The last two decades of the 20th century saw a dramatic surge in the levels of economic integration across national boundaries. This has been due, first, to the revolution in information technology, which made telecommunications more accessible, international transport more streamlined, and investors more mobile. Second, in the aftermath of the Cold War international relations have shifted, both politically and economically, to a greater emphasis on market forces. The outcome of policies being shaped by this range of interests has been a market-led approach to economic management, a reduction of state involvement in the economy, privatisation of service delivery and deregulation of the economy, including the removal of trade barriers.
With exposure to global trends, the need to be competitive has increased, and the ability of the state to control its economic and political environment has diminished. States remain vital parts of the global system, but their roles are increasingly defined in relation to other players. Municipalities need to understand the enhanced role of multinationals and the role of multilateral organisations. In relation to infrastructure, this includes the World Bank, the International Monetary Fund and regional bodies. Municipalities must also become familiar with, and understand the influence of, the new mobility of participants in the global economy and the factors that affect their decision-making. Because investors choose investment locations on the basis of factors like the quality of infrastructure, tax regimes and planning flexibility, city management is proving increasingly critical in their ability to attract international investors.
As deficit reduction and public sector reform have become major indicators of the quality of economic management, the fiscal restraint required in this international context means that governments face the challenge of balancing this with the other financial pressures. In particular, while attracting foreign direct investment and increasing employment opportunities by fostering economic growth and development, government has also to confront poverty and work directly towards poverty reduction. This is one of the major policy tensions that affect economic policy generally, and the involvement of the private sector in service delivery specifically.
In 1997, Gweru City Council in Zimbabwe agreed to launch a PPP in water and sanitation services in the city. The preparation process entailed many of the actions and approaches associated with PSP best practice. There was also significant national support, and a national task force assisted Gweru and other councils that were willing to explore private sector involvement at the local level. Yet, by mid-2001, Gweru City had still not signed a final agreement. Mounting political unrest and macro- economic turmoil led to growing caution on the part of the private operator. The experience of Gweru City Council demonstrates powerfully how the macro-economic environment, and the political developments that shape that environment, determine the scope for PSP. Despite a cautious preparation process involving a range of stakeholders, including the Zimbabwean government, the political and economic instability of the country has to date prevented a water concession agreement being finalised. The political and economic instability in Zimbabwe is now a matter of widespread international concern. In 1980, at Independence from the UK, the average income per person was US$950, and a Zimbabwean dollar was worth more than a US dollar. The government actively pursued policies to promote a more equitable life for the citizens, and focused particularly on improving health and education services for those who had been disadvantaged under the colonial regime. However, during the 1980s the country developed large budgetary deficits. By early 1991, the rising unemployment led the government to accept a stringent economic structural adjustment programme (ESAP). As a result, policies of liberalisation, deregulation and macro- economic stabilisation were adopted, mainly to improve the balance of payments and increase foreign investment to stimulate growth and employment. By the mid-1990s, unemployment was estimated to be running at 25-30%, the budget deficit rose, and public borrowing amounted to 10% of GDP. International agencies like the IMF, the World Bank and the EU withheld financial assistance and development support. By the late 1990s, some government policies invited further international disapproval, and undermined international confidence. Prominent among these were a decision to pay out (unbudgeted) pensions to war veterans and political detainees, and a threat to expropriate land belonging to white commercial farmers. In 1998-99, the government spent approximately one-third of its annual budget on the Congolese war and failed to repay IMF loans. By 2000, the land issue had become a major source of tension between Zimbabwe and some of its major trading partners, including the UK. This situation has since escalated amid concerns about government curbs imposed on opposition parties and the press. By 2000, the country was hampered by a scarcity of fuel and sporadic power cuts. Unemployment had reached 50%. The central government also gave pay rises of 60-90% to civil servants. The net result has been an even greater shortage of international currency and a failure to meet balance-of-payment obligations. Inflation averaged about 50% for the financial year 1999-2000, and international confidence is at its lowest point since Independence. Investment has therefore been seriously curtailed. During the period in which the Gweru Concession was being formulated, the Zimbabwean currency suffered from massive devaluation. When the tender for Gweru was advertised in November 1997, ZD 18 was equal to US$1; this was followed by a plunge to ZD 40 in late 1998. With inflation peaking at 70% in October 1999, confidence declined further. By December 2001 the value was around ZD 80 to US$1, with an average inflation rate of well over 50%. As an agricultural centre with a limited industrial base, the problems of the country are directly reflected in Gweru, and the well-run council has been badly affected by national government actions. Yet Gweru City Council's initiative was nonetheless a bold one, testing new options and preparing an ambitious concession contract that attracted great admiration from consultants and the private sector. With economic confidence at particularly low ebb, however, the concession seems unlikely to be signed soon, if ever. With a Memorandum of Understanding in place, the city council and the private contractor entered a renewed round of talks to resolve a revised business plan. The contractor argued that the main issue was tariff policies; but having resolved this, the city council is in little doubt that the increasingly unstable economic and political environment is the biggest impediment. The future of the whole initiative, which was in preparation for more than four years, remains uncertain.
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