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Fiddling while Rome burns
Eddie Cross
December 11, 2006

Sometimes the antics of the Zimbabwe regime take on all the features of a rollicking farce. We have the Minister of Finance presenting what sounded like a professional review of the economy - except that not even he believed half of what he had to read and then the President makes a speech and slams his economics, defending practices that have landed us in the mess we are all in today.

There is no attempt to deal with the basics or the fundamentals just more of the same formula that have driven the economy and the welfare of the people straight into the ground. For a start, the overall spending planned in the budget vastly outstrips our capacity to support such expenditure from our shrinking economy and contains a basic budget deficit that is equal to about half the total expenditure planned and a third of our GDP. Add the combined losses of the State owned organisations (86 of them) that are also spending our money and the budget deficit goes ballistic - probably of the same order of magnitude as in 2005 when the IMF stated that their estimate was that our deficit was 63 per cent of GDP. For the non-economists among you, our sustainable deficit is probably about 3 per cent. So the printing presses run and our inflation gallops along at 2000 per cent and rising.

Unperturbed by this situation and knowing who is responsible for inflation, the regime attacks its business community. They have launched an operation they call 'operation hurricane' and have hundreds of police, Reserve Bank and Ministry officials constantly visiting manufacturers and retail establishments to ensure that they do not exceed 'controlled prices'. What are these prices? Simply what the Minister or the Ministry decides as being a 'reasonable' price for any given item or commodity. So bread will be sold at Z$295 a loaf (about 12 US cents) while the bakers argue that given raw material costs, the price should be over Z$600 a loaf (a massive 24 US cents!). No agreement and the largest bakery in the country exceeds the stated price by Z$5 a loaf and their MD is thrown into jail for 6 months, two months suspended.

Some 6000 businesspersons from all walks of life face court hearings and imprisonment at this moment and they include many of the largest business operators and managers in the country. Many firms have simply stopped trading in controlled products rather than face imprisonment or fines.

Then the regime decides to buy aircraft from its remaining friends in the world of aviation. They start by buying two aircraft from China and in return were given one for 'free'. Only one remains flying - one is now stripped down for spares and the other is waiting for spares. It was discovered they were not new when purchased and no maintenance arrangements were put in place. They are noisy and uncomfortable.

Then it was the turn of the Russians. The Minister responsible goes to Moscow to negotiate the deal and the Governor of the Reserve Bank is sent to ensure the Russian mafia does not diddle him. They get to the final stages of the deal and are presented with a demand for a US$25 million kickback. No deal until this is paid, in cash up front. They did not have that sort of money - were hoping for a deal on credit, asked for time to contact Harare and then both of them fled back to the safety of their Harare haven. Scared to death that the Russian mafia would not take non-performance very lightly. Since Gono-s main friend in Moscow was gunned down by contract killer-s just months before, perhaps they had something to fear. But whom were they dealing with for heavens sake! Perhaps birds of a feather!!

Then finally one of the many international court hearings on Zimbabwe is about to get under way in Paris. This case concerns a claim by 11 Dutch nationals who had invested in Zimbabwe after 1980, protected by a bilateral investment protection agreement and bought farms with 'certificates of no interest' from the Zimbabwe government saying that the land was not required for land reform. Then along came the 'Fast Track Land Reform', in reality simply an exercise to loot the assets of the large-scale commercial farmers and to destroy their political influence, and they were forcibly thrown off their farms and lost their entire investments.

They were not big players by any means - they are only claiming US$15 million, but it is their unique position as investors that makes this case so interesting. They are going to win their case - the Zimbabwe government has appointed top lawyers to defend their position but they too must know this is a lost cause. When they win, three things will happen - every legal firm in Europe will be hunting for clients in a similar position with a claim against the looters, the potential fee income is huge! Thousands of new cases will be forth coming as farmers, now spread across the globe take legal action to secure compensation in the currencies of their choice, and finally, no assets of the Zimbabwe regime will be safe, aircraft, buildings and even embassy motor vehicles will be subject to legal attachment. It is a nightmare.

I have no idea how large the total liability will be but I am willing to bet it runs to many billions of US dollars and certainly exceeds our present international debt that we cannot service anyway! Nothing deterred, Mutasa and his pirates continue to loot farms and illegally seize assets from local investors - many also covered by bilateral investment agreements signed by the State before this madness.

The confirmation of title rights by international courts will complicate the situation in southern Africa as a whole and even before the case is finalized, is impacting on land and assets values in Zimbabwe. The sale this past week by Anglo American, of their last pre 1980 assets in the form of Hippo Valley Estates to Tongaat Huelett in South Africa for 17 per cent of its real value highlights this - it shows that Tongaat believes, like myself, that one day soon this long nightmare will be over, asset values will recover and we will be able to rebuild our lives again. Hang onto your title deeds guys; you may need them soon.

Just to complicate their lives even further we have all the makings of a lousy wet season upon us. In the main cropping areas the rains are already a month late and this is a much worse start to the season than last year. Because of the poor harvest in 2005/06 we will have to import at least 1 million tonnes of maize as well as 300 000 tonnes of wheat and many other basic commodities to feed the country. It would appear that we will get no relief from the weather in the current season, even if we were prepared for a better harvest with all the required elements in place.

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