Back to Index

The Hotseat" talks to Economist John Robertson
Violet Gonda, SW Radio Africa
August 23 2005

Violet: In the programme " Hotseat" today we have economist John Robertson giving us his analysis on the economic crisis in Zimbabwe. Mr Robertson, the stock market is considered as one of the main barometers of the health of any economy in any country. Now what is happening to the stock market and how exactly has it been affected by the 10% witholding tax that was announced by the Finance Minister last week?

John Robertson: The Stock Exchange in Zimbabwe is not as good an indicator as it would be in most countries. The Stock Exchange has recently had a lot of support because people with money to invest were getting a very poor rate of interest; the government having decided that it would suit them very well if they could pay very low rates of interest on their enormous debt. So they dictated the interest rate at very low levels, but of course, that meant that people were not saving, and those who were saving were preferring to put it into any investment that they could find other than government paper. Now, the government has realised that they have frozen themselves out of the chances of getting the money that they need to borrow by doing this, so they have increased interest rates enormously; we've seen interest rates rise from below 100% with inflation at much bigger than that, to more than 200% in the last month or so, and I think that is what has done the damage to the stock exchange. People are now choosing to sell their shares to put their money into government paper on which they can get a reasonable rate of interest, and, they are now further discouraged from buying back into the stock exchange because of the capital gains tax that government intends to impose on all share dealings. So, the whole investment climate for the stock exchange has taken a serious dip now that people have another option and a serious disincentive as well.

Violet: Now, we hear these fears that the Zimbabwe Stock Exchange is grinding to a halt. What will it actually mean if the stock market collapses?

John Robertson: It will be difficult for companies to raise money because of new stock issues, new floatation's, rights issues and that sort of thing. It would become far less attractive under those conditions when you don't get good prices for your shares, it means that people trying to raise money have to part with much more of the total value of their company in order to attract the amount they need. So that makes it difficult to raise money and I think that it would mean that the very poor level of investment presently taking place in Zimbabwe will dip further. And the only thing that will change that is an improvement in the general outlook in the economy. At the moment it suffers more from the fact that no one has much confidence in our immediate conduct or future. But, if the confidence was to change because of other, maybe political, changes, the stock exchange would become an attractive option again. But, it would still be a pity if the government is trying to collect capital gains taxes from the very serious scarcity of capital. I think it's a bad idea for any developing country to ever tax capital in any form, and taxing capital gains simply reduces the amount that is available for investment.

Violet: So why is the government doing that?

John Robertson: Government is desperate for funds. They are searching out every last opportunity to raise more taxes from as many new tax payers as they can find, and, for this reason they are even starting to tax the informal sector. They are coming up with presumed profits and taxing the presumed profits of taxi drivers, gold panners and other informal sector workers and demanding that if you want to avoid those sorts of taxes you have got to register for ordinary income tax and that means formalising what would normally have been an informal economy company. So, little private partnerships are now supposed to become private limited liability companies that would be included on the tax register and taxed, and, if you want to avoid that you are having to pay taxes from the people to whom you supply your services

Violet: It seems like these new measures are a 'lose - lose' situation for the government, because as you say, that the investments are going to dip further and further and others say this will actually create problems for salaries because of what the Finance Minister did, which was, theoretically, to put a cap on annual salary increments that are impossible to maintain. Do you agree with this?

John Robertson: Yes, I'm afraid that the government is going to be the victim of these policy changes. They are really 'at the margin' you might say here. For every new dollar in tax they raise from a new tax they will probably lose a dollar, or maybe more, from existing taxes by further taxing the taxi drivers and the bus drivers, the passengers will have even less money to spend when they get into town and will do less shopping and have to save more money for the journey home again. So, the shops will sell less, the shops need to employ fewer people, the shops will place smaller orders with the factories, the factories will retrench staff that they don't need. And all of those shrinkages will cause a loss of revenue to government. The amount they collect from the bus drivers I don't think is going to come anywhere near compensating them for the amount they are going to lose by seeing the levels of turnover and the profit levels of businesses falling.

Violet: And you know the stock market or the stock exchange has not been trading for the past four days. Now, there are some people who fear the country may go into a recession if it continues to do this, or if the stock market crashes. Does this mean we will be looking at hyperinflation?

John Robertson: We are looking at hyperinflation already and we already have an economy that is deeply in recession. The Zimbabwean economy now is only about half the size it was six or seven years ago, and a further fall in gross domestic product is likely this year, although the government predicts a small growth, but in the market place everybody expects a further shrinkage and there could even be another shrinkage next year if these policies are not changed. So, the recession is here already. The hyperinflation; different definitions but at 260% inflation not many people would argue that we are not suffering hyperinflation already.

Violet: You know, the government says that inflation is at 254%, and these are official figures that they are batting around. Now, you don't agree with that when you say its about 260%. What does this actually mean to the man on the ground?

John Robertson: Well, I think it is more for many of the consumer goods that most people depend on. And the figure of 254% was the July figure. We expect to see it up considerably when we get the August figures. So it's not too brave to suggest a figure that is higher than the July one, and I believe we may easily get to an inflation rate of 400% by the end of the year unless something changes in the meantime?

Violet: And as an economic expert, what does this actually mean to the worth of the country?

John Robertson: Well, a great many different answers to that question. For people who are looking for work - they can't find employment, they are having to look outside the country for jobs now, so many skilled Zimbabweans are leaving and lots of the school leavers who were hoping for a chance to get into the labour force are finding that they have to settle for jobs as peasant farmers. A massive level of disappointment for people who have done well at school and had every reason to be ambitious about their futures. So, disappointment is coming from those very lowest levels. At the higher levels, people can't invest, they can't sustain the productive capacity they have, they can't sustain the volumes of product generation that they produced either for the local market or for export. So, there's big disappointments there because most people plan for expansion and growth and more profitability and most of these plans are now falling apart. And, the only people making money steadily are the ones who are trading things, especially those who can capture stocks of goods that are in short supply because when the prices of those are raised the population has less opportunity to simply refuse to pay them. The goods that are essential will be bought, no matter what the price, and the people who can sell these at high profits are the ones who are making money. So, it's opportunists who are making money today and the people who are planning ahead and trying to do something useful and trying to create jobs that are worth having are the ones who are taking the strain. It's a bad picture right from top to bottom.

Violet: And what about those companies that are quoted on the stock market and have no value and they are worth nothing because of what is happening right now. Do you see them having a comeback?

John Robertson: Some of them still have assets that can be put back to work.. Many of their assets still functioning and are still trying to generate an income and most of them could be put back on their feet quite quickly if the people who had the investment funds had the confidence to take the risks that would be involved in making the decision to invest. And if the confidence element which is right now seriously damaged by the recent conduct of the government, and that's what attention has to be put onto first if we are to see any change in this picture.

Violet: And how do we deal with it exactly because there are others who say that they don't see any economic solution that will control the runaway inflation rates we are experiencing right now?

John Robertson: Well, all of the economic problems have their origins in political decisions. So the political decisions that have done the damages have either got to be reversed or sorted out in a way that allows people to make long term plans and come back into the system with new projects and proposals for a generation of new productive capacity. Now, that comes back to confidence. The confidence has been destroyed by political decisions so it's necessary that political decisions should now be made to fix the problems that they have caused.

Violet: And the South African loan? Is there any clarity on this?

John Robertson: There's no clarity. We've got no confirmation that it's happening or whether there is conditionality attached to it - do we have to behave in a certain way to get the money or does it come in instalments - maybe we need to accomplish one or two things to get some of it and then accomplish a few more things to get the rest of it. We know nothing about it and we know nothing of what the South African government would be asking us to do. But, it would appear that we have devalued quite a lot in the last month and we have allowed the interest rates to rise very steeply in the last month. These look as if they are the result of pressure coming from perhaps the South African Reserve Bank, perhaps the IMF, perhaps international bodies who are saying 'whilst you continue to behave badly - we are not interested, so start behaving properly and then we'll talk to you'. Certainly, while the government was holding interest rates down and fixing the exchange rate they were behaving in a manner which was not sustainable. They were told that over and over again over the last four or five years but only now have they begun to believe that this might be true. So, only now have they started to move these rates; the rates of exchange and the rates of interest. And, having moved them of course, there are pains. It's very painful to pay very high rates of interest if you are deeply in debt. But, this is the right medicine even though it has unpleasant side effects.

Violet: You did mention pressure from the IMF. Now, an IMF delegation has been sent to Zimbabwe, do we know why they are there exactly?

John Robertson: They are here now. I believe they are checking on what has been achieved. They want to have a proper analysis of the recent fiscal policy statements to see whether there's a possibility that the recent changes in fiscal policy will be helpful and I believe they are here to see if they can persuade the government to take further steps in the right direction but these things are not revealed in public and we are still guessing as to what their purpose might be, and still guessing as to what advantages the government might have if they follow the advice that the IMF gives them. The IMF really is working from a sort of distant position, because we are suspended from the IMF. We are not allowed to borrow money until we have settled our arrears. The arrears are about US$300 million and a claim is made that this might be the purpose of any loan that we get from South Africa to help settle that debt so that we can get back into an IMF programme. But, there is a lot of speculation in that set of ideas, we can't be sure if any of them are true, and which ones are the more important.

Violet: And if let's say even if the loan from South Africa was to help settle the debt to the IMF, do you see this having any impact to the economy?

John Robertson: It wouldn't have any impact on the local scene. One of the more serious problems we have is a serious scarcity of foreign currency, but a loan from the South Africans to settle our arrears to the IMF would not make money available to local buyers of imported goods and so the scarcities would still continue. And, while scarcities continue we will continue to suffer the very serious shortages of fuel, we are suffering black outs at the moment because we are unable to pay for enough electricity imports from South Africa and other countries. And the shortages of other imported things are forcing industry to slow down, causing people to be retrenched from their jobs because the factories and industries they work for cannot get on with the job while there is no stocks of imported goods that they require. So the scarcity is likely to continue because the scarcity originates in another area altogether from the fact that the Zimbabwean economy has lost some of its principal export earners. Since the land take over that the government started five years ago, we have lost most of our tobacco industry, we have lost our total beef export industry, we have lost a proportion of the exports of things like tea and sugar and coffee, diary products, poultry products, the canned vegetables, canned fruits. A lot of these things are leaving the country these days but in much smaller quantities than used to be the case. So we have lost our ability to earn the money and this is the principal reason why we are short of foreign currency and that was very serious damage done to the economy by the decision to take over the farms.

Violet: What about the decision to dollarize the Zimbabwe dollar? As you say the Zimbabwe dollar has now no value and you know the government is now turning to the US dollar. Fuel is being sold in foreign currency. Is this a good thing?

John Robertson: It's helpful to the people who can get hold of foreign currency but it's not much use to the rest of the population, and that is nearly everybody. It's very hard to get hold of loose change in US dollars, so most people are still struggling to buy fuel and the fuel is so scarce that even the people who have US dollars to use to pay for the fuel, they are also in long queues waiting hours and hours to be served and sometimes being told before they get to the pumps that it has run out and they are going to have to come back next week. So, by itself it's not solving much of the problem but it's making it a little bit easier for the people who are privileged enough to have access to foreign currency.

Violet: And what is the net effect of the Chinese taking much of our resources, what is this doing to our economy?

John Robertson: It's doing nothing helpful so far, in fact the Chinese exporters from China are filling Zimbabwean shops with cheap Chinese goods and these goods are damaging the security of the jobs that we have in many Zimbabwean factories. At the same time, the consumers, having paid very low prices for these goods are very often extremely unhappy with their purchases because they don't last for very long. It would seem that China has a way of exporting their reject quality products to countries like Zimbabwe. I know that there are many Chinese factories that can produce world-class products, but those are not the ones that come here. Those are not the ones that are offered at low prices that damage the security of the jobs in our own factories. But, I think the bigger danger there is that these same Chinese exporters of goods are going to use Zimbabwe as a route into other markets in the region, into South Africa, into Botswana, into Zambia, Malawi and these countries that are also trying to start or trying to keep going their clothing factories, their footwear factories, their household good factories. Those factories are also suffer as a result of the inflow of cheap Chinese goods that might come through Zimbabwe because Zimbabwe has become implicated in meeting very stiff commitments to China because China has chosen to agree to lend us money or to buy goods from Zimbabwe at preferential prices. So the implications, I think, are quite serious for the whole region. And maybe the whole region needs to think of protecting itself against cheap Chinese goods that are dumped into our economy and put tens of thousands or hundreds of thousands of jobs in Zimbabwe at risk.

Violet: And it seems the Zimbabwe government has been taking the wrong moves as far as the economy is concerned. If you were to advise them what would you say?

John Robertson: There are so many angles to the answer to that question that it would take me a couple of days to get through all of them! But the fundamentals are that we have got to obey the rules of economics. We can't mess around with things like exchange rates and interest rates and expect to get away with that unscathed. The country has suffered badly because of those decisions. We need to rebuild the confidence that is necessary for investors, to make them want to come back. Foreign investors have a choice of 200 countries where they can go instead of Zimbabwe, there is no need for them to come here, and for many of them there is no need even to leave the country where they come from. To make this country attractive to them we need to become so competitive that they can't ignore the possibility of coming here, and that would call for a very different attitude towards foreign investors. The government here appears to have taken exception to the thought that foreign intervention is necessary and it appears, on occasion, to be very isolationist in it's views. But, every isolationist country in the world - you can think of many of them, like North Korea and Burma and Albania a few years ago, - they isolated themselves from development as well. And they people who were good in those countries had to leave those countries in order to find opportunities that would allow them to realise their own ambitions. We've got to try and make it possible with the most outrageous ambitions to realise those ambitions in Zimbabwe. That means changing completely the investment climate and bringing about the levels of confidence that would make that investment climate useful to the people who have the imagination and have the resources to put the money and their ideas to work. So, all of those lead to the need for much, much more imaginative policies and with any luck we will start on a course that takes us in that direction quite soon. Certainly if we don't do that we are going to lose many more people who are going to be leaving the country to find jobs elsewhere. And we will become more isolationist and therefore more poverty stricken. And more Zimbabweans will spend their lives hungry and wondering what they could have done if only the government had behaved differently.

Violet: Thank you very much Mr John Robertson

John Robertson: You are very welcome, thank you.

Please credit www.kubatana.net if you make use of material from this website. This work is licensed under a Creative Commons License unless stated otherwise.

TOP