Dealing with the consequences of Zimbabwe

The face of Africa's shame

Sometimes those consequences aren't visible for a decade or more. A political decision in 1998 not to invest in new power stations – for instance – can result in catastrophic power failures some ten years later.

Now we have Zimbabwe.

The result of direct political intervention to abolish property rights and remove individual freedom has its consequence. The Zimbabwe dollar is now worth around Z$70 million to the US dollar and all prices double, on average, every month.

If you're a school teacher on a fixed salary then each month you can buy half the food you bought the month before. Until, eventually, you can buy nothing at all.

There are few countries that have suffered the horrors of hyper-inflation as bad as Zimbabwe's. Each of them has found that it is a long and awful road back from that level of economic collapse.

Right now a lot of economists and financial strategists are scratching their heads and sharpening their pencils as they attempt to figure a way to stabilise what used to be one of Africa's most dynamic economies.

The first step is to get rid of the Zimbabwe dollar. Zimbabweans already don't have any use for it and the currency is so devalued that it is far too expensive to print. The two currencies available for alternative use with which Zimbabweans are familiar are the US dollar and the South African rand.

The US dollar poses concerns about exchange controls with what will have to be Zimbabwe's only conduit to the world, South Africa. So it is likely that, no matter what, Zimbabweans will adopt the rand.

South Africa runs significant risks in taking on Zimbabwe's problems. Three or four years ago, when our own economy was still expanding and power problems had not made our own manufacturers nervous, Zimbabwe would have been a small province of South Africa. Now, if we print billions of rands for use in Zimbabwe we could run the risk of destabilising our own economy.

Zimbabwe has already tried Black Economic Empowerment and Land Redistribution. The results have been unpleasant and Zimbabwe may be willing to try the alternative of a free and open market economy. If they do that, and have direct access to the South African economy, this would provide a significant jolt to South African manufacturing.

With low costs in Zimbabwe, many manufacturers (especially for textiles) may choose to relocate to the other side of the Beit Bridge.

This is a good thing for regional development. South Africa, as the only operating economy in the region (discounting both Botswana and Namibia as being microscopically small), has embarked on a very distinctive experiment. Here we have redistributive and punitive race-based economic policies with no nearby alternative experiment for regional businesses to choose from.

A stable and open Zimbabwe linked to South Africa through a common currency, but with a different legal and property framework, would provide a competitive market. If the millions of Zimbabweans currently struggling to work here go home, then South Africa gets the competition it needs to focus its mind.

Try and imagine a country of 15 million people, all working hard and determined to recover their lives. An African country not bothered about the racial make-up of business ownership, right next door to South Africa. Zimbabwe can be South Africa's wake-up call to abandon the self-congratulatory hubris of being the region's only economic muscle.

In the mean time though, we all have to wait out the shameful and corrupt backroom horse-trading going on that will hopefully ease Comrade Bob out of office before he manages to unleash a Kenya-style civil war.