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Publications, 2/1/2000

Eight Development Credits for Zimbabwe in 1980-1991

Sergon Oy; Secwatt Oy

Report of Evaluation Study; Blue Series 2000:2
Ministry for Foreign Affairs, Department for International Development Cooperation
ISBN 951-724-322-7
ISSN 1239-7997


EXECUTIVE SUMMARY

1. This report is to evaluate the eight Finnish Development credits granted to the Republic of Zimbabwe during the years 1980-1991. The total amount was FIM 345 million. The credits were to be used to finance commercial and public sector procurements considered to be beneficial to the economic and social development of the country. The moneys were used as planned and the last deliveries under this package were made as late as in 1997.

2. The Government of Zimbabwe has serviced the Credits up to the end of 1999 with some minor delays of instalments, however the first payment of 2000 maturing June 30th remains due and it seems that the capacity of the country to service its official foreign debt has quickly deteriorated due to arbitrary and erratic economic management by the President of the Republic.

3. The Credit documentation was simple and straight forward with very little conditions or statements of special goals. The Credit amounts grew steadily, the first being FIM 15 million and the last FIM 150 million. Not much bureaucracy was established to administer the Credits in either end. The main terms were as follows: Interest rate: three quarters of one per cent (3/4%) per annum. Payment dates: June 30 and December 31. Repayment: in 35 equal semi annual instalments. Grace period: the first instalment starting on fixed date (on the average about seven years from effectiveness). Currency: Finnish Mark (FIM). Portion tied to procurements from Finland: 80% for the Credits I-VII and 60% for Credit VIII. Solving of disputes: through diplomatic channels.

4. In reality the Credit financing was used to a large extent for covering Zimbabwe’s budget deficit. However, the disbursement were made to finance purchases of Finnish goods and services. In practice Zimbabwean public or private sector buyers after reaching an agreement with a Finnish seller, applied through their Ministry of Finance and Economic Development the right to use these funds. The private sector companies had to submit bank guarantees to prove availability of corresponding amount of domestic currency at delivery of goods. No on-lending was extended to private companies, 100% on-lending took place in most case of the investment goods purchases by the parastatals, such as the Electricity Supply Authority (ZESA) and National Railways (ZNR) and Forestry Commission (FC). The on-lending to the parastatals was in local currency at subsidised interest rates and in most cases for shorter term than the actual Credits. FC seemed to have the best on-lending terms with no repayments at ¾% interest added to capital with no interest on capitalised interest. About 44% of the purchases from Finland were by private companies and 56% were by parastatals.

5. In connection with each Credit some preferred sectors of industry were mentioned in the documentation. Typically they were sectors where Finland had strong suppliers of machinery or raw materials, such as forestry, electricity, telecommunications, mining, farming and manufacturing. It was also mentioned that other sector could be mutually agreed at a later stage if necessary. In practice there were great deviations from the initially agreed sectors. From Credit VI onwards the programme took almost a form of an Import Support Program and the selection got wider. The sectoral distribution of the total purchases from Finland were as follows: energy 38%, forestry and paper industry 29%, mining 8%, telecommunications 5%, agriculture 5%, manufacturing 11% and transport 4%.

6. It was not possible to evaluate the development impacts of the budgetary support element of the Credits due to comparative small amounts distributed over a long time span. However, it can be said in one hand that because of Finnish Credits and the much larger amounts provided by other donors Zimbabwe managed to create a relatively efficient education and health system. On the other hand the Zimbabwean Government has not been able to perform in accordance with the various structural adjustment programs agreed upon with the IMF, the World Bank and the major donor countries. The latest well publicised events have charged their toll. The economy has been almost completely ruined by erratic and arbitrary action taken by the top executive of the country. Such as supporting illegal farm occupations, promoting social unrest and paying huge pensions for war veterans by printing new banknotes and in the same time making the currency to plummet. The President also sent Zimbabwean troops to participate into the civil war of the Democratic Republic of Congo. Unfortunately the once successful education and health programs are now also in a verge of collapse due to current economic difficulties. No reliable statistics were available on the latest developments.

7. Although there were no specific criteria nor requirements to appraise the applications for disbursements under the Credits it appears from interviews and answers to the sent questionnaires that practically all the purchases from Finland made sense and the goods received were of acceptable quality and suitable to local conditions. The pricing by Finnish suppliers was found normal or somewhat on the high side. The pulp shipments were found to be of perhaps unnecessarily high grade and costly for the use but not unsuitable. Of course the reliability of these received answers is limited due to the long time that has passed and diluted memories. However, the Evaluation Team inspected sample items and found some even 18 year old pieces of machinery still operative and in use. It should be pointed out again in this context that the buyers abused their own monies for the purchases and therefore little risk was involved. Consequently, no appraisal or control bureaucracy was necessary.

8. No environmental conditions were attached to he Credits and therefore no records existed regarding this matter. The Evaluation Team did not note any negative environmental effects caused by any of the Finnish supplies other than normal developing country problems such as that diesel engines are used still artery their normal live span is over and they start polluting the air much more than intended. A good part of the Finnish supply was raw materials and consumables which had been used a long time ago and there were no ways to determine their possible environmental or other impacts.

9. Alleviating poverty, promoting democracy and human rights, gender issues and other gross-cutting issues were not in any way mentioned in the credit documentation and therefore no analysis of achievements of goals was possible. However, the Evaluation Team asked related questions in questionnaires and interviews and found no negative developments caused by the Finnish supplies other than those typical in normal conditions in other developing countries. Unfortunately Zimbabwe is developing to a very bad direction in most, if not all, of these matters. A large variety of human rights violations are reported in connection of political violence. Racism against whites is promoted by the top executive who called the white farmers “enemies of the nation”. AIDS epidemic has caused drastic changes in family and other social structures. Unemployment is completely out of control and causes deterioration of the nation’s moral. The social safety net has almost collapsed. Life expectancy at birth has fallen alarmingly to 40 years (WHO’s new “health life expectancy” is only 32,9 years). The twenty year practically one party rule has corrupted the civil service system. There is barely nothing left of the promising land for development where the donors rushed in after 1980 new independence. Of course none of this is in any way derived from the Finnish Credits. A positive fact is that the parliamentary elections in this June united the opposition, which under difficult conditions gained enough seats to block total arbitrariness and to start even procedures to impeach the President. Of course with little prospects for success.

10. In principle the Development Credit as an instrument for development was justifiable under the liberal approach conditions prevailing right after the Lancaster House Agreement which sealed the independence of Zimbabwe in 1980. The intention of the donors was to let democracy work and decide what development policies were necessary. Regardless of the good intentions and official rhetoric of the leadership at that time, the country slid into one party dictatorship run by a politburo and the party chairman, Mr. Mugabe. During the eighties the donors’ budget support did not contain many, if any, policy change requirements which could have improved the structure and in the future lead to a more balanced budget, enhanced revenues and accelerated economic growth. Only in the nineties the structural change thinking gained momentum among the donors but the success was temporary and limited.

11. The Evaluation Team made among others the following conclusions:
· The developmental objectives and targets of the credits were vaguely determined.
· The budget support element of the Credits together with other donors’ funds did not lead to a more balanced budgetary practices, not did it create improved competitiveness or good conditions for economic growth. However, it created a reasonably good education and health systems but obviously not on sustainable basis.
· The Credits were only modestly relevant and efficient but, however, provided Zimbabwe with a good supply of Finnish investment and other goods which were suitable for the conditions and served their purpose well. Especially the mining, forestry and electricity transmission and distribution equipment had a meaningful impact and proved efficient and competitive along with some machinery for manufacturing, such as cable making machines.
· Private sector did not receive any actual Credit on-lending, only access to foreign exchange. Due to shortage this greatly facilitated the operations of many companies.

For other conclusions see the main report Conclusions section.

12. The Evaluation Team recommends that Development Credit as an instrument could be used only under such circumstances where; a Government has an approved structural adjustment program and has credible intentions to follow it and sound economic and budgetary policies. Development Credit could be used to fulfil temporary gaps, boost growth and to tin a way buy difficult economic decisions. The Team sees no possibility for Finland to intervene in Zimbabwe before the political deadlock is solved, although the Zimbabwean private sector is in great need of help.

For other recommendations see the main report Recommendations section.

This document

Updated 7/20/2006

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