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The art of diversion
Tony Hawkins
May 11, 2006

http://free.financialmail.co.za/06/0505/cover/coverstoryb.htm

Read the paper by Tony Hawkins STILL STANDING: The economic, political and security situation in Zimbabwe 2006 and implications for the SADC region

The announcement that about 200 white farmers have applied for 99-year leases under the government's new land tenure policy has been acclaimed as a climb-down by President Robert Mugabe and a reversal of past policies.

This is simply not the case. The fact that the process is taking place alongside eviction orders - with just 48 hours' notice - served on 20 white farmers last week shows that policy has not changed. Far from being a climb-down, it is a clever attempt to deflect international criticism of the land seizures and, quite possibly, kibosh efforts by farmers to secure international support for compensation demands. Those who sign the leases may be signing away the last hopes of disposed farmers to secure compensation.

Justice For Agriculture (JAG), the organisation that represents the majority of evicted farmers, says farmers would be "insane" to go along with the offer.

JAG's John Worsley Worswick says farmers will not get title deeds and will therefore be unable to borrow against the land to finance essential inputs. He notes also that under present law the maximum lease period is only 10 years.

Meanwhile, in an effort to pre-empt the expected outcry when the April inflation figure, probably over 1 000% , is published, the government launched yet another economic recovery programme. The US$2,5bn National Economic Development Priority Programme (NEDPP) focuses on curbing inflation, stabilising the exchange rate and boosting agricultural production.

Within days of the promise to tackle inflation more vigorously, the government announced massive wage awards, some as high as 300% , to the civil service, including the security forces. An average 250% increase will cost the government Z$80 trillion or 25% of GDP and ensure that inflation averages upwards of 800% during 2006.

Though the economic plan was approved by the Zimbabwe National Security Council, chaired by Mugabe himself, economic development minister Rugare Gumbo insisted at the launch that there was no sinister security agency involvement. Media claims of militaris ation of the economy were "hogwash", he said.

It's an adjective that some economists and analysts are applying to the latest economic programme - the fifth such turnaround plan in the past seven years. The plan is long on administrative detail but thin on policy content. It includes the creation of a plethora of committees and task forces, staffed by civil servants and private-sector executives who will be responsible for mobilising foreign exchange, deploying and retaining skills, and programmes of import substitution, funds for distressed businesses and the promotion of small- and medium-scale companies.

All this has been heard before and the sole fresh elements are the promise to raise US$2,5bn over an improbably short period of three months, and the greater involvement of the private sector.

There are no indications of who will provide the $2,5bn , nor indeed whether all of it is to be raised offshore. With foreign debt at almost US$5bn , foreign lenders and investors are unlikely to respond positively. Efforts to raise a US$1bn credit from SA having reportedly collapsed, Harare will be forced to look to China, Malaysia, or possibly India and Iran.

Mugabe's reaffirmation last week of his government's plans to nationalis e foreign-owned mining companies will not help either, nor will the fact that the envisaged $2,5bn credit is nearly double annual export earnings.

Though tackling inflation is a stated priority, the injection of $2,5bn would be hugely inflationary. At current exchange rates this is equivalent to 70% of GDP in a country that has a negligible, possibly even negative, national savings rate. In all probability, the bulk of the money will have to be raised locally, meaning massive central bank credit creation and even higher inflation.

The plan is silent, too, on immediate business concerns, such as conditions in the money market and exchange rate strategy. The Bankers Association warned the Reserve Bank of Zimbabwe (RBZ) recently that its tight money policies could cause bank failures.

Exchange rate strategy is shrouded in uncertainty. The interbank (market) rate for the Zimbabwe dollar has been pegged at Z$99 200/US$ since late January, since when prices have increased 80% . By effectively devaluing the Zimbabwe dollar by 36% for gold and tobacco producers, the central bank has acknowledged that the currency is overvalued and should be adjusted. This could happen when RBZ governor Gideon Gono presents his midyear monetary statement, but he is under pressure from exporters to devalue sooner and by at least 40%-50%.

In an effort to talk up the economy, optimistic growth and inflation forecasts are being made. In his April 18 Independence Day address , Mugabe predicted GDP growth this year of between 1% and 2% and, though this is lower than the 3,5% forecast in March by finance minister Herbert Murerwa, it is far more upbeat than the IMF's projection of a 4,7% decline.

The IMF's inflation forecast of an average 850% for 2006 is more realistic than the government's year-end target figure of 80% . According to the IMF, when inflation exceeds 40% , GDP growth turns negative, implying there is no chance of Zimbabwe achieving positive growth this year or next. The NEDPP is unlikely to make a difference unless underpinned by an international bail-out, including debt relief. This will not happen unless there is political change, without which the stalemate will continue.

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