Shakeman Mugari/Conrad Dube
RESERVE Bank of Zimb
abwe (RBZ) governor Gideon Gono last week painted a largely bright picture of the country’s economic situation when he presented his second monetary policy review.
Gono’s positive outlook, which claimed there was a “turnaround” in the economy — something widely disputed by analysts — was reinforced by acting Finance minister Herbert Murerwa’s mid-term fiscal policy review, also released last week.
Like Gono, Murerwa said: “the recent macro-economic measures by government are beginning to bear fruit”.
The evidence cited to support this claim included the falling annual inflation rate, the almost balanced budget in 2003, increased deliveries of gold, the purported success of the land reform programme, and remittances in foreign exchange from Zimbabweans working abroad.
Gono and Murerwa’s statements further claimed the utilisation of manufacturing capacity had risen from a range of 30% to 40% in the second half of 2003 to between 60% and 70% by the end of June this year.However, a cursory examination of the evidence to back the recovery assertions shows that they are both shallow and dishonest.
For instance, the decline in year-on-year inflation is not explained and thus can be manipulated to arrive at a conclusion which is not only political but misleading.
While it is clearly a fact that inflation — the rate of increase in prices — has decreased, this is largely due to direct interference in the exchange rate. For the past three months, the exchange rate has barely changed even though the consumer price index increased by about 25% over the same period and the less current producer price index almost certainly rose by a wider margin.
Analysts say the fixed exchange rate could turn out to be a very high price to pay for the decelerating inflation rate. They say increasing numbers of exporters are now finding that they cannot recover their production costs, but Gono’s response has been that the producers’ access to subsidised low-interest rate loan funds should allow them to survive.
Analysts say Gono’s productive sector facility has left many companies deeply indebted so that they now rely heavily on the value of the capital amount owing being inflated. If the real value of the borrowings become more stable because of a much lower rate of inflation, the borrowers would have diminishing prospects of repaying their debts, analysts argue. The banks through which this concessionary lending of statutory reserve money was sourced would therefore be placed at risk by rising non-performing loans.
But Gono seemed to be single-minded in promoting this arrangement.
“It is…pleasing to note that through a combination of monetary austerity, fiscal discipline and focused selective credit allocation to the productive sectors, the high inflation bubble has been burst,” he said.
Gono said in the past seven months he had brought stability to the financial sector, which he said was the key driver of inflation and speculation last year. He also said the facility had resuscitated the crumbling manufacturing sector, thus saving thousands of jobs that were on the line.
Increased foreign currency inflows and access to concessional finance, he said, were also galvanising the economy to recovery. Furthermore, he said, manufacturing plants that accessed concessional financing had “markedly increased their capacity by between 60-70%”, up from below 40% last year. A total of $1,7 trillion has been poured into the productive sector under this facility. Gono also produced numbers to justify claims that foreign currency inflows had increased drastically. Foreign currency inflows into the country over the past six months, according to Gono, have gone up by a massive 385% to US$778,6 million compared to US$160,7 million achieved during the same period last year.
The state media and Zanu PF politicians have been quick to jump on the alleged recovery bandwagon. Armed with threadbare statements from Gono’s monetary policy document, officials insisted the economy was recovering.
However, despite the purported “turnaround”, Gono also said the economy would shrink by 5% this year. This is probably where the real issue lies.
“Overall GDP (gross domestic product), which shrunk by an estimated minus 9% in 2003, is expected to decelerate by a further minus 5% in 2004 largely reflecting lagged effects of structural rigidities experienced over the 12 months to December last year,” Gono said.
Economic growth, experts say, is measured by the amount of investment, job creation, increased national output, improved exports and food security. But all these indicators are negative at the moment.
The GDP is expected to plunge as exports are still at their lowest and unemployment continues to gallop on the back of more company closures.
Economic analyst John Robertson said there was no economic “turnaround” as claimed by Gono and Murerwa.
“There is no evidence that the economy is recovering. I don’t see it,” Robertson said. “The economy is still in trouble. The manufacturing sector has not recovered, and there is no hope for the agricultural sector. Other sectors of the economy are still depressed and are showing no signs of recovery.”
An analyst with a local financial institution who did not want to be named said there was nothing to show there was an economic “turnaround” as yet.
“Apart from the annual inflation that is going down, there is nothing else Gono can use to justify his claims,” the analyst said. “Unfortunately he is using year-on-year inflation which is not an accurate reflection of the situation. In any case, inflation itself is not the only barometer to measure economic growth.”
Analysts argue that the month-on-month inflation is a more realistic way of measuring economic performance. Recent figures from the Central Statistical Office show that month-on-month inflation for June rose by 3,2 percentage points to 9,2%. This upward trend is expected to continue, bolstered by recent hikes in prices of basic commodities and salary and wage increases.
In the past four months prices of basic commodities have gone up by between 12% and 25%, indicating that for ordinary people, things are not getting any better.
There is still a perennial shortage of foreign currency caused by the country’s export capacity, which has been nose-diving over the last five years. The demand for the foreign currency continues to surpass the supply. More than a thousand bids have been rejected on the foreign currency auctions floors. Zimbabwe Confederation of Trade Union economist, Godfrey Kanyenze, said the economy would continue to bleed because of the foreign currency shortages.
“Gono has not addressed the supply side. This country is not exporting enough. How can the economy recover without exporting?” said Kanyenze. “He has not come up with a concrete plan to increase exports. Even though the dollar has stabilised, it is still losing against major currencies.”
The shortage of foreign currency and the overbearing control of the central bank on the rate have forced companies and individuals to revert to the black market. Zimbabweans in the diaspora have gone back to the black market after being frustrated by the low exchange rate on the auctions.
“We are still in a crisis. We still face major challenges. It’s too early for anyone in his right mind to say the economy is back on track,” Kanyenze said.
Agriculture, the mainstay of the economy, is still to recover from the disastrous effects of government’s chaotic land reform. This year tobacco has so far grossed about US$107 million compared to US$600 million at its peak four years ago. Tobacco production has decreased 72% over the past four years.