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When Is a Coup Not a Coup?

Chris Kuehl, Ph.D.

The military in Zimbabwe has placed President Robert Mugabe under house arrest, has blockaded access from the palace guard, has taken control of the media and has positioned troops in all key transportation sectors. But allegedly, this is not a coup; this is a “correction.”

It seems that every nation has learned how to stretch the truth to the breaking point and far beyond. It is a coup and one that has been developing for a long time. The trigger seems to have been the push by Grace Mugabe to take over from her husband when he dies (an event that is imminent). The long-serving Vice President Emerson Mnangagwa is very close to the military and fully expected to be the new leader. With the coup, this is very likely to happen now.

What does this mean for the region or the world as a whole? This was once a country that played a pivotal role as far as the economy of Africa was concerned. It was a major food producer and had a thriving commodity-based economy. The country was well-educated and sent many of its students all over the world.

That all stopped about 20 years ago as Mugabe slid inexorably into madness and despotism. Mugabe has ruled Zimbabwe with an iron fist since the nation gained its independence from Great Britain. He was initially revered as the man who led the rebellion against the British and subsequently white rule when the nation was known as Rhodesia. For the first decade of his rule, he held tyrannical power but seemed committed to the growth of the country and managed to get along with the white population as well as the black population. For a variety of reasons, that reasonable Mugabe began to vanish, and he became capricious and vindictive. It was rumored that he suffered from mental illness brought on by his bouts with various diseases; others simply ascribed the change to the corruption of absolute power.

His country soon became a failed state that could not feed itself because the white farmers were expelled and the black business community was corrupted. Inflation has become rampant, and the economy has been in tatters for years. It seemed that he would be overthrown at any moment, but he skillfully used his army and secret police to stay in power.

Now, he is 93 and in very poor health. He is trying to install his 52-year-old wife in his place and has tried to get rid of his opposition. This move has prompted that long-awaited coup attempt as the army has revolted and taken to the streets.

It is not that anybody expects radical reform under Mnangagwa and the military, but there is some hope that reform will allow economic recovery to a degree.

Perhaps most importantly, this may help apply pressure to South Africa’s ruler, Jacob Zuma. He has also become more and more despotic and that had hampered the growth that South Africa should have been enjoying through the last decade or so. Mugabe is really one of the last of the old revolutionary leaders who fought against the colonial powers and his removal from power could be a real signal.

The tragedy of Zimbabwe is that none of those who are jockeying for power have the slightest interest in the reforms that would repair the economy or improve the status of the population. All involved are corrupt and venal, and the fight is over who gets to control that corruption. This desperately poor nation also features a lot of extremely wealthy people who hold the levers of power. The coup is to deny Grace Mugabe access to these levers so that the current holders of influence can hang on to their wealth and privilege.

EU Businesses Say Goodbye to U.K. Suppliers

Nearly two-thirds (63%) of EU businesses that work with U.K. suppliers expect to move some of their supply chain out of the U.K. as a result of Brexit, according to a survey from the Chartered Institute of Procurement & Supply. This is a dramatic shift from May, when just 44% of EU businesses were expecting to move out of the U.K.

The survey of 1,118 supply chain managers in the U.K. and Europe also finds that 40% of U.K. businesses with EU suppliers have begun the search for domestic suppliers to replace their EU partners, up from 31% in May. Just over a quarter, however, are taking the opposite approach and investing more time to strengthen their relationships with valuable suppliers on the continent.

The shift comes as the Brexit negotiations appear to be deadlocked, with half of U.K. businesses saying they are becoming less confident that the U.K. and EU will secure a deal that continues to offer “free and frictionless trade,” while 35% of U.K. businesses feel unable to prepare due to the lack of progress on a future trade relationship.

As a result, one in five U.K. businesses with EU suppliers have found it difficult to secure contracts that run after March 2019. Despite a formal separation still some time away, nearly one in 10 of U.K. businesses said their organization has already lost contracts as a result of Brexit, with 14% believing part or all of their organization’s operations will no longer be viable.

Supply chain managers are clear about where the government should focus. As the next phase of the negotiations begins, 73% say that the main priority for the negotiations should be keeping tariffs and quotas between the U.K. and Europe to a minimum. 

The survey finds the following:

  • 63% of the EU businesses surveyed plan to move their supply chains out of the U.K.
  • 20% of them are struggling to secure contracts that run until after March 2019.
  • 15% have postponed or canceled contracts due to the uncertainty created.
  • 25% of large U.K. businesses polled have spent more than £100,000 preparing for Brexit.

A quarter of U.K. businesses with more than 250 employees have already spent at least £100,000 preparing their supply chain for the split. These costs come in addition to the daily impact of currency fluctuation, with 64% of U.K. businesses saying this has made their supply chains more expensive to manage. Businesses are still not doing enough to adequately prepare, however. Only 14% of U.K. businesses with EU suppliers feel like they are sufficiently prepared for Brexit.

These findings were drawn from a survey of 1,118 supply chain managers worldwide who were asked on their views and reactions toward Brexit.

One Year Later: How Demonetization Has Impacted India

October marked the first anniversary of demonetization in India, and it has undoubtedly changed the country forever. When I visit India, I increasingly see microtransactions conducted via mobile phones. Cash is still used, but I see less and less of it with each visit. We are in the middle of a true paradigm shift—and India is poised to become a global leader in new types of payment acceptance.

Mixed Results Following Demonetization

From a macroeconomic perspective, reports have indicated that the early stages of demonetization have produced mixed results:

  • 90% of cash that was in circulation has been returned to the banking system. This (cash) can be loaned out and increase the GDP to burgeoning entrepreneurs.
  • More taxes are collected due to higher bank balances, which can lead to a decrease in the tax rate, spurring economic spending.
  • Farming and automotive experienced adverse impacts due to a lack of available cash.

Impact of Demonetization on Payments

Now focusing on payments, the data available supports what I have seen firsthand. The government had set an ambitious target of 25 billion cashless transactions in 2017. While this may not be reached, digital payment transactions are up 53% in terms of value and up 33% in terms of volume, with volume growing at a rate of 7% each month.

Reserve Bank of India statistics show that the growth in digital payments was uneven. UPI (Unified Payments Interface) grew at a compounded monthly rate of over 100% in the first six months following demonetization. Comparing monthly volume in July 2016 and 2017, mobile banking volumes grew at a compound annual growth rate of 75% and Immediate Mobile Payments System (IMPS) grew at 115%—clearly staggering growth in volume and rapid adoption of these new digital payments.

Card-based payments, by comparison, grew meagerly at less than 5% in the first six months. Admittedly, the card payments base dwarfs that of new payment types such as UPI and IMPS, but this gives us a glimpse of what the future may hold.

New Payment Infrastructure and the Network Effect

The IMPS and the UPI protocols support instant payments using mobile phones. The early results indicate that the regulation was a catalyst for significant growth of nontraditional digital payments. New payment applications, such as the Bharat Interface for Money (BHIM), have been built on this new infrastructure.

A significant barrier to overcome for new payment types is the lack of a network of consumers, banks, intermediaries and retailers needed to use and accept the new method. However, BHIM has been designed to be different and overcome these network challenges. It eliminates the need for bank applications and intermediary transfers while allowing anyone with a bank account and smartphone to make a payment. BHIM also allows users with Aadhaar cards to make payments to others with an Aadhaar number. This effectively opens the marketplace to millions of new Aadhaar-enabled bank accounts. Out on the streets, I have witnessed more and more merchants accepting this method of payment. My eyes are not lying—and the network of retailers needed for a new payment type to be successful is growing.

The Future of Payments in India

India, much like the rest of the world, is facing several “mega trends” in the payments market. Those that will have the most significant impact in India include the shift from customer experience to engagement, trust in digital transactions and new technologies, as well as the longitudinal trend of the blurred lines between commerce and payments.

I will explore these trends in a future post and outline what they mean for India, but I will close by posing a final question: Has demonetization and the new digital infrastructure positioned India as a leader in digital payments?

Given the growing demand and sheer volume of people using these new digital platforms within just one year, it would not surprise me in the least if India emerged as the benchmark for digital payments.

Reprinted with permission from ACI Worldwide.

Election Calendar

Nov. 26 – Honduras, Honduran National Congress

Nov. 26 – Honduras, President

Global Roundup

EU watchdog tightens grip over use of foreign credit ratings. The European Union’s markets watchdog has tightened its grip over the use of credit ratings compiled outside the bloc in a taste of what the “Big Three” ratings agencies in London face after Brexit. (Reuters)

Citizenship fiasco threatens economic confidence in Australia. Political turmoil in Australia risks undermining fragile economic confidence as the loss of another lawmaker in the dual-citizenship fiasco left Prime Minister Malcolm Turnbull leading a minority government. (Bloomberg)

Pinera likely to win Chile elections, but runoff expected. Four years after leaving office as a deeply unpopular leader, Sebastian Pinera was a strong favorite to win last week’s presidential election in Chile. A flagging economy and other stumbles by the center-left government of Michelle Bachelet appear to have warmed Chileans' memories of Pinera, a billionaire businessman who oversaw economic growth averaging 5.3 percent yearly during his term from 2010 to 2014. (ABC)

EU governments agree to review Chile trade deal. EU governments agreed Nov. 6 to update the EU-Chile Association Agreement, with a first round of talks Nov. 9. The deal is geared heavily toward food, as well as machinery and transportation. (EurActiv)

German banks prepare for hard Brexit, in ‘advanced’ stages of relocating from London. German banks are preparing for a so-called “hard Brexit,” and the spoils of the U.K.’s departure from the European Union could be shared by other European cities, according to German banking and finance officials. (HSN)

EU audit admits Greek bailouts didn’t go as planned. Greece’s successive bailouts have only met their objectives to a limited extent as economic growth remains weak, debt has increased and banks’ ability to lend is still restricted, according to a report by the European Union’s auditors. (HSN)

Trade to help global economy recover in 2018. The global economy will continue to grow strongly in 2018, with trade becoming more of a help than hindrance to economic growth. At a recent briefing with Hong Kong’s media, National Australia Bank (NAB) economists revealed their forecasts for the coming year, with global GDP set to expand by 3.6% in 2018 and 3.8% in 2019, up from 3.4% in 2017. (GTR)

The new geopolitics of trade in Asia. The APEC Leaders’ recent summit meeting crystallized the new geopolitics of trade in Asia. The leaders of the three largest economies in the world—the United States, China and Japan—each redefined the roles their nation will play in the postwar trading order. Little is assured on how free trade and multilateral undertakings will fare as the three giants reposition themselves in their leadership bid. The only certainty ahead for us is that it will be a bumpy ride. (Global Trade Magazine)

Defiant Mugabe makes first public appearance. Zimbabwe's President Robert Mugabe has made his first public appearance since the country's army took over on Nov. 8. Mugabe had been under house arrest for days. The army made its move after a power struggle over his successor. (BBC)

Trump in Asia: A break from the past but uncertain results. President Donald Trump declared his first Asian tour “tremendously successful” as he hopped on a plane bound for Washington. But when he landed at the White House late Nov. 7, he arrived with few concrete accomplishments in hand. (Associated Press)

Exporting to Japan: What you need to know. The United States’ relationship with Japan is an interesting and complex one—Japan’s culture, large middle class, aging population and turbulent economic history blend to create an environment that makes exporting to Japan both promising and, in some cases, difficult. (Shipping Solutions)

 

Week in Review Editorial Team:

Diana Mota, Associate Editor and David Anderson, Member Relations