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Preparing for the likely consequences
J Robertson, The Zimbabwean
July 15, 2008

View article on the Zimbabwean website

As increasingly inappropriate and unhelpful business conditions have evolved from the severely corrupted election process and as the authorities became increasingly contemptuous of the needs of suppliers and their customers, we in the business sector have had to become extremely defensive and shrewd to survive.

Many stayed the course by remaining a jump or two ahead of the political challenges, others were obliged to take a conciliatory route to remain in operation, but very nearly all surviving companies have suffered severe shrinkage. Very few now have the stamina to withstand yet more abuse. However, the severely flawed electoral process has thrust upon Zimbabwe's long-suffering population a result that seems certain to impose even more damaging conditions. As the ruling party's blatantly displayed posture proved conclusively during the election re-run, it's claimed right is to demand obedience from the whole population, the business sector included.

In this regard, the business sector has always been seen as a particularly irritating problem, but as compliance has been more successfully pressed from Zimbabwean companies, the ruling party has convinced itself that it is the extent of foreign ownership of local companies that constitutes a threat to its absolute power. This has already generated legislation designed to ensure that indigenous Zimbabweans will gain controlling interests in every company, but the higher-profile companies should now be considering pre-emptive measures to deflect what might happen next.

In response to the almost universal rejection of the election results, proposals from abroad are claiming that economic sanctions must be imposed to ensure that foreign-owned companies cannot support the Mugabe regime. Although such ideas might be well intentioned, they are unlikely to prompt any change in political direction. More seriously, the party could all too easily turn them into political capital for use against the whole business sector.

As business activity is already severely inhibited and very few companies are profitable, these sanctions proposals, however vague or oblique, could become threats to any susceptible company's financial survival. But whether or not any given business is on the edge, the ruling party is likely to respond to this threat of real sanctions by imposing on them even more controls, or possibly by nationalising those companies of more strategic importance.

From the business standpoint, the argument is clear: such sanctions will damage the interests of the affected companies' employees and clients, most of whom are Zimbabweans who do not deserve to be caught in the crossfire of clumsily directed penalties, and they will prejudice each company's equally blameless shareholders, whether they are Zimbabwean or foreign. Getting to the core of the matter, it seems that it is the absence of acceptable alternatives that has brought economic sanctions back into the debate, even though all virtually agree they will have little effect on the intended target, Zimbabwe's ruling party rather than Zimbabwe's general population. If that is the fact, then much more effort has to be put into formulating the needed alternatives.

While the business sector works on, or waits for a breakthrough, it remains with the pressing challenges of finding ways to fend off sanctions. Exemptions for some companies might be won by preparing detailed accounts of activities that prove sanctions would be inappropriate. Whether or not a specific company succeeds, its directors would also be able to use such documents to argue that they have tried hard to remain in business, that their commitment to Zimbabwe cannot be questioned and that in no way were they in support of sanctions.

Similar exercises can be carried out to persuade local officials that further interference in the company's affairs from any source, local or foreign, will cause unhelpful repercussions. Existing evidence can be used to show that skills shortages will be worsened, efficiency will decline, employment and training will fall, deliveries of goods to local and export markets will drop, competitive edges previously enjoyed will dissipate rapidly and shrinking tax revenues from profits, employment and customs duty will aggravate the government's difficulties as well as those suffered by companies.

If, despite these problems, government decides it can continue imposing controls, but keep any business afloat by making it dependent upon subsidies, low-cost loans or other less obvious forms of patronage, the authorities should be advised that they will be guaranteeing the continuation of high inflation. The reasons why some effort will have to be put into spelling out all these issues is that, having regained its dubious ascendancy after its humiliating performance in the parliamentary as well as the presidential elections, Zanu PF can be expected to put considerable effort into consolidating its authority to prevent the re-occurrence of any such challenge.

As pressures mount from the many countries that have declared the elections illegitimate, the party is likely to increase its campaign to suppress all possible sources of internal dissent. Far from readily accepting the need to change unpopular or damaging policies, the party appears determined to renew its efforts to enforce them and to suppress dissent and dissenters by every means possible. However, the problems are certain to become more severe because not one of the policy choices is making a helpful difference. Scarcities of foreign earnings stem from the loss of exports after the closure of the commercial farming sector, but this policy decision is still being defended. It and its many secondary effects continue to impact on manufacturing, commerce and the financial services sector, and because of government's efforts to impose controls on exchange rate movements, the did considerable damage to mining and tourism as well.

It was falling capacity to service debts, not sanctions, that disqualified the country from access to credit and it was increasingly restrictive business conditions, not sanctions, which brought investment inflows almost to an end.

The sum total of all these meant that thousands of skilled people left the country to find more secure work. The problems experienced in the disabled productive and service sectors were soon being mirrored in the declining deliveries of service from the power, water and communications infrastructure as well as the social services led by health and education.

All of these made the country even less attractive to investors, and because they led directly to the shortages of goods, jobs and foreign exchange, and to the damage to social services and the formerly efficient infrastructure, all of these issues that need to be carefully described to employees to prevent their being misled by Zanu PF propaganda.

With Zanu PF now hoping that the elections are out of the way, it appears to have nothing to offer that will have any prospect of alleviating any of these profound difficulties. No support will be forthcoming before a legitimate government has been elected and shown an eagerness to accept reasonable policies. Meanwhile, the ruling party might be expected to try repackaging its image and rearranging its personalities in an effort to give the appearance of having made at least some of the needed changes.

A possible early development could be an announcement that Robert Mugabe is to retire and his appointed - not elected - successor will approve extensive policy revisions after claiming to have held extensive consultations with businesses, foreign governments, international development agencies and all other concerned bodies.

However, its first efforts seem likely to be to extract from all local entities the compliance and obedience it believes it was due, but did not receive during these past elections. Many of these are certain to impact upon business, as producers and retailers will be the most suitable target for accusations of economic sabotage and exploitation of the masses through rising prices. The businesses that best survive what might become the most unpleasant onslaught yet will be those that are best prepared with detailed production and procurement costings and that have fully supportive workforces whose understanding of the challenges prevents them from making unfair accusations against their employers.

Those companies that are well prepared will have written evidence of every advice of price changes, every application for foreign exchange to purchase capital goods or raw materials, every response to supply or pricing queries, whether from other businesses or government, and comprehensive details of labour costings, welfare commitments and interactions with labour unions. In circumstances such as those that now confront the Zimbabwean business sector, most of the private sector will find itself on the defensive most of the time, mainly because government will be trying to deflect blame from itself. But some caution will have to be exercised in the efforts to prove to clients and staff, to suppliers and shareholders, where the blame really lies.

The ruling party's recent behaviour has recently invited and received many adverse international reactions, some of which have gathered momentum because of the sheer absurdity and the arrogant defence of unworkable ideas that can now be seen to have served only to make a few people prosperous at the expense of millions of people who have been plunged into poverty. The business sector's efforts to deflect sanctions must capitalise on this change by making more serious efforts to press for alternatives now that external Ministries of Foreign Affairs are under pressure to show that their countries are becoming more than just passive critics.

Perhaps the strongest argument is that the business sector should not be expected to shoulder the full weight of costly, but largely ineffective economic sanctions when the problems relate to human rights and political legitimacy. The distinctly legal and political dimensions of the issues call for legal and political answers, and these should not be permitted to threaten the livelihoods of employees or employers.

However, this approach calls for the establishment of powerful and universally supported legal institutions that can successfully challenge the conduct of any government and bring to account any individuals who can be shown to have disregarded the rights of their own citizens.

Zimbabwe is not alone in suffering from the fact that certain people can abuse their power without running the risk of becoming answerable to anyone. It is this fact that has to change, and the business sectors of any affected country should not be forced to carry the burden of damaging sanctions for lack of the needed legal procedures that could overcome the real problems. Hopefully, protests couched in these terms will help vulnerable companies in Zimbabwe to avoid even more ominous threats. As the country moves into the third quarter of the year, it remains trapped in rapidly deteriorating business conditions that are likely to translate into very much more serious shortages of all basic requirements and an even more rapidly declining capacity to sustain production, distribution or employment levels.

As the repercussions of these worsening conditions are likely to lead to social unrest and to even more violent repression, it must be hoped that the challenges will receive urgent attention from those countries that can bring their influence to bear on those claiming the right to govern the country. And as sanctions will do nothing to alleviate the difficulties, every effort must be made to ensure that they are not imposed.

In the table shown in the Excel attachment, an attempt has been made to illustrate the pace at which the momentum behind the current inflation rate will carry the country into totally unmanageable territory. The very much faster rate of decline in the Zimbabwe dollar exchange rate during June is allowed for and the assumption is that, with nothing to slow this down, a similar rate will be maintained through July.

However, the annual inflation forecasts for the next few months are shown to move up very sharply and this is because the price freeze imposed a year ago held the Consumer Price Index almost static for these months in 2007. I have left in place my earlier assumption that increasingly desperate attempts will be made by the end of the third quarter, and this is in the belief that the rates of inflation will cause most economic activity to grind to a halt. Government might be expected to remove nine zeros from the currency before much longer, but that will not overcome any basic problems.

The only help that could make a quick difference would be a substantial foreign currency loan that would reduce the scarcity premium on hard currency purchases and lower the costs of imports, but the achievement of the falling monthly inflation figures shown will depend upon the adoption of much more penetrating policy changes and more generous assistance. By then, it will hopefully be fully deserved.

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