Back to Index

Grabbing below the surface
The Economist
November 23, 2007

http://www.economist.com/displaystory.cfm?story_id=10198260&fsrc=RSS

The Zimbabwean government has published legislation that will force foreign-owned mining companies to transfer majority shareholdings to local interests. The draft law, which is likely to be submitted to parliament before the end of the year, states that miners will be expected to give 25% of their shares to the government for free, while a further 26% will be paid for with future earnings. In one sense this doesn't come as a huge surprise: the mines minister announced almost exactly the same plan in early March. This prompted a furious reaction from mining houses, which insisted that they were prepared to sell-not give-up to 30% of their shares to local interests, but that they were not wiling to cede effective majority (and management) control. Given that mining is one of the country's few remaining foreign-currency earners, industry sources pushed the line that Robert Mugabe's administration was having second thoughts after being told just what nationalisation would mean for the industry. Even at the time, however, government sources denied this, saying merely that the precise formula of nationalisation had yet to be finalised.

Miners are not the only companies facing further operational difficulties, since retailers have been given until November 22nd to sell imported stock at existing prices; from henceforth, however, they must set their prices based on the government's official exchange rate, of Z$30,000:US$1, rather than the parallel-market rate, which is currently around Z$1m:US$1. According to the National Incomes and Pricing Commission, which issued the order, retailers must show what price they paid in foreign currency for imported goods; this will be converted at the official exchange rate and a 50% mark-up will be added to arrive at the retail price. Although no new legislation has been passed or new government order gazetted, officials warn that any retailers found breaking the order face punishment, and as nearly 30,000 retailers have been arrested and fined for breaking price controls imposed in June, businesspeople have little doubt that the threat will be carried out.

The new order is expected to have a severe impact, on supermarkets and other large retailers in particular. They have already lost profitability because of the price cuts imposed on basic goods at the low end of the market. Now they face new restrictions on prices at the upper end of the market. Shops have already ordered and paid for imported goods they had expected to sell at a profit during the December holiday period, but the new order will prevent that.

The directives underscore the extent to which the Mugabe government is, in effect, making up policy as the economic crisis deepens, and the way in which policy is being driven by short-term, political considerations. This trend will clearly worsen in the run-up to the March 2008 elections: government spending is likely to rise, banks will come under pressure to hold (or reduce) interest rates and increase lending to distressed businesses, and the administration will persist with efforts to treat the symptoms, if not the root cause, of inflation.

Thereafter, much will depend on the complexion of the new government. There is no realistic chance that the ruling Zimbabwe African National Union-Patriotic Front will lose the polls, but it is possible that there will be political change after the elections if, for example, Mr Mugabe decides, or is forced, to retire. In this eventuality donors would try to get the government to follow a three- to six-month staff-monitored programme with the IMF, hoping to return Zimbabwe to an orthodox policy path. It is more likely, however, that economic policy will remain chaotic and piecemeal, with price and wage controls imposed and then lifted, and the dollar periodically "revalued". Certainly, the orders to the mining and retail sectors suggest that there is little that the government is not prepared to do to shore up its position, no matter what the long-term implications.

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