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Zimbabwe's
economy in 2006: Goodbye (and good riddance) to 2005!
Sokwanele
January 09, 2006
http://www.sokwanele.com/articles/sokwanele/zimseconomy2006_5jan2006.html
Surely things
can't get worse! Or can they? Haven't we been asking this for over
5 years now?
What can we
expect from 2006 financially and economically? Let's take a look
at what we can expect of the new year - bearing in mind, of course,
that any form of prediction in Zimbabwe is whimsical, given the
proven tendencies of this regime to interfere with economic forces
in order to protect or better their own lifestyles, regardless of
the effect on the people they are supposed to be serving.
Will we see
any improvement to our standard of living?
The
short answer is "probably not". As many learned economists have
said, there will be no meaningful economic change until there is
political change. Why do they say this? Well, precisely because
of the tendencies of this regime to line their own pockets, to interfere
with exchange rates, interest rates, price controls, you name it.
For example, if I had a litre of fuel which I wanted to sell, I
could name my own price depending on where I went (rural or urban,
Harare or Bulawayo or Gweru, back-street or high street). In a perfect
economy, the price would be the same wherever you went within the
country; I would have bought it at a market-determined exchange
rate and, if I tried to ask more than the going rate per litre,
my customers would soon go elsewhere. Not so in Zimbabwe!
Inflation is
now running at 504%, a far cry from the target of 280-300% which
the Reserve Bank was predicting for the year to December 2005. Another
failure for Mr Gono!
We did see some
concessions in the recently announced budget for 2006:
- You can now
earn $7million dollars a month before hitting the tax threshold.
Seems good? Just like 2005, when we got $1 million a month tax
free at the beginning of the year - it seemed great at the time,
but as soon as inflation took hold, the $1 million began to look
less attractive. Just so, I believe, with the $7 million - only
the attraction will wear off sooner, as inflation will start the
year in excess of 500%.
- The upper
tax band for income earned from employment has been cut back to
35%, which is most welcome. It brings it a step closer to the
tax levels for companies which have been at 30% for some years
now. However, this benefits precious few Zimbabweans - most do
not have jobs.
- VAT will
be reduced to 15% with effect from 1 January 2006. This is again
welcome, but will bring little practical relief to the consumer,
who is faced with prices rising weekly on all commodities, including
essentials. At least the regime will be getting less of our hard-earned
money, which is some comfort!
- Carbon tax
will now be payable on a more equitable basis (think of all those
commuter omnibuses spewing carbon-laden fumes everywhere, who
were paying the same amount of carbon tax as you or me!) - it
will now be collected at a rate of $1000 per litre on purchase
of fuel.
- Thinking
of dying? Your relatives will have quite a bit less estate duty
to pay. The tax-free threshold has been increased to $1 billion,
after which your estate will be taxed at a flat rate of 5%. This
will be little benefit to the majority of our countrymen, who
own little more than the clothes that they wear; a few pieces
of furniture - the bare essentials, and often having seen better
days; a bicycle and a radio, and maybe a TV (to watch the propaganda
channels of the regime); maybe a mombie or two (cow); that's all.
Not many of them will have a house or other property valued at
over $1 billion, nor will they ever hope to do so while this regime
remains in power! Remember too the exponential increase in funeral
costs, hitting the bereaved family with a double-whammy - dying
isn't cheap in Zimbabwe these days.
- Companies
will now be paying tax on 70% of their estimated 2006 earnings
in 2006 itself. What an indictment on its own record! The authorities
used to levy tax in arrears on companies and so forth - but which
government can afford to do that when inflation is running so
high? If I had a million dollars in tax to pay for 2004, by the
time I came to pay the last $250 000 of that tax in November 2005,
it would be worth a sixth of its value by the time the regime
got its hands on it (good for me, bad for them)! By 2007, they
plan to collect 100% of the estimated tax due for that year in
that year itself.
What about
the exchange rate?
Mr
Gono promised us in October that he was taking steps towards a truly
floating exchange rate! Yaaaaaayyyyy, I hear you cry. But this is
Zimbabwe, the land of double-speak! The idea was that exporters
would be able to convert 70% of their export earnings to the local
currency at a market-determined rate. Never mind that the remaining
30% would still, for the time being, be converted at the rate of
$26 000 to the USD (unchanged, I understand, from that time until
the present); be thankful for small mercies.
For a few short
days, the system seemed promising - the bank rate for converting
that 70% whizzed up to the real, parallel, rate. But within days,
it had mysteriously settled round about $60 000 or so, and finished
by ending the year at about $85 000. This is despite the parallel
rate going up, down, and back up again in the meantime (and now
sitting at over $100 000 to the USD)! The regime needs to get its
money cheaply, and it just wasn't getting it cheap enough, it seems.
We wait with
bated breath to see if there will, indeed, be exchange rate convergence
by December 2006.
And the promised
new currency?
Call
it what you like (the Bob, the Gono, the Kwacha….), a new name won't
change its value. So they might lop off a few noughts - so what?
- it will still buy the same few items that it bought before. Lots
of countries have tried this before, but it hasn't improved their
economies, nor the lot of their hard-pressed people.
2006 will not
be a good year for anyone except those within and close to the regime,
for so long as this regime remains in power. With life expectancy
a scant 34 years, with the population decimated by AIDS, and tired
of going to funerals, and with most of its productive population
having fled the country, what can we look forward to?
Do we care enough
about our country to take its future into our own hands and bring
about non-violent change? If Zimbabweans will do nothing, then we
can only expect further drift and decline - and even greater suffering
- under ZANU-PF mis-rule.
The question
we leave with you is "What are YOU going to do about it?"
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