to
mutually beneficial outcomes from initial points of divergence.

The central thesis of this research work is, therefore, to unravel the central factors and
tactics that can be deployed in dissolving the underlying causes of humanitys socio-
economic and political ailments that account for limited consensus in policy formulation
and implementation. In articulating the core of the "the strains to the universe of
humanity," it is the objective of this research to clearly characterize the core tenets of
consensus-building, dialogue and the formation of social contracts, as well as the
role that visionary leadership at every level of human existence lead to stability and
sound socio-economic and political progression.

It is my contention that every mode of social, economic, political or religious imbalance
can be nudged back on the rails of stability through some "steady-state" level of
consensus-building process. Ultimately, therefore, equilibrium broadly defined as the
"ideal state of affairs", whether social, religious, economic or political, has to be
anchored on one form of a "social contract" or another. This applies even in the homes!

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The scope of this Thesis is, therefore, to walk through the socio-economic and political
histories of a pool of nations, delineating the modes and roles that were played by the
phenomena of consensus-building and social contracts.

The Thesis also seeks to draw lessons from biographies of luminary leaders across the
world, underscoring the significance of clear visions, strategy and effective management
and implementation of economic programs for the establishment of macroeconomic
stability, growth and development.

It is my fervent aspiration that through this Thesis, the reader will be presented with a
concise, simple and practical nucleus of empirical evidence on how the principles of
consensus-building, social contracts, and visionary leadership do make all the difference
in shaping nations, regions and the global village towards greatness in so far as the
quality of life for humanity is concerned.

METHODOLOGY

As is fitting in the realm of social sciences, the methodology followed in this Thesis is
one where firstly a review of illuminating literatures in done to expose the various
schools of thought on the subject of Social Contracts and consensus building. This is the
followed by the deployment of my own personal experiences in the fields of negotiation,
dispute resolution, strategic management, leaderships, turnaround planning, as well the
economic history of Zimbabwe.

In order to gather empirical evidence on the general publics and policy makers views on
salient episodes in Zimbabwes economic history, the survey method will be used. Under
this framework, random samples of at least 500 respondents will be drawn, and
questionnaires administered before the data is analyzed. Econometrically, a sampling

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strata is regarded as significantly large if the sample population is equal to or greater than
30. In this case, therefore, the target sample size of 500 is statistically logical.

Empirical evidence will be sought through this method on the following pertinent areas:

What the public and policy makers think explains the limited success in
Zimbabwes structural adjustment programs and other successive economic
policy programs.
The publics and policy makers views on where greater priority needs to be
placed in economic reforms, so as to promote cohesion in the context of the
Social Contract.
The publics and policy makers views on why Zimbabwes Social Contract
framework has been sticky in terms of its finalization and implementation; and
The publics and policy makers projections of the Zimbabwean economy over a
5-year future horizon.

The threads and nodal points arising from the above discourse would then be pieced
together to distill relevant policy recommendations applicable to those in the realm of
socio-economic decision-making, as well as those in the academia.

RELEVANCE OF THESIS

A detailed appreciation of the fundamental factors that shape the establishment of
successful Social Contracts is an indispensable asset in the realms of macroeconomic
policy formulation, international negotiation, as well as strategic management in the
contemporary corporate world. Against this background therefore, this Thesis will be an
invaluable tool in adding on to the knowledge base that would be at the disposal of
todays policy-makers.


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As has been highlighted in the foregoing, this Thesis will deploy the survey technique to
probe the publics perceptions on pertinent policy areas, as well as the general projections
of where the Zimbabwean economy would be in 5 years time from 2007. The survey
results will not only illuminate future policy decision-making processes, but will also
serve as a barometer of how Zimbabwes general public interact with and comprehend
key issues on their economy.

My purpose is also to present a compact reference point for the academia who are
interested in economic turnarounds, negotiation, consensus-building, as well as the
development of innovative solutions to real life challenges through the act of "thinking
outside the box."

ORGANIZATION OF WORK

The rest of the Thesis is organized as follows; first I present a brief economic history of
Zimbabwe, identifying the major policies and programs that were implemented since
political independence in 1980. This outline will be followed by an empirical review on
Social Contracts, where they have worked well, as well as historical epochs when the
breakdown of dialogue led to bloody wars and general retrogression of humanity.

The above exposition will be followed by a discussion of International Trade as another
area where intense consensus has to be built among nations. The treatment here will also
focus on the major arguments for trade restrictions among nations, itself a rather counter-
intuitive phenomenon given the virtues of free trade in contemporary thinking.

Drawing from the key points in the Thesis, I will wind up the study by pooling together
the major policy issues and recommendations in the Conclusions and General
Discussions Chapter at the end.

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CHAPTER 2
2.
AN ECONOMIC HISTORY ­ ZIMBABWE

Indeed, the core of macroeconomic and other social programs is the ultimate objectives
of promoting vibrant productive sectors; creation of employment opportunities through
active investment horizons; creation of equitable distribution of national wealth;
generation of foreign exchange inflows in amounts sufficient to cover current and future
import requirements; balanced national development, marked by the general increase in
living standards for the majority of the population; and general peace and stability,
among other aspirations.

In gravitating towards these ideals, typically, every country, region, or continents socio-
political, or economic landscape will be in a constant state of flux, with new inter-
temporal states of the environment manifesting in ways that call upon policy makers to
rethink, re-design and question the validity of past knowledge, past assumptions and pre-
set objectives. By its nature, human behavior is both complex and to a large measure,
unpredictable, and this arising out of the intrinsic diversity of social cohorts, within the
same country, within the same city, or village, more so at different points in time.

The developing worlds attempts at "playing catch-up" with the first world in terms of
modernization of production, institutional, infrastructural and other social ideals have
often floundered due to the lack of coherent pivots of strategy upon which policies and
programs are formulated and implemented. The graveyards of failed turnaround
economic programs are fraught with half-baked strategies, which for lack of pertinent
depth have either omitted key components or have fired implementation cylinders that
seriously lacked on proper sequencing.

The present Zimbabwean economy is a result of historical legacies which date back to the
period British settlers arrived into the country. When the settlers arrived in 1890, there

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were traditional agriculturalists dating back some 2000 years. The farmers who grew a
wide variety of crops practiced shifting cultivation.

The British South Africa Company (BSAC) established rule over the then Southern
Rhodesia in 1890 and its rule lasted for about 25 years. This is the period when land
appropriation by whites started and it also marked the birth of the dual agrarian structure
that exists today. Reserves, which in essence were concentration camps for the native
locals, were located in the remote and drier parts of the country and by 1913; a total of
104 Native Reserves varying from 2,024 hectares to 607,287 hectares had been
established. From then onwards, several acts of Parliament were passed in order to
consolidate the colonial government's objectives on agriculture. These included:

1891 Lippert Concession
1898 Native Reserves Order in Council
1931 Land Apportionment Act
1951 Native Land Husbandry
1965 Tribal Trust Lands Act
1969 Land Tenure Act.

Southern Rhodesia became a self-governing colony in 1924 and this period of self-rule
(1924 - 1965) was characterized by huge investments in physical social infrastructure for
the white areas. These included the establishment of state agricultural marketing and
control boards. Such developments which took place in the 1930s and 1940s were the
prime movers of the agricultural production revolution on the large-scale commercial
farms, starting in the 1950s with tobacco as a major export crop. Smallholder agriculture
was, however, ignored. In addition, further support to the white agricultural sector came
through the 1933 Danzing Commission.

This Commission was appointed to examine the economic position of the agricultural
industry amid the world depression of the 1930s. This Commission recommended that
government subsidies and support for white agriculture as a matter of survival of the

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white community. The global depression set the stage for an all-embracing state
intervention.

For example, from 1935 to 1956, a 50% subsidy plus free technical support program was
launched to allow white farmers to build soil and water conservation works. From 1936
to 1944, agriculture was declared a controlled industry. Government controlled the prices,
international trade as well as the area and sale of tobacco, and extended subsidies to white
farmers.

In 1953 came the Federation of Nyasaland and Rhodesia. The Federal government, acting
on recommendations of a 1958 Select Committee, actually started to amend the Land
Apportionment Act in order to increase the amount of land for blacks by extending the
special native reserves and by creating a category of non-racial (unreserved) land. White
conservatives did not like the idea and, in an all white election, fought on the land issue,
and the Rhodesian Front won, thus restoring the Land Apportionment Act and freezing
the unreserved category of land. In 1965, the Rhodesian Front Party declared an illegal
Unilateral Declaration of Independence (UDI) from the United Kingdom (UK).

The UK and the United Nations (UN) imposed sanctions on Rhodesia. The then
government immediately instituted measures to reduce dependency on tobacco through
crop diversification schemes. Agriculture continued to be the most prominent foreign
exchange earner.

Principally, the agricultural sector survived UDI largely through government support,
although in the 1970s large-scale agriculture became less and less profitable.

At Independence: 1980...

When Zimbabwe gained her political independence in 1980, a new era of opportunities
for the majority of Zimbabweans opened up as the shackles of near one century of
deprivation had finally been broken. At the early stages, the post-independence

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Zimbabwe saw Government taking a leading interventionist role in various facets of the
economy, including education, health, dam construction, roads and other infrastructural
development, rural electrification, as well as production of goods and services under an
intricate web of public enterprises.

Having sailed through a series of sanctions during the Unilateral Declaration of
Independence (UDI) era, dating back to 1965, the post-independence Zimbabwe had
developed a robust internal manufacturing base, with growing potential on exports.

On the policy front, the first decade of independent Zimbabwe was marked by socio-
economic policies that were more inclined towards a centralized command system, with
Government taking an active role in the economic affairs of the country. This ideological
orientation was to change beginning the early 90s, when Zimbabwe acceded to the
prescriptions of the International Monetary Fund (IMF), under what was then coined the
"economic structural adjustment program" (ESAP), which sought to build the countrys
productive system through market-based systems.

At the heart of the ESAP model were the following generic policy prescriptions:

Liberalization of goods and factor markets;
Deregulation of the financial services industry;
Privatization of public enterprises;
Freeing up of the exchange rate system;
Liberalization of the countrys trade system, specifically, all current account
transactions in the balance of payments;
Civil service reforms, marked by the streamlining of line ministries;
Removal of price controls and subsidies in the market; and
Introduction of social safety nets to minimize the adverse effects of liberalization
on vulnerable segments of society.


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For a while, the Zimbabwean economy seemed to have blended well with the
structural adjustment program, with real gross domestic product (GDP) growing by
an impressive 8.5% in 1996, and foreign exchange gross reserves reaching around
US$1 billion during the second half of 1996. Agriculture, Tourism and
Manufacturing grew by 19.4%, 6.8% and 4.8% respectively during the same year.

However, as from 1997, the economy started showing signs of distress. Savings
declined from 18.2% of GDP in 1996 to 11% in 1999, before sliding further to under
5% by end of 2006. Overall investment also followed suite, declining from 18.7% of
GDP in 1996, to the 2007 levels of under 8% of GDP.

The first decade of economic reforms (1991-2000) presented several key lessons
which must form the basis for future economic programs. These lessons were:

That for macroeconomic policies to deliver their set objectives, they need to be
backed by cohesive cooperation among social partners: Government, Labor,
Business and Civil Society.
That there is need for close coordination and collaboration between the fiscal and
monetary policy sides of the country.
That fiscal balance requires first, implementation of structural policies that take
away distortions in the market.
That financial sector stability is indispensable.
That liberalization of thin financial markets does not guarantee effective
competition.
That economic adjustment programs can only succeed if they have a human face
under which the adversities of the costs of adjustment are minimized through
robust social safety nets.
That economic reforms can not succeed without a strong institutional framework
that effectively implements, coordinates and monitors the various economic
policies.

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That excessive reliance on domestic borrowing to fund fiscal deficits is
unsustainable.
That the "one-size-fits-all" approach to policy formulation as recommended by
the International Monetary Fund requires a serious re-look, taking into account
individual countries peculiar circumstances and realities on the ground.

LAND REFORM IN ZIMBABWE

A typical policy dilemma that has confronted the Zimbabwean economy is on how to
balance the virtues of equitable distribution of land and that of effective utilization of
land as a primary means of production. In 1980, when Zimbabwe attained its political
independence, former colonial nationals, who constituted around 5% of the population
owned 70% of the countrys fertile land, whilst the majority 95% owned around 30% of
arable land. This scenario presented serious challenges on how the country could proceed
to bring about equity in the distribution of land as a national resource.

Over the 1980s, through to the 1990s, not much of this disparity in the distribution of
land was changed due to governments inability to fund the needed purchase and re-
distribution of the resources. This protracted plane of inequality bottled up pressure and
tensions across the entire social fabric in Zimbabwe, with things coming to a head in
2000, when the poor landless peasants pressed the government to take the land from the
minority and re-distribute.

This build-up in social tensions presented government with a huge dilemma; as forcibly
taking the land meant that over the short-to medium term, investor perceptions and
productivity in agriculture were going to suffer; whilst non-action could have
degenerated into a full-blown civil strife.


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To the Central Bank, this dilemma meant that much of the countrys sources of foreign
exchange being tobacco, cotton, paprika, tea, coffee, cut flowers, citrus and vegetables, as
well as tourism were at risk. Also at the same time, beginning 1999, gold prices on world
markets significantly declined, further worsening Zimbabwes balance of payments
position.

In years 2000 and 2001 social tensions mounted, which culminated in the government
launching a fast-track land acquisition and re-distribution exercise under which targeted
minority held farms were acquired under the Act of Parliament and re-distributed to the
landless majority.

Because of the transitional difficulties that ensued, Zimbabwe fell into a deep economic
crisis, beginning 2001, characterized by a sharp decline in foreign exchange earnings, and
rising inflation. International perceptions on Zimbabwe took a deep slump, leading to
very minimal foreign direct and portfolio investment inflows. The deterioration in the
balance of payments saw Zimbabwe fail to service its foreign debts, culminating in the
rise in total foreign payments areas of around US$2 billion as of September 2006.

This experience thus, highlights the intricacy of macroeconomic policy formulation and
implementation. The theoretical norms of efficiency do not always sum up to tie in neatly
with frameworks that seek to optimize social welfare functions. From an efficiency,
market-driven point of view, one could argue that Zimbabwe should have opted for the
willing-buyer, willing seller policy on the land reform program. The limitation of this
route is that the Government of Zimbabwe was facing swelling demands from landless
peasants. Also the route of the willing-buyer, willing seller would have faced the
formidable snag of funds unavailability in the governments coffers, after the United
Kingdom reneged on its promise that it was going to provide funding to support the
willing buyer willing seller version of the land reform process.

My personal involvement in this process is now largely on the formulation of workable
alternatives to ensure that the country gets back on its feet, and, thus, help revive the

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living conditions of the majority of vulnerable Zimbabweans. The policy package now
being looked at involves a three pronged approach, encompassing the stabilization of
agriculture productivity through rehabilitation of infrastructure and implements; the
revival of financial sector lending into agriculture through enhancement of security of
tenure; as well as re-engaging the international community to consider Zimbabwe as part
of the global village.

As the situation stands, however, Zimbabwe is now winding down the land re-
distribution process, with greater focus now being placed on reviving productivity in
agriculture. Key success factors for this effort to accomplish the mission include:

(a)
Ability of the country to calm down the negative international publicity it is
receiving, so as to attract investment inflows;
(b)
The extent to which the country cushions itself from recurrent droughts through a
significant rehabilitation of irrigation capacity, supported by dam construction;
(c)
Stabilization of inflation through stringent monetary policy tightening and fiscal
austerity;
(d)
Maintenance of financial sector stability, through astute bank supervision and
surveillance.
(e)
Comprehensive structural reforms in the public enterprises sector, as well as in
the local government levels;
(f)
Increased investment in the social sectors of health and education, so as to uplift
the countrys human capital base; and
(g)
Cohesion at the National level through greater tolerance and acceptance of
diversity.

At the heart of a solution to Zimbabwes macroeconomic instabilities that crept in
since early 2000, accentuated by adversities and apprehensions around the Land
Reform Program, is the establishment of National Consensus so as to secure
purposeful implementation of the right mix of domestic policies, as well as the re-

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building of the countrys brand name as the bread basket of the Eastern and Southern
African sub-region.

Equally too, the economic setbacks in Zimbabwe, reflected in foreign exchange
shortages, high inflation levels, rising unemployment, capacity underutilization in the
productive sectors and generally subdued business confidence and, hence shrinking
inbound investment inflows are socio-economic "trouble spots" that have to be
resolutely addressed through dexterous policy design and implementation.

In order to break the successive decline in productivity levels in the economy, as well
as near run-away inflation levels, and revive business confidence, it is imperative that
Zimbabwe follows the route of the Tripartite Social Contract, principally as the
launch-pad for stabilizing expectations. In this purview, the role of Government,
Labor and Business, as social partners has to be underscored from each
constituencys core interests.

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CHAPTER 3

3.
CONSENSUS BUILDING AND SOCIAL CONTRACTS

From first principles, a Social Contract is an agreement by the countrys key
stakeholders - Government, Business, Labor and Civic Society - to subordinate their
individual and sectoral interests, for the achievement of common national goals and
objectives, within an agreed framework. This stance implies a shared vision, mutually
agreed objectives and shared principles underpinning win-win negotiations. It is
based upon a national consensus model, as opposed to unilateralism or unbridled
pursuit of narrow, sectoral interests.

Under the Social Contract model, stakeholders come together to agree on mutually
beneficial national objectives, programs and action plans for achieving those
objectives, as well as common principles of engagement and mechanisms to share
equitably the cost of adjustment. The consensus model is also critical for creating
stakeholder trust, thus, dissipating inflation expectations, which normally trigger the
need for social pacts. Under the auspices of the Social Contract, the partners must
commit to discharging their specific obligations, as agreed to in the Social Contract,
within the agreed time-frames.

In the case of Zimbabwe, a two step approach was adopted, encompassing the
following phases:

Phase 1 focused on getting the Social Partners to agree and voluntarily commit to a
Social Contract which, among other things, set specific and timed deliverables for
each Social Partner.


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Phase 2 then focused on the accelerated disinflation and sustainable stabilization of
the economy.

The basics of social dialogue were neither a new phenomenon to Zimbabwe nor an
invention of the Central Bank. Instead, the countrys history was abound with
episodes of constructive social dialogue involving the Government, Labour and
Business under the auspices of the Tripartite Negotiating Forum (TNF), which was a
collective body embracing all the representations of tripartism. However, constructive
and mutually sacrificial social dialogue had been held back by impediments, which
included the following:

Lack of common national vision;
Mistrust among negotiating partners;
An unwieldy negotiating format;
Propensity to break off negotiations; and
Lack of willpower to implement agreed positions.

Role of the Church: The Social Contract and the Bible...

When one looks at the world of Christianity, the idea and power of Social Contracts is
not new. Indeed, as old as the beginning of the Holy Word itself, we find the
centrality of pacts and covenants in the Ten Commandments which God Himself
gave down to Moses on the heels of Mount Sinai (Exodus 20: 1- 26). In promulgating
the Ten Commandments, God had realized the importance of codes of conduct for
orderly human existence. Today, as we read the Holy Word, we are filled with the
true meaning and universally binding effects of the Ten Commandments, as the pillar
for entry and unity with the All Mighty in Heaven.

The Social Country can be likened not only to the Ten Commandments, but also to
many other facets of the Bible, prominent of which is the Lords Prayer, with its
cross-cutting meaning, throughout the universe. In different languages and in

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different countries, it is known what the Lords Prayer says, and the righteous
teachings it encapsulates, all this defining the power of Social Contracts.

The Church, through its diverse membership in society, is key to dissipating the
impediments to social dialogue, through the cultivation of public tolerance and
shunning of counter productive activities. Also the Church, through its natural
interaction with the diverse cross section of society, has the ability to harness the
diverse views of all the various constituencies and regions under its reach. The Vision
of a cohesive society must encompass fundamental pillars of spirituality, economic
well being, social justice, tolerance, equity and fairness which are critical for Nation
building.

Any mistrust among the social partners provides an opportunity for the Church to
play a pivotal role in the Social Contract discussions as part of the National healing
process, aimed at stabilizing the economy. In this global village, no country can go it
alone ­ there is need to be part and parcel of the international community of nations
through continuous engagement with international partners.

Public awareness of the Social Contract is also critical for buy-in and active
participation by the general public. The Church, through its presence in both rural and
urban areas, provides a platform for undertaking extensive publicity campaigns to
cultivate awareness across the board.

Other Features of the Social Contract ...

For effective acceptability, it is imperative that the Social Contract closely builds in a
strong human face. A human face that realizes the plight of workers; a human face
that balances profitability requirements of Business against the survival needs of all
men and women who leave their households willingly each morning, each night,
every working day to give their best towards the economic transformation of the

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economy. Through fair and humanely rewards to workers, the Social Contract will be
better able to sustain National cohesion, increased production and prosperity.

Equally too, the Social Contract has to emphasize productivity enhancement through
commitment of Labour; productivity enhancement through adoption of sound,
reinforcing policies that uplift Business viability; and productivity enhancement
through deployment of cost-saving technologies across factories, mines, agro-fields
and others sectors of the economy.

The Pyramid of Core Values in Social Dialogue

Perpetual divergence of views between and among social partners, if not kept in check by
a set of core values of social contract negotiations, can degenerate into uncontrollable
polarizations. It is for this reason that social partners in a negotiated settlement ought to
abide by the following Pyramid of Core Values in Social Dialogue:



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PYRAMID OF VALUES IN SOCIAL CONTRACT NEGOTIATIONS
.
Confidentiality
Flexibility in
negotiations
Mutual benefits to all
(Win-win)
Being transparent and accountable to
other social partners, with confidentiality
Negotiating in good faith and being open without
offence
Cultivating a culture of tolerance & acceptance of diversity
Sharing a common Vision on the future of the country

HISTORICALLY WARS ERUPTED FROM LACK OF
CONSENSUS...

Documented histories of nations clearly demonstrate that most conflicts within humanity
were a direct result of communication break-downs and adversaries failure to nurture
and build consensus. To illustrate this point, I have taken a look at a few examples of
grueling conflicts the world has seen, and tried to drill down to the tipping points that
ultimately sparked those conflicts.

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THE AMERICAN CIVIL WAR (1861-1865)

Between April 12, 1861 and April 9, 1865, Northern America witnessed the most
devastating civil war history had ever seen at that time. This war, which was between the
United States (the "Union") and some eleven southern states which were pushing for
secession and had formed the Confederate State of America, best illustrates how things
can go terribly wrong when a people have sub-Visions among themselves.

The Union, which was under the leadership of President Abraham Lincoln was more for
unity of purpose, promotion of individual liberties and the abolition of slavery. This
noble vision was however grossly opposed by the Confederacy, under the command of
Jefferson Davis and Robert E. Lee. Determined to advance their sub-Vision, the
Confederacy on April 12, 1861 launched an on-slaughter attack on the Union at Fort
Sumter, making South Carolina the first state to secede, followed by Mississippi, Florida,
Alabama, Georgia, Louisiana, and Texas.

As the conflict deepened, heavy bloodshed befell brothers and sisters, with the Union
losing 110 000 in combat whilst the confederacy lost 93 000 also in action.
(http:/en.wikipedia.org/wki/American_CivilWar)

Through focused strategy, supported by advantages of geography, manpower, a strong
industrial base, adequate finance, political organization and effective transportation, the
Union eventually subdued the Confederacy in 1865. A look back at this bloody conflict
demonstrates that the pursuit of selfish, often sectoral interests has the potential to
disintegrate whole communities through needless conflict.






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COMPARISON OF UNION AND CONFEDERACY RESOURCE BEASE

Union
Confederacy
Total population
22 000 000
9 000 000
Free population
22 000 000
5 500 000
Slave population
Negligible
3 500 000
Soldiers
2 200 000
1 064 000
Railroad miles
21 788 (71%)
8 838 (29%)
Manufactured items
90%
10%
Firearm production
97%
3%
Source: 1860 US Census and Carter, Susan B. ed. The Historical Statistics of the United
States: Millennial Edition (5 vols), 2006

In this American civil was, slavery was at the root of economic, moral and political
differences which degenerated into control issues and the right by individual states to
secede. In his speech at New Haven, Conn, March 6, 1860, Abraham Lincoln said "this
question of slavery was more important than any other indeed so much more important
has it become that no other national question can even get a hearing just at present".

In sharp contrast to this moral, higher ground position, the Southern States pursued their
sectoral interests of cheap slavery labour for their plantations, effectively setting on the
fires for the civil war. Unity of purpose is, therefore an imperative in the building of
nation and avoidance of needless conflicts among a people.

WORLD WAR I

A retrace of the events leading to the start and spread of World War I also graphically
illustrates the tragedies that can befall humanity when there is no consensus building.
Whilst for many, the cause of World War I was the cold-blood assassination of Archduke

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Franz Ferdinard of Austria-Hungary on 8 June, 1914, a deeper assessment illustrates that
this blood bath arose due to lack of consensus on ideologies.

Under the rule of Kaiser Wilhelm II, Germany had grown into the mood of military
supremacy building its navy to rival that of the then worlds most powerful maritime
nation, Britain. This aggressive stance by Berlin jolted France and Russia into a formal
alliance in 1894 united by fear and resentment of Berlin.

The coalition of Britain, France and the USA was at that time seen to be representing
democratic reforms, whilst the stance by Germany was seen as the ideology of militarist
autocracy. It should be noted, however, that the coalition was in essence imperfectly
democratic, since both Britain and France had large colonial empires residual effects of
which still haunt countries like Zimbabwe. This notwithstanding, the popular view held
by many historians is that the allied victory over Germany led to the maintenance and
extension of liberal democracy in Europe.

It is important to note that at the core of what fuelled World War I were also intrinsic
economic interests and fears of domination. France wanted a quick return of its territories
that had been annexed by Germany after the war of 1870-71 (the provinces of Alsace-
Lorraine). Britain went to war because it saw a German victory as a threat to its security,
more so given Britains fear that Germany would have taken advantage of the Belgian
ports as launch-pads for dismantling the British naval supremacy.

All said and reviewed, the event of World War I clearly demonstrate that where national,
regional or international agendas embrace ideologies that are worlds apart, the end-
games are usually costly conflicts. Forestalling such costly conflicts requires the power of
consensus-building and the brokering of effective social contracts that focus efforts
around common objectives.



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WORLD WAR II

From the time Adolf Hitler invaded Poland on 1 September 1939, marking the tipping
point of World War II, to the moments of the dropping of the deadly atomic bombs on
Hiroshima and Nagasaki, Japan, the footprints of this conflict vividly illustrate the
retrogression that comes with the pursuit of selfish objectives, aggravated by limited
scope for consensus-building.

When Germany invaded Poland on 1 September, 1939, Britain and France declared war
on Hitler two days later. While the USA proclaimed neutrality, it was actively supplying
Britain with essentials on the battle-front.

On 10 May, 1940 when Winston Churchill replaced Neville Chamberlain as Prime
Minister of the United Kingdom, Germany invaded France, Belgium and Holland, under
Hitlers Blitzkrieg ­ or "lightning war", marked by force, speed and surprise.

By 1941, Hitler had put much of continental Europe under Nazi control, and continued to
launch Operation Barbarossa on 22 June of that year, a military offensive that aimed at
overrunning Russia. This was, however, to be stalled by the chilly and harsh Russian
winter which a century and half ago from that time had equally crippled Napoleon.

Demonstrating how isolated developments can be engulfed an snow-balled into a global
crisis, in the same year of 1941, Japan felt it was tired of American trade embargoes and
mounted a surprise attach on the US Navy base of Pearl Harber, in Hawaii, on 7
December, 1941.

This act made the full setting for a grueling global armed conflict, with Germany
declaring war on the US a few days later. Within 7 days of Pearl Harber, Japan had
invaded Burma, Hong Kong and the Philippines, sparking what the contemporary world

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has come to call the Pacific war. The rest of the events that followed the 1941-1945 era
are well documented in history.

Having taken over the Presidential seat of the US, following President Roosevelts death
in April 1945, President Harry Truman authorized use of atomic bombs against Japan.
This saw one of the bombs being dropped on the Japanese city of Hiroshima on 6 August,
1945, followed by another one at Nagasaki three days later, leading to the surrender by
the Japanese on 14 August, 1945.

Sketchy as this brief account is, it brings home the point that through failure to coordinate
and synchronize geopolitical forces, the world was thrown yet again into a global conflict
under World War II which consigned millions of people to violent deaths. It is estimated
that at the peak of the war, some 100 million people had been militarized whilst in total
an estimated 50 million were killed in the war.

THE ANGLO-IRISH TRADE WAR

The centrality of constructive dialogue and the need for consensus-building can also be
discernible from an analysis of the Anglo-Irish Trade war also known as "The Economic
War" which lasted from 1933 until 1938. In its basic format, this was marked by
retrogressive retaliatory trade restrictions between the Irish Free State and the United
Kingdom. Having seen what they perceived were unfair trade practices by the UK then,
the Irish refused to pay "land annuities" as was stipulated in the provisions of the 1921
Anglo-Irish Treaty, which obliged such payments to be made to Britain. This act of
defiance led to retaliatory imposition by the UK of 20% duty on Irish agricultural
products entering the UK.

In response to this act by the UK, Ireland imposed a tax on coal imports from the UK,
under the slogan "burn everything English except its coal".


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This back-and-forth trade war crippled Ireland through capital flight, reducing much of
the economys trade to barter. These constrained became much ore acute, as the
devastating effects of the Great Depression of 1933 had not fully dissipated.

Through the return to negotiating table, Ireland and the UK, however, eventually resolved
their differences. In 1934, the "coal-cattle-pact" was sealed, followed by the Anglo-Irish
Trade Agreement of 1938 under which Ireland settled its land annuities by making a one-
off payment of 10 million pounds to the UK, among other settlement clauses.

THE KOREAN WAR

After defeating China in the Sino-Japanese war of 1894-95, Japanese troops remained in
Korea, finally annexing it as a colony in August, 1910. Korea remained a Japanese
colony until the end of World War II in 1945.

On August 6, 1945, the Soviet Union declared war on the Japanese, in close cooperation
with the US which had interests in the southern parts of Korea. At that time, the Japanese
were under heavy US attach at the battlefronts of World War II and in December, 1945,
the US and the Soviet Union agreed to administer Korea under what became know as the
US-Soviet Joint Commission, dividing Korea into North Korea and South Korea.

After 4 years under the delicate Joint Commission, the Korean civil war began on 25
June, 1950, when North Korea attacked South Korea. This war was to take a deeper
dimension when the North was joined by China whilst the Sough was supported by the
United Nations, led by the United States. The conflict ended when a cease-fire was
reached on July 27, 1953.

Whilst in the books of history, the Korean War is overly underplayed, hence its reference
sometimes as "the forgotten war", it left the following key legacies:

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(a)
Rules of play on such international for a as the UN have, to some extent, been
long manipulated to suite the requirements of super powers;

This is mainly so given that technically; President Truman of the USs UN
Resolution 82 which sanctioned the US to lead the UN coalition against North
Korea was passed when one of the permanent members of the UN Security
Council (the Soviet Union) was not in session. Attempts by the Soviet Union
to have this changed were fruitless;
The same day the Korea civil war broke out (25 June, 1950), the UN passed
the Resolution 82 which focused on 3 areas:

For all hostilities to end and North Korea to withdraw to the 38th
parallel in the Korean peninsula;
For a UN Commission on Korea to be formed to monitor the situation
and report to the Security Council; and
For all UN members to support the United Nations in achieving this,
and refrain from providing assistance to the North Korean authorities.

Resolution 82 led to direct action by the US, whose forces were joined by
troops from 15 other UN members: Canada, Australia, New Zealand, Britain,
France, South Africa, Turkey, Thailand, Greece, the Netherlands, Ethiopia,
Colombia, the Philippines, Belgium, and Luxembourg.

(b)
Another legacy of the Korean War is that it was the first post World War II, Cold
War era where super-powers clashed on the battlefield, and on third country soil,
leading to devastation to the locals way of living. As they say in strategy, where
two or more elephants fight, it is the grass that suffers the most; and

(c)
The Korean War was yet again an epitome of what happens when two or more
ideologies collide. In North Korea, the ideology at play was communism,

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supported by China and the Soviet Union, whilst in South Korea the dominant
ideology was liberal capitalism. Again, this civil war amply demonstrates how the
existence of ideological gaps and limited scope for consensus-building can lead to
catastrophic conflicts. The Korean War led to million of deaths, including
innocent civilians, all arising from diminished chance that was given to amicable
dialogue and consensus-building.

THE WARS OF RELIGION

The tragic fall-outs of environments marked by mistrust and lack of mutual dialogue and
consensus-building are also well documented in the histories of religion. From the tragic
time Jesus Christ was himself condemned onto the cross as a result of failed dialogue to
convince His killers that He was indeed The Son of God the history of churches is fraught
with innumerable bloody wars by men and women of the cloth.

In France, for instance, the 1500s saw repeated wars between the mainstream Catholics
and Protestants. Examples of such wars of religion were many were ruthlessly
slaughtered under the war-cry "one faith, one law, one king" are:

The First War (1562-1563), sparked by the Massacre at a place called Vass in
1562, on a fine Sunday afternoon;
The Second War (1567-1568), which was triggered by a strong rumor that
Catherine De Medici, wife of Frances King Henry II was conniving with
Spain to launch an onslaught on Protestant churches;
The Third War (1568-1570), under which the Protestants suffered heavy
losses on the battlefield;
The St Bartholomews Day Massacre (1572) which was sparked by mounting
tensions between Catholics and Protestants, leading to the killing of many
church-goers;

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The Fourth War (1572-1573), which was set-off when the city of La Rochelle,
the de facto capital of the Protestants had refused to pay taxes to the King
because of the St Bartholomews Day Massacre;
The Fifth War (1576), which again was a result of deep mistrust and disunity
between the Catholics and the Protestants;
The Sixth War (1577), when Protestant strongholds were dismantled under
Henri III;
The Seventh War (1580);
The War of the Three Henries (1584-1589); and
The Wars of the League (1589-1598).

The salient point underlying these "holy" wars was that suspicions were allowed to grow
into real threats, which in turn reached explosive tipping points before calm and collected
dialogue could be initiated as a way to resolve differences within communities.

EMPIRICAL EVIDENCE ON SOCIAL DIALOGUE/SOCIAL
CONTRACTS

In many countries, Social Dialogue has been successfully used as an integral part of
strategies to foster economic growth and development. In these countries, the benefits of
the social dialogue process have included the democractisation of economic and social
policy making and the promotion of policy legitimacy and ownership.

The realm of Social Dialogue, as defined by the International Labour Organisation (ILO)
includes all types of negotiation, consultation or simply an active exchange of
information between, or among representatives of government, employers, and workers
on the issues of common interest relative to economic and social policy. This social
dialogue can take different forms (negotiation, consultation or confirmation).

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For successful social dialogue, it is imperative that the actors, institutions and the agenda
be clearly articulated.

Actors, Institutions and Agenda
Actors
Institutions
Agenda
Bipartite (workers
Formal, legally
Need for shared
and employers
based.
analysis of key
organizations)
Informal, voluntary.
problems.
Tripartite
Ad-hoc
Need to develop a
(government,
arrangements.
common vision.
workers and
Need to adopt a
employers
problem-solving
organizations)
approach that is not
Tripartite plus
confrontational.
(+voluntary and
community groups,
NGOs and civil
society).

BARBADOS

During the period 1989-90, Barbados slid into economic turmoil characterized by
massive declines in foreign exchange inflows from the countrys traditional cash cow,
tourism, fiscal deficits, rising inflation and unemployment and continued depreciation of
the local currency. In light of the above, the then Government reacted to the economic
decline by embracing IMF prescriptions characterized by tight monetary policy, public
service reform and wage and employment cuts, among other neo-liberal policies.


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It however emerged that the absence of consensus in the adoption of the IMF
prescriptions resulted in the above policies being countered by a protest reaction from
labour, employers and the general civil society. In view of the above, the Social partners
came to table and in 1992 set up the Committee on Social Partnership, leading to the
signing of three successive protocols between 1993 and 2001 (Fashoyin, 2001a). The
signed protocols were:

a. The protocol for the implementation of an incomes and pricing policy (1993-
95); This sought to get the economy out of crisis through various measures to
minimize layoffs and social hardships through avoidance of the IMF
prescription of devaluation, focusing on productivity and competitiveness as
well as accepting wage freezes until corresponding productivity gains were
achieved.

b. Through the second protocol (1995-97), the Social Partners drifted from wage
freezes and instead adopted wage restraints and focused on increasing
international competitiveness through higher productivity.

c. The third protocol 1998-2001 sought to consolidate the perceived gains from
social cooperation through maintenance of a peaceful industrial climate,
reduction of income disparities and promotion of general social inclusion.

INDONESIA

The Asian crisis of 1997 inflicted severe economic hardships on Indonesia. GDP growth
collapsed from 7.8% in 1996 to almost 0% by the end of 1997. Reflecting this
development, poverty rates doubled from 11% in 1996 to over 20% by the end of 1997.
The crisis was accompanied by the collapse of several companies and severe job losses.


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At the time of the crisis, social dialogue was at its infancy in Indonesia. The National
Tripartite Council, in existence since 1983, was generally ineffective. However,
following the demise of the Suharto dictarship in 1997 and the emergence of democracy,
pressure for social dialogue mounted as workers pushed for social dialogue to stem the
negative impact of the crisis on employment. (Fashoyin, 2004).

The move towards effective and sustainable social dialogue began in 1999 with the
formation of a tripartite task force which discussed the ratification of the ILOs core
Conventions and labour law reforms. Subsequently, during the period 1999-2001, 12 ad
hoc national tripartite committees, including five sectoral tripartite committees were
established with ILO technical assistance.

In 2000, a social dialogue summit was held to sensitize the tripartite partners to the
positive role of consensus-building in the resolution of conflicting positions on social and
economic issues (ILO, 2000). The tripartite efforts in Indonesia have helped to stabilize
labour relations, thus allowing economic and political transformation to take root.

REPUBLIC OF KOREA

Confronted with the severe consequences of the Asian Financial Crisis in 1997, and the
stringent requirements of the IMF program that was underway, the Korean Social
Partners had to engage in long and difficult social dialogue to deal with a myriad of
challenges including colossal unemployment and the near collapse of the financial sector.
(Choi 2000)

The outcome of the aforementioned consultation was a middle of the road compromise
on the IMF program followed by a social pact in 1998 which dealt broadly with issues of
socio-economic management. The 1998 Pact provided for the acceptance of wage

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reductions and relaxation of the rules regarding the employment relationship by
organized Labour.

It was this tripartite compromise in the midst of economic crisis that became the turning
point towards economic recovery through the adoption of a set of economic and social
measures to deal with the Asian crisis as well as maintaining social stability in an
environment of socio-economic meltdown.
KENYA

Kenya is among the earliest countries in Africa to adopt tripartite cooperation. In 1962,
Kenya introduced an Industrial Relations Charter which encompassed tripartite
institutions such as the National Tripartite Consultative Committee (NTCC), Labour
Advisory Board and the National Minimum Wages Board. However, these institutions
contributed indirectly to macroeconomic policy. (Fashoyin 2001b).

A deepening economic crisis in the 1990s culminated in the introduction of structural
adjustment programs. To deal with the complex economic problems and associated
labour market challenges, tripartite cooperation was rekindled in the 1990s. Employer
organisations were organised under the Federation of Kenya Employers (FKE). On the
workers side, 37 unions in the country fall under the Central Organisation of Trade
Unions (COTU). On the government side, the Ministry of Labour was the main
government authority and is assisted by other government agencies with an important
role in economic and social development.

In 1997, Kenya created the Joint Industrial and Commercial Consultative Committee
(JICC), through which several stakeholders address economic and social issues affecting
development. The JICC membership is made up of 50 top-level institutions, including
the tripartite members, and local and community authorities. The JICC proposes
solutions, and where appropriate, directs the relevant government agency to implement

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them within a definite time-frame. As a result, the JICC has helped formulate socially
responsible policy while at the same time enhancing Kenyas evolving democracy.

CZECH REPUBLIC

In the Czech Republic, the establishment in 1990 of the National Tripartite Council for
Economic and Social Cooperation (RHSD) emerged as the critical pillar to support
economic reforms without social unrest (Casale, Kubinkova and Rychly, 2001). During
the period 1990-93, a general agreement would be reached by the Social Partners every
year on socio-economic issues such as labour relations, wage trends, health care,
education, occupational safety and environmental issues.

THE REPUBLIC OF IRELAND

Irish economy was in crisis in the late 1980s: the unemployment rate was 17% and
inflation was running at an average of about 12% in the decade until 1987. Public
finances also were problematic with budget deficits of more than 8% of GDP and a
national debt/GDP ratio mounting to 125% in 1987. Tax rates soared in an attempt to pay
off the large public debt, depressing the economy further. With the lack of employment
opportunities and decreasing real wages, emigration was at its highest level since the
1950s.

The sense of national crisis brought about a concerted search for tackling the problem of
stagnation, soaring debt and taxes. The social partners and government gathered and
discussed some practical steps to deal with this serious challenge to the Irish economy
and society. The National Economic and Social Council (NESC) produced a report on
Strategy for Development, which set out the key principles to be applied in regenerating

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the economy and society. With the leadership of trade unions, employers and the
government, negotiations commenced in October 1987 resulting in the first social pact,
the Program for National Recovery . (Fajertag and Philippe 2000)

Successive Social Pacts
i.
Program for National Recovery (PNR) (1987 to 1990)
ii.
Program for Economic and Social Progress (PESP) (1990 to 1993)
iii.
Program for Competitiveness and Work (PCW) (1994 to 1996)
iv.
Partnership 2000(1997 to 2000)
v.
Program for Prosperity and Fairness (PPF) (2000 to 2003)
vi.
Sustaining Progress (2003 to 2005)

Successive social pacts have managed to broaden stakeholders involved in the
negotiation as well as the focus of agreements: from initial crisis management to a more
comprehensive approach coping with challenges related to economic and social progress
as well as social exclusion. It is widely acknowledged that the Irish social pacts have
been successful and are the key vehicle for its economic and social success since the
1990s.

Successive Social Contracts
Incomes Policy Agreement on Employment (1990-91)
Incomes policy Agreement on Stabilization (1992-93)
Incomes Policy Agreement (1996-97)
Incomes Policy Agreement (2001-02)
Incomes Policy Agreement (2003-04)
PORTUGAL
Portuguese social dialogue in the current form did not start until the mid 1980s, a decade
after the revolution in 1974. Prior to 1984, social dialogue attempts failed to take off due

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to the adversatorail relations relations between employers and workers organizations.
(Da Paz Ventura Campos Lima and Naumann 1997). However, with the establishment of
the Standing Committee for Social Dialogue (CPCS) as the institutional basis of
tripartism in 1984, national social dialogue in Portugal gained momentum.

In the mid 1980s, Portugal suffered from macroeconomic imbalances and unemployment.
Although inflation had fallen since the 1970s, the problem of balance of payment deficits
and public debt persisted. Social dialogue has become an important means of governance
in preparation for Portugals integration into the European Community (1985), and in
facilitating structural changes in society and economy. After 1990, the commitment to
eventual adoption of the EURO led to consensus on an anti-inflationary and lower public
debt strategy.

In the 1980s, the agreements through social dialogue were limited to recommendations
on incomes and pricing policy. In the 1990s, they moved on to a higher level with social
partners engaging in dialogue on a wide range of policy issues. Comprehensive economic
and social agreements were reached in 1990, 1996 and in 1997. These pacts covered a
wide range of topics from incomes policy, employment policy, education and vocational
training, working time and conditions and social security reform to the regulation of
industrial relations. However, their implementation has been very problematic, partly
because the largest workers organisation, CGTP (Confederação Geral dos
Travalhadores Portugueses - General Confederation of Portuguese Workers) was not a
signatory party.

The CGTP was often heavily involved in the negotiation of comprehensive social pacts,
but did not become a signatory member. This led to problems in the implementation of
the pacts because it left the CGTPs membership, encompassing the large majority of
unionised workers, in effect outside the agreement. Industrial relations remained
antagonistic which impeded the implementation of the pacts. Despite the far-reaching
content of the social pacts agreed in the 1990s, they have not been effectively
implemented.

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In 2001 three separate issue specific pacts were agreed to, namely agreements on: (i)
employment policy, the labour market and education and training; (ii) on working
conditions, work hygiene and safety and work accident prevention, and (iii) the
modernisation of social protection. Except for the latter, which was not signed by the
employers organisation, these agreements were concluded by the government and
employers and workers organisations including the CGTP.

POLAND

During the early years of economic transition, the Government was completely
overwhelmed by a massive and chaotic wave of strikes. In 1992, the social partners and
the Government launched discussions about the possibility of introducing a social
contract which was eventually signed in February 1993 by the Government, Solidarity,
OPZZ and seven other national branch trade unions. (Casale 2001).

The new Pact on state-owned enterprises in transition included the creation of a tripartite
body called the Tripartite Commission for Social and Economic Affairs. This was
established by a Resolution of the Council of Ministers. By the end of 2000, the Tripartite
Commission had met 75 times in plenary sittings. In addition, the Commission
established a number of problem-solving committees, of which the committee for social
security reform has proved to be the most productive. The Commission succeeded in
establishing common positions on the following issues:

the growth rate of average monthly wages in enterprises during the third and
fourth quarters of 1994;
the level of resources to be allocated to wages in budget sector institutions in 1995
(central and local government institutions);

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the maximum annual growth rate of average monthly wages in enterprises for
1995, 1996 and 1997;
the expected level of average pay in budget sector institutions and the difference
in pay among subsectors for 1996 and 1997;
changes to the program of social security reform;
the draft budget for 1996 and 1997;
draft legislation on employment and unemployment; and
Mediators salaries.

The Tripartite Commission became the main institution of social dialogue in Poland. Its
position was strong and its public recognition was especially high during the 1995-97
period when it was headed by the late Andrzej Baczkowski, first as Under-Secretary of
State at the Ministry of labour and Social Policy, and in subsequent years, as Minister. At
the time, the Commission was the main forum for wage negotiations, especially wages in
the publicly financed sector (central and local government institutions), but also wages in
the private sector. This was related to the two major pieces of wage legislation which
came into force in late 1994: the Negotiation-based System for Setting Average Wage
Increases in Enterprises Act, December 1994 and the Determining Resources for Budget
Sector Wages Act, December 1994.

FINLAND
Finland has a long tradition of social democracy. Social partners are a highly integrative
part of the national economic and social policy making. Together with the government,
the central confederations of workers and employers organisations negotiate incomes
policy agreements, covering not only wages but also employment and labour market
policies and other social policy issues such as balanced work and family life, promotion
of gender equality, social welfare and pension schemes, as well as taxation policies.
(Hyman 2000).


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Since 1968, the social partners and the government have concluded several incomes
policy agreements. The general content has changed over time. The agreements of the
1960s and 1970s concentrated on the improvement of pay and working conditions, and
the social security system. In addition to these issues, the recent agreements focused on
macroeconomic issues such as measures to reduce unemployment or the maintenance of a
low level of inflation.

In the beginning of the 1990s the economy suffered from the recession. It experienced a
record current account deficit and soaring inflation rates. The unemployment rate rose
drastically from 3.3% in 1990 to 17.2 % in 1993. Consequently, policy measures to
improve productivity, competitiveness and employment became some of the most
important issues of discussion in incomes policy agreements in the first half of the 1990s.
The long-standing tradition of incomes policy agreements/social pacts has helped to
maintain a positive economic and political climate through social dialogue.

THE LESSONS...

The foregoing examples have revealed that Social Contracts, if appropriately
implemented, can be used as an effective vehicle for the attainment of macroeconomic
stability and prosperity. Throughout these empirics, the following common threads are
discernible:

Social contracts are best effective when they are designed from a needs base,
where key concerns of social partners: Government, Business and Labour are
addressed through practical compromises.
On their own, social contracts can not produce the needed macroeconomic
stability. The pacts in the social contracts must, therefore, be supported by
dedicated implementation of coherent macroeconomic policies that directly

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impact on economic production, as well as shaping positive stakeholder
expectations.
For maximum effect, social contracts must also spell out explicit obligations of
the social partners, supported by simple, well articulated monitoring and review
systems.
The covenants in social contracts must set out phased and achievable targets that
generate "modest victories" upon which more substantive successes can be built.
The main logic here is that through repeated small victories, stakeholder buy-in
will be enlisted, which in turn propels the turnaround programs more towards
success.
Rough patches are a reality that hardly no country has escaped in its history and,
therefore, contemporary nations must not give up in their pursuit for lasting socio-
economic stability, growth and prosperity.

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CHAPTER 4
4.
SUSTAINABILITY OF MACROECONOMIC POLICIES

The subject matter of global warming is fast dominating the debate space in both
domestic, regional and international fora. At the core of this critical policy area is the
tragedy of the commons, itself a phenomenon where is resource that is deemed to be a
common-pool gift of nature is plundered by the micro-actions of individual economic
units, all to the detriment of whole communities. In order to move the global economy
smoothly into the future, in a manner that does not pose the danger of extinction of future
generations, an area that requires urgent international consensus through dialogue is that
of sustainable environmental management.

Robert Stavins (1994) in his ground breaking research work opens by arguing that: "The
fundamental theoretical argument for government activity in the environmental realm is
that pollution is an externality ­ an unintended consequence of market decisions, which
affects individuals other than the decision-maker" (pp1). Thus, the provision of
incentives for private actors to internalize the full cost of their actions has long been
thought to be the theoretical solution of the externality problem.

The acclaimed Brundlant Commission on Environment and Development defines
sustainable development as: "... development that meets the needs of the present without
compromising the ability of future generations to meet their own needs" (World
Commission on Environment and Development. Our Common Future. Oxford University
Press, Oxford). In keeping with this quest for sustainability in the process of development
several Sustainable Development Indicators (SDIs) have been developed which seek to
outline the common features of what defines " a good quality of life". Coverage is on
such factors as, among many others:

Health;
Education;

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Gender equality;
Individual liberties;
Social infrastructure networks;
Income levels and equality of distribution; and
Information dissemination and coverage to the majority of the people;

In Malaysia, for instance, the countrys Seventh Maysian Plan (Government of Malaysia
1996) specifically expressed that countrys desire and commitment towards the
development of indicators of sustainability. In December, 1997, the Economic Planning
Unit of the then Prime Ministers Department convened the National Workshop on
Sustainable Development Indicators with the following objectives:

To increase awareness and knowledge of the policy community in Malaysia about
SDIs;
To present available methodologies and frameworks for SDI construction and
development;
To review experiences of other countries in SDI initiatives;
To document on-going indicator development programs in Malaysia;
To assess the needs, technical requirements and data availability for SDI
development in Malaysia; and
To initiate the establishment of a national working group on SDI.

The critical learning point here is that matters of social development require buy in at all
levels, so as to bear maximum effect. Also, when formulating national macroeconomic
policies, there is need for the policy makers to be clear in their minds what dimensions of
the growth and development objectives are targeted, as well as on the expected impact.
The Short-term ­ Long-term Dynamics

Sustainability of macroeconomic policies is also closely linked to the dynamics and
evolution of variable responses to measures implemented, with such response differing

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depending on whether one looks at the short-term or the long-term horizon. Typically,
most macroeconomic policies, by their nature are fraught with short-term contradictions
and dilemmas, which if not carefully weighed, risk having those policies condemned into
extinction, yet if sustained, they will have meaningful long term benefits.

An example is the short-term dilemma of promoting capacity utilization through
expansionary fiscal or monetary interventions, whilst at the same time, seeking to reduce
inflation. To those who live in the short-term, with myopic sights on the medium to long-
term horizon, monetary injections, say into agriculture or the granting of selective
subsidies to targeted priority sectors may be seen as "bad economics", as they easily get
scared by the short-term inflation effects. However, if for instance the outlays are going
into the construction of dams, irrigation systems, generation of energy or the uplifting of
machinery and equipment on farms, then the medium to long-term benefits are likely to
more than outweigh the temporary short-term inflation costs.

The development agenda, must, therefore, seek to achieve sustainability through policies
that map the objectives matrix not only in the short-term dimension, but also over the
medium to long-term.

THE MILLENNIUM DEVELOPMENT GOALS (MDGs)

Contemporary economies have also come to face the dictates of policy directions
emanating from the global arena. One such umbrella of global policies influencing
domestic national developmental programs is that of the Millennium Development Goals
of the United Nations. The MDGs are a collective challenge that the global community
has set for itself. To all contemporary policy makers, it has become an impelling
requirement that macroeconomic policies be tailor-made in a manner that directs results
towards one or more of the following MDGs:



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The Millennium Development Goals
Goal
Targets
1. Eradicate extreme poverty
Halve, between 1990 and 2015, the proportion of
and hunger
people whose income is less that $1 a day.
Halve, between 1990 and 2015, the proportion of
people who suffer from hunger.
2. Achieve universal primary
Ensure that, by 2015, children everywhere, boys
education.
and girls alike, will be able to complete a full
course of primary schooling.
3. Promote gender equality
Eliminate gender disparity in primary and
and empower women..
secondary education, preferably by 2005, and in
all levels of education no later than 2015.
4. Reduce child mortality.
Reduce by two-thirds, between 1990 and 2015,
the under-five mortality rate.
5. Improve maternal health.
Reduce by three-quarters, between 1990 and
2015, the maternal mortality ratio.
6.
Combat
HIV/AIDS,
Have halted by 2015 and begun to reverse the
malaria, and other diseases.
spread of HIV/AIDS.
Have halted by 2015 and begun to reverse the
incidence of malaria and other major diseases.
7.
Ensure
environmental
Country policies to focus on integrating
sustainability.
sustainable development principles.
Halve by 2015 the proportion of people without
sustainable access to safe drinking water and
basic sanitation.
Have achieved by 2020 a significant
improvement in the lives of at least 100 million
slum dwellers.
8.
Develop
a
global
Liberalize financial and trading systems.
partnership for development.
Address special needs of least developed nations.

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Goal
Targets
Address the special needs of small land-locked
and small island developing states.
Resolve debt problems of developing countries.
Focus on the youth.
Promote private ­ public sector cooperation.

The thrust of the MDGs is, therefore, on what individual countries ought to achieve, so as
to elevate the quality of life for humanity. Successful accomplishment of the MDGs, is
thus closely interrelated to how individual countries incorporate development indicators
in their policies. In other words, each policy must be examined and confronted with a
question which seeks to establish the impact on the quality of life for the people, now and
in the future.

It is against this litmus test that most economic and structural policies fail. Theoretical
concepts of optimality, efficiency and the free play of market forces do not always
coincide with the ideals of sustainable economic development with prominence on social
welfare.

For instance, Conway and Pretty (1991) argued that today, numerous agricultural
scientists agree that modern agriculture confronts an environmental crisis. Evidence has
accumulated showing that whereas the present capital and technology-intensive farming
systems have been extremely productive and able to furnish low-cost food, they also
bring a variety of economic, environmental and social problems (Audirac, 1997) ­ impact
of agro-chemicals, pesticides, synthetic fertilizers and other adverse spin-offs.

THE ROLE OF INTERNATIONAL TRADE

Global interaction of nations through trade is another area requiring consensus. Sachs and
Larrain (1993), in their fabulous book Macroeconomics in the Global Economy,

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underscore the empirical fact that one of the major factors that determine countries
susceptibility to economic crises is the countries orientation to international trade.
Indeed, for centuries, communities have evolved to realize the benefits of trade, which
are presented by Michael P. Todaro et al (2006), as:

(a). Trade allows countries to benefit from consumption possibility frontiers that
would otherwise be unachievable based on own internal resources.

(b). With trade, countries can specialize in producing what they are best at, which
effectively increases global output of goods and services, at lower costs.

(c). International trade promotes the interchange of technological know-how, which
expedites the pace of economic development.

(d). Most economies, particularly in the underdeveloped and the developing world
have narrow internal markets, which constrict the capacity for local industries to
grow due to lack of markets for their output. Trade therefore expands the size of
markets, enabling internal growth in industry and commerce. This has positive
spill-over effects with the rest of the economy through backward and forward
linkages, as well as employment creation.

(e). Trade also promotes cultural exchanges across global communities, which helps
foster peace and stability.

(f). Trade promotes economic growth through sectoral linkages in the economy.

(g). Trade generates pressures for increased efficiencies through competition.

(h). Trade paves way for capital flows in the global economy, which benefits
developing countries which have shortfalls in their internal savings aggregates.


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Notwithstanding the above clear benefits of international trade, there has not been
absolute global consensus on the implementation of complete free trade due to several
considerations at the local level.

Why Trade Restrictions?

As highlighted earlier, notwithstanding the clear benefits of international trade, a
reality that continues to characterize world economies is that walls of barriers to trade
continue to exist, effectively limiting the full realization of the virtues of trade as a
developmental phenomenon. Paul P Streeten (1973), and Donald B Keesing (1979),
discuss extensively the virtues of inward-looking and outward looking policies and
underscore some of the reasons countries may continue to limit free trade. At the core
of trade protectionist policies are often the following main arguments:

(a). The infant industry argument, where the domestic economy erects barriers of free
entry of commodities produced in other economies as a way to protect nascent
domestic industries. The main assumption here is that if given ample time to
grow, eventually the weak local industries would graduate into competitive giants
for the future. This argument however falls flat in the face of experiences in some
developed countries where the protected firms were lulled into complacency and
evolved into inefficient white elephants. An example is Zimbabwes steel industry
which has been benefiting from protective tariffs for the past 26 years, but has not
grown out of inefficiencies, and is facing serious viability constraints.

(b). The anti-dumping argument. In the real of international trade, dumping refers to
the case where a foreign supplier deliberately sells its output in another market at
prices that are below production costs as a market penetration strategy. Once the
objective to penetrate the market would have been achieved, the seller then

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realigns its prices. The feared effect is that dumping would kill local industries
and cause resource underutilization.

(c). The strategic industry argument has it that countries erect trade restrictions so as
to create self-reliance on sectors or areas of production considered to be strategic
for national security reasons. Examples are water works, power generation,
military, and police services.

(d). Sanctions imposed on countries that renege on their obligations under
international law. An example is Iraq which saw the United Nations impose a ban
on Iraqs free exportation of oil in the 1990s for the countrys then stained poor
record on human rights. Trade restrictions are then imposed as a mechanism to
deter further errant behaviour, as well as prompting restitution.

(e). The green revolution argument, where countries are imposing trade restrictions on
violators of environmental benchmarks, such as the need to use ozone friendly
fumigants in fields.

(f). The fiscal revenue argument, which says that governments impose tariffs and
excise duties to raise fiscal revenue.

O Krueger (1983), gives a detailed analysis and presentation of empirical evidence on
the growth-inducing benefits of manufactured export promotion based on the 1960s
and 1970s experience, with specific reference to the challenges faced in developing
countries.

Main forms of trade restrictions as the world economy stands today, have taken one
or a combination of the following instruments:

(1). Import duties, which can be a given percentage on the value (ad valorem) or a
fixed amount per given unit (unit tax).

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(2). Export and Import quotas, which specify the quantitative limit of a commodity
that can be exported or imported over a defined period of time.

(3). Non-tariff barriers ­ these have mainly been in the form of specifications and
standards that relate to the preservation of the ozone layer, including the need to
avoid use of chemicals that are deemed to cause damage to the environment.

(4). Total embargoes which entail outright bans on the exportation or importation of
specific commodities, which can be for health considerations or sanctions against
a given country.

EMPIRICAL EVIDENCE ON ECONOMIC TURNAROUNDS

LESSONS FROM SOUTH KOREA AND TAIWAN

Volumes of printed books, see Young, Allwyn (1995), Rodrick Dani (1995), Sanjaya
Lall (2004), are full of nostalgic accounts of how South Korea transformed the fabric
of its economy from an underdeveloped, agricultural country to a leading Newly
Industrializing Country (NIC) since 1965. Between 1965 and 1981, when us in
Zimbabwe were a mere one year old as an independent state, Koreas Gross National
Product (GNP) had multiplied twenty times from US$3 billion to US$63 billion,
with per capita GNP rising sixteen times, and per capita consumption surging twelve
times.

And all of this staggering performance being drawn from a country with a mere
98480 square kilometers, about a quarter of the size of Japan, and with roughly 60%
of the land being uncultivated, forest mountain slopes, effectively leaving only 30%

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for intensive cultivation. A review of the sterling performance of South Korea in the
post occupation era, beginning 1965, starkly reveals the following main pillars that
spurred high rates of economic growth, and the strengthening of the countrys overall
economic system:

o Notwithstanding the relative limitation of the arable land resource, Korea
implemented a deliberate national program to uplift and mechanize its
agricultural sector. The Government of Korea underscored and
emphasized land-saving policies, as well as raising of land under
irrigation;

o Taking advantage of its high population density, Korea invested heavily in
the development of human capacities. Compulsory primary education was
implemented in Korea as early as 1949, such that by the early 1960s, the
rate of primary school enrolment reached almost 100%. The lesson here is
clear: People, People, People;

o The Government of Korea focused on an aggressive exports-led growth
strategy, with exports growing at a staggering average rate of 45%
between 1965 and 1973, which in turn further unlocked supply side
synergies. Export growth was nurtured through a combination of targeted
incentives and exchange rate systems that adjusted to reflect exporters
production costs;

o Government of Korea implemented deliberate programs to create a critical
mass of domestic heavy industries, which encompassed those producing
chemicals, petroleum products, rubber, plastics, fabricated metal products,
as well as machinery and equipment. The rapid growth in manufacturing
was further spurred by the backward linkage effect arising from export
expansion;


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o The fiscal and monetary policy frameworks were well coordinated, with
the overall objective of maximum complementarity in keeping inflationary
pressures in check; and

o Korea pursued an aggressive program of promoting a vibrant domestic
savings culture. Between 1965 and 1981, for instance domestic savings
averaged high levels of between 30-44% of GNP which gave impetus to
robust investment finance.

From a close look at the above key factors that spurred the Korean economys
monumental economic growth and development record, it is imperative to note that
elsewhere in the in those countries, such as Malaysia, Ireland, Chile, and other
examples of modern-day success stories, these key factors also emerge as the
common thread, supported by these countries realization that other non-economic
factors matter in development and trade promotion. Soedjatmoko, the renowned
Indonesian development expert once argued:

Quote:
"Looking back over these years, it is now clear that in their pre-
occupation with growth and its stages and with the provision of capital and skills,
development theorists have paid insufficient attention to institutional and structural
problems and to the power of historical, cultural, and religious forces in the
development process". (Own emphasis). [Soedjatmoko, The Primacy of Freedom in
Development. University Press of America, 1985; pp. 11].

Korea and Taiwan began their rapid economic growth over forty years ago. The
sources of growth in the two countries are attributable to a cluster of export-oriented
economic reforms launched in 1958 in Taiwan and in the early 1960s in Korea.
Emphasis on trade permitted both countries to exploit their comparative advantage in
low-wage labor, and this led to increased investment, rapid productivity improvement
and real income growth. Prior to the transition to export-led growth, both countries
pursued policies that were quite common across the developing world. External

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shocks, foreign exchange scarcity and protectionist lobbying pushed both countries to
pursue inward-looking, import-substituting trade and exchange rate policies.

Tariffs were high, and an overvalued and multiple exchange rate discouraged exports
and contributed to both countries' high and apparently chronic dependence on US aid.
With trade liberalization and devaluation, resources shifted rapidly into the export
sector. In addition, financial market reforms increased the real return to depositors
and boosted national savings. Exports from both countries did grow rapidly following
the trade and exchange rate reforms. The expansion of the external sector contributed
positively to economic growth.

Experiences of Korea and Taiwan show that macroeconomic stability, trade and
exchange rate reforms, and freeing domestic markets is key to rapid growth. Both
countries managed to achieve high growth rates of over 5% and higher export
volumes.

INDIA

India had largely been insulated from the world trading system for more than four
decades since independence in 1947. This led to India becoming marginalized in
world trade. Prior to 1991 the import tariffs were high and some non-tariff barriers,
particularly quantitative restrictions were applied to virtually all imports. In 1991
India took deliberate measures to attracting private capital and integrate itself into the
global economy. The economic reforms resulted in a significant reduction in tariffs
and the abolishment of quantitative restrictions (QRs) on most imports.

However, while abolishing QRs on agricultural imports, tariffs have been raised to
high levels indicating an apparent lack of a firm commitment to further trade
liberalization. Prior to 1991, restrictions on FDI included limiting entry into specified
priority areas, upper limit of 40% on equity participation. In addition, government

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approval on technology transfer, and export obligations was required. Following the
reform program India allowed 100% foreign participation in several industrial
sectors.

Liberalization of Trade and Exchange Rate Policies

The exchange rate was liberalized and is largely determined by market forces. The
Reserve Bank of India, however, intervenes to smoothen exchange rate movements.
In 1991-1992 the Rupee was devalued by 22.8% and had became convertible for
current account transactions in 1993.

On the current account quantitative restrictions on most intermediate and capital
goods imports were removed. Other temporary measures to deal with balance of
payments problem such as foreign exchange licenses import compression, export-
based imports, and dual exchange rate system were withdrawn. The Indian experience
clearly demonstrates the importance of integrating an economy into the global village
through opening up and removal of trade restrictions. If this is accompanied by an
aggressive export drive, supported by a liberalized exchange rate system, the balance
of payments position of a country improves significantly. Promotion of Foreign
Direct Investment (FDI) is also key to sustainable economic growth.

SINGAPORE

Singapore pursued liberal trade and investment policies while deepening internal
reforms, especially in key services sectors. The economy remains relatively free of
trade barriers and foreign investment is allowed in most sectors of the economy, with
restrictions in only a few services sectors. Government involvement is limited to key
sectors through government-linked companies, which are currently managed by a
holding company (Temasek). In addition, the Government created statutory boards to
implement its policies; their present role consists primarily of regulating and

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promoting economic activities that are thought to have high growth potential, as well
as providing technical and marketing assistance.

Singapore's trading advantage is moving towards higher value-added manufacturing
and services sectors; the Government has responded to this by establishing long-term
development Programs, including tax incentives, to encourage investment in higher
value-added activities.
Economic Environment

Economic growth in Singapore is underpinned by a stable macroeconomic
environment. A history of prudent fiscal and monetary policy enabled the
Government to respond swiftly to the economic crisis that hit the region in 1997.

Trade and Investment Policy Framework
Singapore's economic success owes much to its high degree of openness.
International trade is equivalent to 300% of GDP, while foreign direct investment
currently accounts for around 70% of total investment in the manufacturing sector.
Trade and trade-related policies are the responsibility of the Ministry of Trade and
Industry, which coordinates policy with other Ministries and statutory bodies, and are
implemented by the Trade Development Board (TDB).

Policies are generally formulated upon consultation with Singapore's business
community and other interested parties. In addition, national committees are formed
from time to time to address specific issues, most recently on competitiveness; the
committees include participants, and solicit advice, from a range of interests.
Singapore's foreign investment regime is liberal, the exception being some services
sectors and real estate, where there are limits on foreign investment. However, several
of these restrictions are being gradually reduced or removed.

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The Government invested directly in sectors believed to be of strategic interest for
economic development, and in which private investment would prove to be
insufficient, by taking a direct stake in companies involved in these sectors.
Singapore opted for a sectoral competition policy framework, establishing regulatory
authorities and rules in each sector to ensure competition between the incumbent
service providers, often a public sector monopoly, and newer competitors.

In the goods sector, a liberal market-based policy has been sufficient to ensure
competition.

Sectoral Policies

Singapore actively promoted the development of high value-added manufacturing
activities. This policy has been largely successful, with electronics and electronic
products accounted for 43% of value added in manufacturing. The services account
for around 64% of GDP and provide employment to around 70% of Singapore's
workforce. Liberalization is most advanced in financial and telecommunications
services. In other sectors, such as energy and water, which are important business
inputs to manufacturing and services activities, reform is taking place more gradually.

Singapores developmental strategies focused on industrialization through an import
substitution strategy. Its trade policies focused on trade promotion, Infrastructure,
institutional creation and international relations.

CHINA

The ongoing economic reform in China, which started in 1979, has turned over a new
leaf in the history of China and its influence has been felt worldwide.

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Industrialization Strategies

The country pursued an open policy as part of its industrial strategy. The government
of China established special economic zones and managed to attract foreign direct
investment in the Southeast Costal Regions; Other Costal and Border areas; and
Inland areas. The creation of special economic zones played an important role in
opening up the Chinese market to the outside world and attracting foreign
investments.

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Export development strategy

The Chinese government set up an export development fund with the ultimate goal of
promoting exports. The companies took advantage of lower production costs and
enjoyed economies of scale, which enabled them to increase their output. Emphasis is
on the development of SMEs to drive economic growth and development.

Import Substitution Strategy

Chinas domestic market is still, however, still protected by high tariffs and/or import
licensing requirements on certain capital- and technology-intensive products and
consumer goods.

Lessons for Zimbabwe

Experiences from China indicate that Government should allow market forces to
determine the optimal allocation of resources and Government intervention should be
minimal.

In particular, trade policies should allow the growth of export-oriented processing
industries. This entails the transformation from the low-tech level to high-tech levels,
and development of import-substitution industries into export-oriented industries.

MALAYSIA

Export Oriented Industrialization in the 1970s.

Prior to the 1970s, Malaysia promoted specific industries primarily through tariffs
and quotas and the provision of basic infrastructure, and these industries essentially
produced for the domestic market. This initial import substituting industrialization

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(ISI) drive of the 1960s failed to absorb the economys excess labour, leading to
relatively high unemployment levels.

To address these economic challenges, export-oriented industries (EOIs) were
promoted in the early 1970s through the establishment of Export Processing Zones
(EPZs) and attracting investments from trans-national corporations. Foreign firms
employed low-wage labour to assemble imported raw materials and components for
export. The export strategy transformed the industrial sector into a significant
contributor to economic activity. The contribution of manufacturing to GDP and
employment rose by 7% within a decade, while exports rose by 8%. By 1980, exports
of electrical and electronic products and textiles and garments.

The reforms since the mid-1980s also involved a gradual process of privatization and
restructuring of sate-owned enterprises. In June 1973, Malaysia gradually liberalized
its exchange rate to a more market determined system based on a basket of trading
partner currencies. The Central Bank of Malaysia intervened only to maintain orderly
market conditions and to avoid excessive fluctuations in the value of the Ringgit.
Malaysia returned to a fixed exchange rate system in 1998 after the Asian Financial
Crisis.

Lessons for Zimbabwe

The Malaysian experience shows that macroeconomic and structural adjustment
policies and promotion of foreign direct investment results in a rapid expansion of the
manufacturing sector. It is also clear that growth can be enhanced through increasing
competitiveness by strengthening industrial linkages, enhancing value-added
activities, and increasing the productivity of the manufacturing sector.



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LESSONS FROM THE ASIAN CRISIS

The crises in Thailand that ultimately spread to other economies in the region ­
Indonesia, Malaysia and the Philippines ­ did not strike out of the clear blue sky.
Early warning signals pointed to substantial macroeconomic imbalances ­ substantial
real exchange rate appreciation, a marked slowdown in export growth, a persistently
large current account deficit financed increasingly from portfolio inflows including a
substantial amount of short term capital and rising external debt.

The challenge for policy makers is to quickly find out where the red lights are
flashing to determine crises and take preemptive actions to strengthen their policies.
These include the maintenance of an appropriate exchange rate and exchange rate
regime coupled with other appropriate macroeconomic policies. However, there is no
single right exchange rate regime as evidenced by the shift, in other countries, from
more flexible exchange rates back to fixed exchange rate regimes. After so many
years of outstanding economic growth in the region, the authorities did not quickly
recognize that these underlying deficiencies could seriously jeopardize their good
track records. This certainly contributed to the delay in taking corrective action and at
lat the currencies collapsed.

The first lesson for Zimbabwe is the necessity to take early corrective measures to
correct macroeconomic imbalances, something which did not happen in Thailand.
More difficult to understand is how the crises spread to Thailands neighbors where
current account deficits were generally smaller and foreign direct investment more
substantial. The lesson that can be drawn from this is that other countries can find that
their vulnerability to crises in other markets is greater than economic fundamentals
would suggest. This is particularly so in a changing economic environment where the
world is increasingly shrinking into a global village.


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United States of America

The economic history of the United States has its roots in European settlements in
the 16th, 17th, and 18th centuries. The American colonies progressed from
marginally successful colonial economies to a small, independent farming
economy, which in 1776 became the United States of America. In 230 years the
United States grew to a huge, integrated, industrialized economy that makes up
over a fifth of the world economy. The main causes were a large unified market,

a supportive political-legal system,
vast areas of highly productive farmlands,
vast natural resources (especially timber, coal and oil), and
an entrepreneurial spirit and commitment to investing in material
and human capital.

The economy has maintained high wages, attracting immigrants by the millions
from all over the world.

Infrastructural development like railroads were, by far, one of the most important
contributions to the economy. Many contrasting views exist regarding whether the
railroad was "indispensable" or not, but it was undoubtedly very important. The
railroad paved the way to new developments in running large-scale business
operations, creating a blueprint for future businesses to use. They were first to
encounter managerial complexities, labor union issues, and problems of
competition. Due to these radical innovations, the railroad became the first large-
scale business enterprise.

Panics did not curtail rapid U.S. economic growth during the 19th century. Long
term demographic growth, expansion into new farmlands, and creation of new
factories continued. New inventions and capital investment led to the creation of

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new industries and economic growth. As transportation improved, new markets
continuously opened.

The steamboat made river traffic faster and cheaper, but development of railroads
had an even greater effect, opening up vast stretches of new territory for
development. Like canals and roads, railroads received large amounts of
government assistance in their early building years in the form of land grants. But
unlike other forms of transportation, railroads also attracted a good deal of
domestic and European private investment.

Some people made fortunes overnight, but many people lost their savings.
Nevertheless, a combination of vision and foreign investment, combined with the
discovery of gold and a major commitment of America's public and private
wealth, enabled the nation to develop a large-scale railroad system, establishing
the base for the country's industrialization.

One notably episode in the history of the American economy and the majority of
Europe is the great depression which is explained below:
Great depression
The Great Depression was an economic downturn which started in 1929 and
lasted through most of the 1930s. It was centered in North America and Europe,
but had devastating effects around the world, particularly in industrialized
countries and producers of raw materials. Cities all around the world were hit
hard, especially those based on heavy industry. Unemployment and homelessness
soared.

Construction was virtually halted in many countries. Farming and rural areas
suffered as prices for crops fell by 40­60%. Mining and logging areas had

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perhaps the most striking blow because the demand fell sharply and there were
few employment alternatives.

Several arguments have been given as the causes of this historic economic
downturn, from insufficient government spending as argued by the Keynesians, to
several theories describing the Great Depression as an inevitable outcome of
World War I.
Among the hardest hit was the American economy, where industrial sites had
been turned into virtual ghost-towns. To get out of this depression the then
American president Roosevelt came up with a Social Contract pact called the
New deal which sought to stimulate demand by:
Reforming the financial system, especially the banks and Wall
Street. The Securities Act of 1933 comprehensively regulated the
securities industry. This was followed by the Securities Exchange
Act of 1934 which created the Securities and Exchange
Commission. (Though amended, the key provisions of both Acts
are still in force as of 2007). Federal insurance of bank deposits
was provided by the FDIC (still operating as of 2007), and the
Glass-Segal Act (which remained in effect for 50 years).
Instituting regulations which ended what was called "cut-throat
competition," which kept forcing down prices and profits for
everyone.
Setting minimum prices and wages and competitive conditions in
all industries.
Encouraging unions that would raise wages, to increase the
purchasing power of the working class.
Cutting farm production so as to raise prices and make it possible
to earn a living in farming

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Because of its inclusiveness and emphasis on the areas of greatest need to the
majority of the American people, the New Deal won resounding support among
social partners, which in turn led to its passionate implementation. As a result,
productivity levels began to pick up, leading to renewed expansion of job
opportunities, savings and investment growth, as well as general availability of
goods and services on the shelves. Today, the USA stands as the leading economy
of the world on the back of the seeds of prosperity that were sown through years
of implementation of successive economic reforms, fortified by commonality of
purpose among stakeholders.
Germany
In the 1920s, the post-World War I Germany recorded one of the highest
episodes of inflation in the history of the world reaching trillions percent per
annum. However through co-operation of both the public and private sector
Germany managed to tame the inflation dragon to the current single-digit levels.
Today, Germany is among the largest economies in the world and the largest
exporter of heavy industrial machinery in the world.

Again, this experience shows that through a shared vision, passion for
implementation of agreed programs, as well as the discipline to persevere through
challenges, what may seem as insurmountable setbacks can be successfully
tackled.

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CHAPTER 5
5.
SURVEY RESULTS

In order to unravel the publics and policy makers opinions on the time profile of
Zimbabwes economic reforms, as well as perceptions on the likely future trends
of economic developments, I conducted a survey on 500 respondents, as was
highlighted in the Methodology Section of this Thesis. Below are the summaries
of the main findings from the surveys:

Why Zimbabwe's Economic Reforms Have Had
Limited Success
(sample size 500. Response rate: 95%)
Mistrust
75
Droughts
40
Sanctions
75
85
Inefficient Public Utilities
Corruption
60
80
Government Overspending
95
Non-implementation
70
Sub-Visions
0
20
40
60
80
100
Percentage of Respondents Highlighting Factor

The survey results identified the following main factors as limiting Zimbabwes
capacity to achieve quicker economic turnaround:

Non-implementation of agreed programs;

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Inefficiencies in public utilities (power generation, liquid fuels, telecoms,
transportation, coal production and municipalities);
Government overspending;
Sanctions against Zimbabwe;
Mistrust among stakeholders;
Existence of many sub-visions, most of which are at conflict with each
other;
Corruption;
Droughts.

Superimposing the above survey results on the empirical reviews of turnarounds
in other countries, it is apparent that Zimbabwe needs to speedily redouble its
focus on policy implementation, supported by unity of purpose and structural
reforms that increase efficiencies in its public utilities. The international
community also has an important role to play, as the impact of sanctions is indeed
a major drag on Zimbabwes internal policy programs. The magnitude of the
impact of sanctions on the country is further presented later in this Thesis.

Where Policy Emphasis Should Be
(sample size: 500 respondents; response rate 90%)
Identified
Percentage of
Policy Area
respondents
who identified
policy area as
needing
radical
improvements
Monetary
30%
Fiscal
85%
Land
95%
Utilization
Electricity
90%
Generation
Local
80%

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Identified
Percentage of
Policy Area
respondents
who identified
policy area as
needing
radical
improvements
Authorities
Service
Delivery
Pricing Policies
95%
Coal
80%
Production
Air
95%
Transportation
Anti-corruption
70%
Drive
Dialogue and
85%
Consensus
Building
Social Safety
50%
Nets
Education and
80%
training

The survey results also showed that 85% percent of respondents were upbeat that
the Zimbabwean economy will be out of its current difficulties in the next 5 years,
whilst 10% said that the situation will be worse off, and the remaining 5%
responded that they did not have a view on the future prospects of the countrys
economy.

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CHAPTER 6
ARE SANCTIONS THE WAY TO DIFFERENCES
RESOLUTION?: THE CASE FOR ZIMBABWE

Since time immemorial, sanctions have been deployed as a tool to achieve varied
objectives, ranging from deemed behavioral changes, to intentions of beating targeted
countries into submission for purposes of benefiting the superpowers through
unfettered resource exploitation. The manner in which some sections of the world
community play at swinging global opinion against targeted countries, such as has
been the case with Zimbabwe since over the 2000-2007 period seems to be devoid of
any concern for the welfare and well-being of the general population of the targeted
countries. This reality becomes apparent when one analyses the true nature of these
sanctions and the attendant effects on the economies of the countries taking up the
blow of sanctions.

In the case of Zimbabwe, far from the claim that sanctions on the country are ring
fenced and targeted on a few individuals, the reality on the ground is that the tight
grip of the declared and undeclared sanctions is being felt throughout the entire
economy. This has led to a growing call for nations to review their stances on the use
of sanctions as a tool to resolve perceived or real differences among countries.

When one reflects at the vision and purpose for which Multilateral Financial
Institutions (MFIs), such as the International Monetary Fund (IMF) and the World
Bank were conceived back in 1945, clearly shows that these institutions are
increasingly deviating from their founding mandates. MFIs were created to
essentially ensure international financial stability, through provision of bridging
finance to countries experiencing temporary Balance of Payments (BOP) pressures.
Under the weight of political persuasion and the tide of global supremacy, it is now
vividly clear that the institution have strayed from their core mandates.


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Before the Watershed Land Reforms in Zimbabwe, the world was literally silent
about the heinous imbalances that existed in the ownership and distribution of
national wealth. Instead, the status quo was passively preserved, and in the process,
breeding what could have degenerated in a tumultuous state of affairs in the countrys
socio-geo - political landscape.

In order to fully appreciate the true nature of the sanctions against Zimbabwe, and
how attempts are being made to mislead the world, it is important that one appreciates
the various forms of economic warfare that have been visited upon Zimbabwe and its
people. Sanctions against Zimbabwe and indeed any other country are a declaration
of war on a sovereign State, which puts the economy under siege, with debilitating
downstream effects on the vulnerable groups and civilians at large.

The economic warfare against defenseless countries manifests itself through the
cancellation of life-line projects, humanitarian assistance, and humanitarian
infrastructural development support, which further exacerbates the plight of the
impoverished. Regrettably, in the case of Zimbabwe, the aggravating impact of the
weapon of economic sanctions resulted in deteriorating standards of living, with per
capita incomes being reduced substantially, compared to levels obtaining in those
countries perpetrating sanctions.

NATURE OF SANCTIONS

Sanctions have traditionally been applied against certain countries to achieve desired
political and economic outcomes. These encompass the imposition of embargoes,
trade and financial restrictions, and diplomatic isolation. In recent years, the coverage
of sanctions has widened to include other elements that are not directly linked to trade
and commerce such as culture and sports.

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Economic Sanctions

Economic sanctions and their proxies are by far the most important of all sanctions
imposed on a nation. In the main, they consist of the withdrawal, or threat of
withdrawal of trade and financial relations, including technical cooperation. In an
effort to refine the effectiveness of sanctions through disguised means, there has been
a shift towards the so-called targeted sanctions, which impose travel bans and
freezing of foreign bank accounts of targeted individuals or entities.

Trade Sanctions

Trade sanctions limit the countrys exports or restrict its imports. Trade barriers such
as embargoes and quantitative restrictions are thus imposed on the country. Countries
such as South Africa, Iraq, and Rhodesia, had trade sanctions imposed against them,
as the international community wanted to influence political changes.

In Zimbabwe, today, trade sanctions have taken the form of denied access to foreign
lines of credit, which ordinarily finance external trade. The market for the countrys
exports is also shrinking, as export competitiveness crumbles under the adverse
perceptions.

Financial Sanctions

Financial sanctions impede financial flows such as aid, short and long term loans,
thus reducing foreign exchange flows to Zimbabwe. Financial sanctions also interrupt
commercial and trade finance, through reduction of both Government and private

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sector access to foreign loans. In addition, sanctions attract high risk premium on
offshore lines of credit, and eventually scare away alternative creditors, as they
anticipate a credit squeeze in the future.

Thus, without the imposition of explicit trade sanctions, financial sanctions,
especially involving trade finance, interrupts trade, and ultimately constrain the
economys foreign currency generating capacity, as well as economic activity in
general.

Undeclared Sanctions

Undeclared sanctions are not explicitly announced but are implied from the actions of
the perpetrating nations. For example, some Non - Governmental Organizations have
moved their operations out of Zimbabwe, since the enactment of the Zimbabwe
Democracy and Economic Recovery Act of 2001. This Act outlines the scope of
targeted sanctions on Zimbabwe by the USA.

Arrears Triggered Penalties

Due to Zimbabwes failure to honour its financial obligations to the IMF and the
World Bank since 1999, the Bretton Woods Institutions suspended Balance of
Payments support and technical assistance to the country. Such actions by MFIs are
notwithstanding the fact that such BOP assistance would have unlocked the countrys
exporting potential, and create capacity for amortizing outstanding loans.





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EFFECTS OF SANCTIONS ON ZIMBABWE

Since the imposition of declared and undeclared sanctions against Zimbabwe, the
effects of these sanctions have been widespread and continuing.

Non Governmental Organizations (NGOs)

The majority of NGOs receive funding from Western Governments. Accordingly,
some have realigned their policies in consultation with their donors. As a result, some
donors have either responded by withdrawing their programs or frozen further
development assistance programs in the country.

Other donors, through various NGOs have continued to work in Zimbabwe but have
changed their areas of focus and the modus operandi. Concentration of donor funding
has now been limited to humanitarian aid and social issues, particularly HIV/AIDS,
social protection and human rights. Humanitarian assistance is, however, short-term,
and does not directly contribute to long term economic development and poverty
reduction.

The NGO community in Zimbabwe is now faced with dwindling resources, as donor
funds have either been severely curtailed or re-directed to other countries. Initially,
Official Development Assistance (ODA) was paid through the Government.
Following imposition of sanctions, the majority of NGOs now source ODA directly
from donor organizations. The National Association of Non-Governmental
Organizations (NANGO) confirmed that aid meant for Zimbabwe has also been
diverted to other third world countries.

NANGO highlighted that, over the past few years, there has also been a major
withdrawal of donor funding agencies. These pull-outs have resulted in closure and
suspension of projects funded by NGOs. The imposition of targeted sanctions has

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precipitated negative perceptions about Zimbabwe by the world at large. These
negative perceptions make it difficult for the private and public enterprises to secure
funding, as donor funding agencies are no longer willing to support projects in
Zimbabwe.

In addition, most funding agencies source their money from tax payers. Tax payers in
donor countries, thus retain the prerogative of directing funding of projects. Due to
the negative publicity, foreign individuals have been unwilling to support Zimbabwe
due to the bad publicity that the country has received. Notably, Denmark tax payers
redirected funding to Zimbabwe from developmental projects towards humanitarian
support.

In the aftermath of the socio-economic environment, created by sanctions, several
NGOs and donor agencies have or are relocating their offices from Zimbabwe to
neighbouring countries. For instance, DANIDA and the Canadian International
Development Agency (CIDA) pulled out of Zimbabwe in 2001 and 2003,
respectively, terminating all projects in progress and retrenching their employees.

Following unrelenting pressure from the West, Zimbabwe was forced to terminate its
membership in the Commonwealth. In addition, the IMF and the World Bank, also
joined Western countries, and suspended all loan disbursements to Zimbabwe.

Multilateral Financial Institutions

Following the countrys land reform program, which, triggered declared and
undeclared sanctions against Zimbabwe, Multilateral Financial Institutions also
imposed sanctions on Zimbabwe, as shown in the Table below.




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MULTILATERAL FINANCIAL INSTITUTIONS DISBURSEMENTS (US$)
Year
IMF
WORLD BANK
AfDB
1980
0
0
0
1981
0
104,917,535.8
0
1982
0
45,478,573.51
25,342,914.53
1983
0
133,760,761.05
57,22,913.63
1984
2,058,441.00
36,467,113.09
0
1985
0
9,668,219.07
67,768,983.37
1986
0
10,000,000.00
0
1987
0
0
0
1988
0
130,121,817.97
28,612,977.32
1989
0
0
19,286,995.95
1990
0
127,243,010.98
145,027,034.56
1991
0
62,386,243.86
15,218,604.29
1992
216,150,000.00
299,592,641.86
180,428,222.49
1993
65,656,168.00
226,810,152.15
37,966,823.47
1994
76,642,125.00
0
11,090,644.2
1995
75,492,900.00
0
11,686,232.22
1996
0
323,99,074.25
0
1997
0
4,037,287.79
1,940,910.99
1998
53,802,392.00
5,796,928.56
39,074.27
1999
32,233993.40
88,856,697.27
0
2000
0
0
0
2001
0
30,526,725.67
0
2002
0
0
0
2003
0
0
0
2004
0
0
0
2005
0
0
0
2006
0

0
Total
88,721,370.73
1,348,062,782.39
524,789,416.76
Source: RBZ and Ministry of Finance
MFIs imposed sanctions on Zimbabwe in the following manner:
Suspension of Balance of Payments Support;
Suspension of technical assistance;
Suspension of voting and related rights by IMF; and
Declaration of ineligibility to access Fund resources.


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International Monetary Fund

After reviewing Zimbabwes overdue obligations on 25 September 2001, the Funds
Executive Board declared Zimbabwe ineligible to access the general resources of the
IMF. Zimbabwe was subsequently declared ineligible to borrow the Fund
resources. As a result, Zimbabwe has not been receiving any disbursements from the
IMF as shown in figure 1.

On 14 June 2001 the IMF suspended technical assistance to Zimbabwe and adopted
a declaration of non cooperation.

Average Annual IMF Disbursements (US$M)
90
80
70
60
M 50
40
US$
30
20
10
0
1984-1989
1990-1999
2000-2006

On 6 June 2003, IMF suspended Zimbabwes voting and related rights after
determining that Zimbabwe had not sufficiently strengthened its co-operation with
the IMF in areas of policy implementation and payments. The Fund also initiated

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the procedure on the compulsory withdrawal of Zimbabwe from the IMF in
December 2003. The initiation of compulsory withdrawal from the Fund is the last
and most severe in a series of escalating measures the Fund applies to members that
fail to meet the obligations.

The IMF recognized the severity of the decision at hand, the increases in payments
from Zimbabwe since the last review in July 2004, and improvements in economic
policy implementation. On the 16th of February 2005, the IMF decided to postpone a
recommendation with respect to compulsory withdrawal, providing Zimbabwe with a
chance to continue improving economic policies and payments. Regrettably, despite
the clearance of the critical General Resources Account (GRA) in February 2006, the
IMF Board upheld sanctions on Zimbabwe.

World Bank

The World Bank has helped Zimbabwe to fight poverty and improve living
standards. To date, the Bank approved 19 International Bank of Reconstruction and
Development (IBRD) loans and 14 International Development Association (IDA)
credits for a total of approximately US$1.55 billion.

The lending program to Zimbabwe is currently inactive due to a combination of
accumulated arrears and sanctions. Effective 2 October, 2000, the World Bank placed
all IBRD loans and IDA credits to, or guaranteed by, Zimbabwe in non-accrual status.
As a result, Zimbabwe has not been accessing loans from the World Bank as shown
in the Figure below.


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Average Annual World Bank Disbursements (US$M)
120
100
80
M
60
US$
40
20
0
1984-1989
1990-1999
2000-2006


The International Finance Corporation (IFC) also suspended funding of
infrastructural and private sector projects in Zimbabwe. This was in accordance with
the Bank's policy of placing all its loans and credits to, or guaranteed by, a country in
non-accrual status, if payment on any loan or credit is overdue by more than six
months.

The Banks role is now only limited to technical assistance and analytical work,
focusing on macroeconomic policy, food security issues, social sector expenditures,
social delivery mechanisms and HIV/AIDS. The World Bank, thus effectively
imposed sanctions to Zimbabwe in the form of suspension of grants; infrastructural
development flows to both Government and private sector.

The African Development Bank (AfDB)


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The Bank Group commenced operations in Zimbabwe in 1982. Through to 2007, the
Bank group had approved 24 operations comprising of 20 projects and 4 studies.
Zimbabwe has been in arrears to the Bank Group since 1999. Following this
development, the Bank Group imposed sanctions on the country in May 2000 and
subsequently stopped all lending operations in the country as shown in the Figure
below.

Average Annual AfDB Disbursements
70
60
50
40
M
US$ 30
20
10
0
1984-1989
1990-1999
2000-2006

Although the Bank Group suspended normal lending operations, it pledged support in
the form of capacity building activities.

Socio ­ Economic Effects of Sanctions

When targeted sanctions are directed against political leaders and Government
officials of a particular country, it is usually the vulnerable groups of society who
suffer and not the targeted group. Former United Nations, Secretary General, Kofi
Annan once bemoaned the adverse effects of sanctions, when he said ,,sanctions

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remain a blunt instrument, which hurt large numbers of people who are not their
primary targets.

Sanctions, whether disguised in any form, ultimately resulted in health services,
shortages of drugs, and high infant mortality rates. Innocent civilians were thus,
adversely affected by the sanctions. Sanctions have also had adverse and downstream
social and economic effects on the Zimbabwean economys key sectors. Most of
these effects have manifested themselves in shortage of foreign currency, resulting in
the country accumulating external payment arrears and failing to import critical
supplies.

Sectoral Effects of Sanctions

Balance of Payments Impact of Support Withdrawal
Due to Sanctions

From time immemorial, Zimbabwe has never gone it alone. Evidence at hand clearly
demonstrates that the country has depended in one way or the other on external
support both in the pre-independence and post independence eras.

As shown in the Table below, from 1966 to 1999, Zimbabwe registered capital
account surpluses largely in the form of project finance, as well as budgetary and
balance of payments support. Since 2000, the country started experiencing capital
flight due to sanctions.






91

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Balance of Payments (US$M)

Capital Account
Transfers
Current Account
Balance
Balance
1966
-4.6
-16.7
-2.8
1967
23.7
-50.1
-10.8
1968
39.5
3.6
-32.3
1969
9.9
-14.0
2.3
1970
41.7
-15.4
-9.0
1971
45.4
0.7
-37.0
1972
-3.5
-17.4
0.5
1973
85.1
-95.7
-11.2
1974
114.1
-127.9
-61.6
1975
135.5
-29.1
-48.6
1976
4.5
-22.4
5.6
1977
-1.4
-14.9
-3.0
1978
39.6
-11.8
18.6
1979
253.9
-38
49.1
1980
56.6
-40.4
-243.8
1981
507.5
-2
-635.9
1982
616.9
-62.4
-709.2
1983
425.7
-58.7
460.2
1984
55.0
51.8
-100.0
1985
38.5
52.0
-75.7
1986
62.6
53.7
16.8
1987
-64.6
113.5
58.0
1988
-53.6
94.7
125.3
1989
94.7
123.8
17.0
1990
257.0
259.1
-257.0
1991
532.6
114.5
-547.3
1992
687.6
299.9
-842.6
1993
504.5
217.8
-319.4
1994
517.0
285.3
-292.6
1995
482.0
308.2
-337.1
1996
87.3
255.5
-161.5
1997
-63.9
233.08
-796.5
1998
74.1
247.48
-355.6
1999
189.1
239.98
39.1
2000
-315.1
189.8
-135.0
2001
-403.4
153.6
-86.5
2002
-232.8
266
-217.1
2003
-221.4
207.1
-345.9
2004
-234.1
227.6
-416.7
2005
2.7
190.1
-538.1
2006
87.5
171.433
-362.4

92

---

Source: Various RBZ Quarterly Economic Reviews

Net Capital Flows (US$M)
400
300
)
ions
200
Mill
100
(US$s
nce
0
a
Bal
-100
-200
1970-1979 1980-1989 1990-1999 2000-2006
Year

Since 1980, Zimbabwe has also continued to be supported by current and capital
transfers from abroad in the form of food, medicines, and cash transfers from the
international community. The increase in transfers since 1990 largely reflects
humanitarian support against the background of recurrent droughts.













93

---

Net Current and Capital Transfers (US$ Million)
250
200
150
100
50
0
-50
1975-1979
1980-1989
1990-1999
2000-2006


Regrettably, sanctions imposed on the country over the past seven years have,
resulted in the drying up of project finance and balance of payments support. This
negative development has had far reaching effects on the majority of the people and
manifested itself through the following economic evils:

Denial of medication to the unborn child;
Poor rural folks not able to grind their maize;
School children not able to go to school;
Transport system grinding to a halt;
Workers walking to work because of fuel shortages; and
Black outs due to electricity outages etc.

It will be naïve to for anyone to hold the view that these disastrous consequences are
only affecting a few targeted individuals. Evidently, the impact of the sanctions is
being felt across the generality of the Zimbabwean population.


94

---

Zimbabwes Balance of Payments position has deteriorated significantly since the
year 2000. This unfavorable development emanated from the combined effects of
inadequate export performance, and reduced capital inflows.

A combination of current account deficits and reduced capital inflows, resulted in
excessive pressure on foreign exchange reserves, which, as a result, declined from
US$830 million (3 months import cover in 1996) to less than one month of import
cover by 2006. The attendant foreign exchange shortages severely constrained the
countrys capacity to meet foreign payment obligations and finance critical imports,
such as drugs, grain, raw materials, fuel and electricity.

Reflecting the shortages of foreign exchange there has been a significant build up in
external payments arrears. At the end of 1999, total foreign payments arrears
amounted to US$109 million and have since increased significantly to US$2.5 billion
by end of 2006. This unfavourable development in the external sector has worsened
the countrys creditworthiness as the countrys risk profile has deteriorated. This
subsequently led to the drying up of traditional sources of external finance from
bilateral and multilateral sources.

The withdrawal of the multilateral financial institutions from providing Balance of
Payments support to Zimbabwe had a demonstration effect as some other bilateral
creditors and donors also followed suit by either scaling down or suspending
disbursements on existing loans for both Government and parastatals.


95

---

Grant Inflows
140
120
100
ions
80
Mill
60
US$
40
20
0
1980s
1990s
2000-2006

Reflecting the scaling down of donor support, and developmental assistance, Grant
inflows, declined significantly from an annual average of US$138 million in the
1990s to US$39.9 million registered between 2000 and 2006. Prior to this, the
country had an impeccable record of prompt debt servicing and was highly rated in
the international financial markets.

The capital account, traditionally a surplus account, has been in deficit since 2000.
This largely resulted from the perceived high country risk by both multilateral and
bilateral creditors. As such international investors preferred other countries for
investment, thus depriving Zimbabwe of the much-needed foreign direct investment.


96

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Access to Credit Lines

Sanctions negatively affected the image of the country through negative perceptions
by international financial markets. Zimbabwean companies are finding it increasingly
difficult to access lines of credit because of the perceived country risk. As a result,
Zimbabwean companies have to pay cash for imports.

External Loan Inflows (US$M)
500
450
400
350
300
ions
250
Mill
200
US$ 150
100
50
0
1980s
1990s
2000-2006

Loan inflows increased from an average of US$134.3 million in 1980s to US$480.3
million in the 1990s. Reflecting the adverse impact of sanctions, loan inflows
declined to an average of US$49.3 million between 2000 and 2006 (refer to Figure 7
above). As a result of the perceived risk premium, the countrys private companies
have been securing offshore funds at prohibitive high interest rates.


97

---

This has had ripple effects on the countrys employment levels, and capacity
utilization as reflected by shortages of basic goods and services. Declining export
performance has also adversely affected the standards of living for the general
populace. In the unfolding worsening economic conditions, the country has
experienced large scale emigration, especially of skilled labour, thus further straining
the economy.

Foreign Direct Investment

Foreign Direct Investment (FDI) is a key driver of economic growth in any
developing economy. The purpose of FDI is to stimulate economic growth, and in
particular FDI positively impacts on the countrys Balance of Payments position.

Foreign Direct Investment Inflows (US$M)
100
90
80
70
60
ions
50
Mill
40
US$
30
20
10
0
1980s
1990s
2000-2006


98

---

The negative perception associated with sanctions has adversely impacted on foreign
direct investment to Zimbabwe. Investors are, thus shying away from economies that
are perceived as risky.

Foreign direct inflows increased significantly from an average of US$8 million in the
1980s to an average of US$95 million in the 1990s. Due to the negative impact of
sanctions, FDI declined to averages of US$20.4 million in the new millennium.
Reflecting this, most multinational corporations such as Anglo-American have been
strongly discouraged from investing in Zimbabwe by their home countries.

This has adversely affected investment levels into the country, thus, accentuating the
foreign exchange shortages leading to shortages of fuel and imported raw-materials.
The shortage of fuel has had a debilitating impact on all sectors of the economy,
leading to a continuous decline in economic activity. This has generated additional
inflationary pressures and speculative behaviour in the economy.

FISCAL BUDGETARY SUPPORT

In the last 10 years, Zimbabwe has basically been on its own. The country has also
relied on the resilience of its economy and its people.

Due to declining external budgetary support, Zimbabwes budget deficit has largely
been financed from inflationary domestic bank sources.


99

---

Average Domestic Financing (Z$'000)



+


2000-2006
Z$8,441,768.8

1990-1999

Z$5,811.8


1980-1989

Z$489

0
-

External budgetary support for Zimbabwe has completely dried up following
suspension of loan disbursements for projects and BOP support.


100

---

Average Foreign Financing (Z$'000)

+Surplus


1980-1989
Z$168.6



0


1990-1999

-Z$332.1

2000-2006
- Def icit
-Z$1,759.9


101

---

In contrast, most countries in Sub-Saharan Africa and elsewhere have continued to
receive the bulk of fiscal budgetary support from the international donor community.


Budget Deficit Financing (Z$000)


Net
Net

Period
Domestic
Foreign
Total

Financing
borrowing
Financing


1980
302.30
72.70
375.00
1981
268.60
66.20
334.80
1982
97.00
219.60
316.60
1983
416.50
49.90
466.40
1984
579.30
50.70
630.00
1985
221.50
489.20
710.70
1986
480.70
210.90
691.60
1987
786.10
210.80
996.90
1988
748.20
147.60
895.80
1989
990.10
129.20
1,119.30
1990
936.20
201.50
1,137.70
1991
1,502.40
94.30
1,596.70
1992
1,320.90
388.40
1,709.30
1993
1,278.70
1,365.80
2,644.50
1994
1,776.30
358.50
2,134.80
1995
4,802.10
989.50
5,791.60
1996
3,972.50
1,174.90
5,147.40
1997
5,167.80
(91.00)
5,076.80
1998
13,535.60
(2,908.20)
10,627.40
1999
23,825.90
(4,895.00)
18,930.90
2000
68,233.20
2,734.90
70,968.10
2001
37,117.20
706.70
37,823.90
2002
60,164.80
(1,483.00)
58,681.80
2003
9,600.00
900.00
10,500.00

102

---

Net
Net

Period
Domestic
Foreign
Total

Financing
borrowing
Financing
2004
1,511,600.00
(2,200.00)
1,509,400.00
2005
2,977,761.30
(2,490.90)
2,975,270.40
2006
46,054,369.30
(5,992.40)
46,048,376.90
Source: CSO Quarterly Digest, MOF Budget Outrun, Government Finance Statistics
Year Book, RBZ Quarterly Economic Reviews, Central Bank Economic Surveys.



Agriculture

The countrys agricultural sector relied to a certain extent on funding from the donor
community. The withdrawal of such support since the inception of the Land Reform
Program negatively impacted on the sector. The Danish International Development
Agency (DANIDA) supported the Agricultural Sector Program in the late 1990s to
the tune of DKK 98.6 million (US$ 15.4 million).

The program was aimed at:


Enhancing forestry extension services;

Development of an agriculture policy;

Development of a marketing information system;

Supporting irrigation schemes to small holders;

Provision of training to smallholder farmers; and

Provision of direct support to farming households to assist them in
income generating activities.


103

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The program was suspended due to sanctions. The economy thus lost an opportunity
to enhance food security.

Education

The Education Sector Support Program was established in January 1996 and was
funded to the tune of Sek 95 million (US$13.9 million), by the Swedish government.
The project facilitated the supply of text books, special education needs,
construction of school buildings, capacity building and promotion of gender
equity in education.

The Swedish Government did not fund any new programs in the education sector
after 2000. Such programs would have gone a long way in benefiting the countrys
education system. In addition, Africa University is currently failing to access
computers and related accessories from American Information Technology (IT)
companies. The sanctions imposed on Zimbabwe by the West, has thus spilled over to
the countrys institutions of higher learning, by affecting their ability to procure
modern technology, critical for learning purposes.

TRANSPORT

The Transport Sector Support Program was funded by Danish International
Development Agency (DANIDA), in April 2000. It was established to support the
Transport sector with a value of DKK380 million or (US$48 million).

The program was aimed at;

Rehabilitation and maintenance of the Harare-Nyamapanda and Kwekwe-Lupane
roads;
Institutional support to the road sector; and
Labour based rural rehabilitation and maintenance of roads.

104

---

Had this program been undertaken to completion, it could have created employment
opportunities and enhanced trade through efficient movement of commodities within
the country and the region. In addition, the Labour-based Roads & Rehabilitation
Works program was established in October 1995, and was funded by the Swedish
Government to the tune of Sek10 million or (US$15.1million).

The program was aimed at rehabilitating 116km of roads as well as training
indigenous small scale road contractors. This was meant to enhance entrepreneurial
skills and capacity building for the rural population. However, no new programs have
been put in place because of Swedens suspension of co-operation with Zimbabwe

Health Sector

DANIDA suspended Health Sector Support Programs which were targeted at:

Supporting the provincial health service capacity building and
policy issues to Ministry of Health & Child Welfare (MOHCW);
Development of a gender strategy Support to HIV/AIDS
activities;
Integration of Zimbabwe Essential Drugs Action Program
(ZEDAP) to national laboratories;
Establishment of the health information system; and
Support to the Health Services Fund Transport Management.

The project was established in May 2000, and it was valued at DKK 235 million
(US$ 29.7 million). The project was suspended as a result of the Land Reform
Program. The suspension of the program subsequently affected the general health of
HIV/AIDS patients. The Health Sector Support Program, established in April 1997 by
the Swedish Government was funded to the tune of Sek 50 million (US$6.4 million).


105

---

The objectives of the project were as follows:

Improving water and sanitation;
Health education and conditions of the disabled; and
Prevention of the spread of HIV/AIDS related diseases.

Due to sanctions imposed on the country, the program was discontinued. Since 2000,
no new programs have been undertaken. Sanctions have indirectly resulted in the
relocation of the World Health Organisations (WHO) regional offices to Congo
Brazzaville, accompanied by retrenchment of Zimbabweans formerly employed by
WHO.

The Kaiser Networks Daily Reports of 28th November 2004 and AFP News Agency
reported that Zimbabwes grant application for funding for its HIV/AIDS programs to
the Global Fund was rejected on political grounds. Three quarters of the equipment in
hospitals in the City of Harare are not functional and this has had serious
repercussions on the ordinary people.

In the backdrop of an already overburdened health delivery system, many
Zimbabweans are finding it difficult to access affordable health facilities and drugs,
particularly antiretrovirals for HIV/AIDS patients. The City of Harare Health
Department immensely benefited from the various Joint Research Projects with
international stakeholders. These projects have since been terminated. The
Department used to benefit from such projects since it took over equipment used
during researches after the completion of research projects.

Global Fund

Zimbabwe has taken years of begging, kneeling and sweating for gaining access to
the Global Fund to fight Malaria, TB, and HIV/AIDS. Global Fund is one of the
biggest organizations in the world that provides funds to poor countries to fight

106

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Malaria, TB and HIV/AIDS. Since the establishment of the Global Fund in 2002,
Zimbabwe unsuccessfully applied funds to scale up its HIV prevention programs.

After a two year delay, the Global Fund approved a two year grant worth US$10.3
million in April 2005. Zimbabwes applications for grants for HIV/Aids programs
were rejected for unspecified reasons. Consequently Zimbabwe was unable to expand
and roll out antiretroviral drug distribution programs to rural areas. The Global Fund
also approved a US$ 65.2 million grant for Zimbabwe under Round 5 of its program
in December 2006. Under the fund, the National Aids Council received US$32.7
million for HIV/AIDS the Zimbabwe Association of Church Hospitals got US$3.19
million for HIV/AIDS and TB while the Ministry of Health received US$9.23 million
and US$20.12 million for TB and Malaria respectively.

Zimbabwes application for funds under Round 6 of the Global Fund was, however
rejected in December 2006. Zimbabwe remains sidelined by other donor initiatives
such as World Bank MAP initiative, US Presidents HIV/AIDS initiative.

Child Welfare

The Child Supplementary Feeding Program was initiated in October 1995. The
program was valued at Sek 10 million (US$ 1.25 million) and was completed in 1996.
The project was aimed at providing nutrition and health education for children under
5 years and strengthening preparedness for future droughts. Although the Swedish
government is still supporting the program; funds for its Humanitarian Aid are now
being channeled through Non-Governmental Organizations.

Regional Cooperation

Sanctions are affecting the smooth running of regional groupings such as SADC and
COMESA. The European Union through the European Development Fund
compensates COMESA member states for revenue losses suffered under the tariff

107

---

phase down exercise under specific conditions which take into account
macroeconomic policies and governance issues.

Zimbabwe has not benefited from the fund and this could affect, in the long term, its
tariff reduction process in line with other countries in COMESA, thereby
undermining regional integration initiatives.


African Growth and Opportunity Act (2000)

In 2000, the US enacted a new law called the African Growth and Opportunity Act,
(AGOA). AGOA offers tangible incentives for African countries to open their
economies, build free markets, and embrace political pluralism. Those countries that
adopt free market principles and are perceived to adhere to the rule of law and respect
human rights are, therefore, eligible under AGOA, to export a wide range of goods to
the United States duty free.

In a single year, the African Growth and Opportunity Act led to an increase in exports
from Africa to the United States by more than 1,000 percent, generating nearly $1
billion in investment, and creating thousands of jobs. This increase in trade included a
diverse list of products, among them apparel, cut flowers, and processed agricultural
goods.

Thirty-seven African nations have met the AGOA criteria and are eligible for the
trade incentives. Zimbabwe does not enjoy any preferential trade under AGOA
because of the sanctions imposed on the country by the USA.

It is evident from the foregoing that sanctions imposed on Zimbabwe have adversely
affected the vulnerable groups and the economy in general. Significant progress that

108

---

the country had made in the development of infrastructure, health and social service
delivery systems has been severely affected by the imposition of sanctions.

The protracted foreign currency shortages that the country has been facing since 2000
have crippled the operations of industry, which heavily rely on imported inputs for
their daily operations. Declines in the key sectors of the economy have occasioned
high unemployment, an inefficient health delivery system, reduction in FDI and the
drying up of balance of payments support. Sanctions are partly responsible for the
decline in economic activity over the last seven years.

109

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CHAPTER 7

7.
CONCLUSIONS, POLICY IMPLICATIONS AND
LESSONS

The empirical journey covered in this Thesis, as well as the instructive findings from
the surveys carried out are an important launch-pad for practical policy lessons to be
drawn. What has come out as a continuous thread running from country to country
among those that successfully turned around their economic fortunes is the following
set of features:

Countries that have gone through painful socio-economic phases have
emerged out of those difficulties much stronger, propelled by the resolve to
implement bold decisions.
Existence of a common vision, supported by active participation across all
levels, from the Government sector, to the Private sector, and among Civil
Society structures is an indispensable requirement for successful economic
turnaround programs.
Economic reforms are as strong as the underlying institutional frameworks
through which those policies are implemented. The countries that did well
focused more on putting in place credible, functional institutions.
Productive systems were anchored on the principles of sound business ethics
and viability.
Consensus was built through the adoption of a needs based engagement
process where concerns of Government, Labor and Business were given a fair
hearing, leading to middle-of the road compromise positions being adopted.
The international community has a supportive role to play in ensuring
successful economic turnarounds. In the intricate global village of
contemporary times, no country can go it alone.

110

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Strategic value was placed on first ensuring internal self-sufficiency in terms
of food availability as an anchor for inflation reduction; and
During extraordinary times, as was the case with the Great Depression,
extraordinary policy interventions were invoked to repel the adversities.

Zimbabwes economic history, itself revolving around the struggle for political and
economic independence has shaped the dynamics characterizing the countrys
stakeholder value-systems, degrees of cooperation and the general work ethic among
the population. Governments post-independence thrust of education for all has acted
as the dominant instrument in creating a rich pool of expertise in the countrys
productive systems.

This notwithstanding, however, at the institutional level, there remains wide gaps
between policy announcements and actual implementation, leading to unsatisfactory
results on the ground. Incidences of corruption, the fear to make decisions, a free-
rider mentality, existence of conflicting sub-visions, as well as limited coordination of
implementation programs emerged as areas that need urgent redress, as the country
refocuses its systems for better performance.

As is the case in virtually all other economies, the Government sector accounts for a
significant financial flows of the economy. Because of this, it is imperative that the
public sector acts as the engine for macroeconomic stability through fiscal austerity,
particularly in respect of cutting back on non-productive expenditures that are
primarily consumptive. Fiscal sustainability will not only save resources for the
fiscus, but also reduce the pressure on monetary aggregates which is typically
inflationary.

Policy sequencing also emerged as an important aspect in the strategic management
of economies. Good policies can come short on delivery if at the implementation
stage, logical progressions are compromised. In the case of Zimbabwe, a strategic
area that requires dominant attention ahead of everything else is the securing of food

111

---

supplies through full utilization of land. With food accounting for 32% of the
countrys inflation, policies that are directed at increasing the overall supply of food
are ultimate weapons against inflation.

THE POLICY SEQUENCING SHELLS





3. The Third

Inner Shell

(The Core):

With normality

in the food
sector and full

functionality of
infrastructural
and public

utilities
function,

implement
traditional
fiscal and

monetary
policies.


2. The Second
Inner Shell:

Get
1. The Hard
infrastructure
Outer Shell:

to be working
First fix and
(public utilities
get agriculture
and local

to work. (Land
authorities re-
utilization;
orientation)
mechanization,

availability of
finance; and

viable pricing)

112

---

With food supplies secured, it is logical to anchor overall macroeconomic stability
through the radical shake-up of the countrys infrastructure network, as well as the
functionality of public utilities and local authorities. Through this focus, the overall
supply side of the economy becomes more responsive to supportive stimuli.

Confronted with an increasingly hostile global environment, characterized by
declared and undeclared sanctions, Zimbabwe must expand its circle of friends
through continued engagement, as well as repetitive dialogue and presentation of its
views to those countries opposed to the countrys internal policies. Such open lines of
communication promote understanding, which in turn cultivates better prospects for
consensus-building.

In terms of prospects for the country, Zimbabwe must convert the vast natural
resource endowments into tangible assets for prosperity through effective promotion
of investment, particularly in the mining sector. The empirical reviews have shown
that the abundance of natural resources can itself turnout to be a curse if a country
does not fully and beneficially deploy those resources. The vilifications the country is
getting from some sections of the international community can not entirely be
separated from Zimbabwes mineral riches that are coveted by those countries.

Productive and sustainable exploitation of the mineral resources require that the
country puts in place supportive legal frameworks that give assurance to the investor
community that they will get fair returns on their capital, as well as assurances that
their investments will continue to be protected.

The route of the Social Contract is the most appealing and most viable for Zimbabwe,
given the history of numerous policy programs that have not been fully implemented
due to divergence of views and interests. The spirit of mutual trust must be built on
the foundation of open dialogue and active participation by all stakeholders, all in the
interest of emerging with a better and prosperous Zimbabwe. Without doubt, the

113

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fruits of close cooperation among stakeholders can never be anything short of
success.

114

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