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Zim needs divine wisdom to stay afloat
Charles Rukuni, The Financial Gazette
May 12, 2005

http://www.fingaz.co.zw/fingaz/2005/May/May12/8456.shtml

BULAWAYO - Zimbabwe is heading for an economic catastrophe and only divine wisdom among its leaders can save the country from total collapse, a leading businessman says.

Zimbabwe National Chamber of Commerce president Luxon Zembe said if the leaders persisted with their current policies, the little gains that the country had so far achieved in its turnaround programme would be wiped out and the country would head for a real collapse.

Bulawayo-based business consultant Eric Bloch, one of the 60 or so advisers to central bank governor Gideon Gono, said things are likely to get worse if the government continues with its current policies that are undermining all the gains made by the central bank.

"Gono is trying to keep the ship afloat but the government is drilling holes in that ship," he said.

The country was heading for collapse in 2003 when it was rescued by the central bank which introduced tight monetary policies that saw inflation decline from over 600 percent to just over 120 percent.

Fuel suppliers almost returned to normal. Commodities that had disappeared from supermarket shelves and were only available on the black market were back. Even the black market in foreign currency disappeared — at least during the first quarter of last year.

But all this has been reversed.

Bloch said the economy was collapsing because the government was not prepared to modify its policies to match the monetary policy of the central bank.

"As long as we continue to pursue policies that alienate investment, both local and international, there is no possibility of a turnaround," Bloch said.

He attributed the present stalemate to three key issues - the collapse of agriculture, the negative image of the country and government's constant intervention in prices.

"Agriculture is the foundation of the economy but there had been near total collapse of agriculture with current output now 35-40 percent of what it was in 2000," Bloch said.

The government has accused the international community of punishing the country for its agrarian reform programme which saw white farmers lose their land to new settlers.

Zembe said the government had pumped a lot of resources into agriculture last year but at the wrong time because the country had been hit by a drought.

"We had been warned about the pending drought by the SADC early warning unit but we ignored the warning, and now we have been hit hard," he said.

He said the problems the country was currently facing were all linked to supply and demand. The country was not generating enough foreign currency because the exchange rate was not competitive.

"As long as the gap between the official rate and the parallel market rate remains wide, there is no way people will offload their money onto the formal market," Zembe said. "That is a natural phenomenon. People with money will capitalise on that gap because the benefit is worth the risk."

Zembe said there was also too much reliance for foreign currency on the central bank. It could not accommodate everyone.

"We need to open up relations with the international community," he said. "Let's not be arrogant about that. Yes, China has come in but we need more friends and not just one. We need money to come in through credit lines so that we can relieve pressure on the RBZ (Reserve Bank of Zimbabwe)."

Bloch said it would be difficult for Zimbabwe to attract any foreign currency apart from humanitarian aid as long as it continued to project the wrong image. Even tourism, which was about to surpass tobacco as the country's major foreign exchange earner before the present crisis, would not improve because Zimbabwe continued to be perceived as a country with a totalitarian and dictatorial government which had no respect for the rule of law.

On price controls, Zembe said this was a war the government would never win. It had been tried before and had failed dismally. He said with unemployment at around 70 percent and the current drought, people were finding survival strategies.

"We have created a breed of speculators who are relying on shortages. Price controls will therefore not solve anything. In fact they can create a political crisis if the government continues to harass those trading on the black market without creating jobs for them. We have to create jobs and we can only do that by creating a vibrant and dynamic economy," Zembe said.

He said government was also not paying enough attention to the productive sector. Rentals, for example, had gone up by over 1 000 percent over the past year, rates had gone up by over 500 percent, wages by an average of 300 percent and there is pressure to increase electricity by between 150 and 400 percent.

"The government cannot therefore insist on price controls because pricing depends on how much you get your inputs for," Zembe said.

Bloch said most of the current shortages, such as those of fuel and sugar, were due to the government's price controls. He said fuel companies were currently selling it at less than the landed cost and the National Oil Company of Zimbabwe, which gets the bulk of the foreign currency allocation for fuel, was incurring huge losses. He said for fuel companies to be viable they had to sell the commodity for not less than $7 500 a litre.

The government's pricing policy is also full of contradictions. Observers said this will not solve the current problems but will worsen the situation.

The government, for example, recently increased the producer price of maize to over $2.2 million a tonne but said the Grain Marketing Board's (GMB's) selling price to millers would remain at $600 000 a tonne.

Its Macro-Economic Policy Framework for 2005-2006, released in November last year, clearly states that: "To strengthen the capacity of the GMB to support farmers, both at the production and marketing stage, government will ensure that GMB selling prices take account of its purchasing price as well as its handling costs.

"Failure to do this in the past has left the GMB facing accumulated losses and debts, estimated at $147.79 billion and $155.5 billion, respectively, in 2003."

One observer noted that this skewed policy opened doors for corruption.

"Under such circumstances," the observer, a former staunch supporter of the ruling ZANU-PF, said, "a miller makes more money by buying maize from the GMB, repackaging it and selling it back to the GMB than milling it."

This might appear far-fetched but it happened during the 2002 drought and is already happening with fuel where taxi and commuter operators are making more money from selling fuel on the black market than transporting people.

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