Eric Bloch Column

Economy still on a downward spiral

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By Eric Bloch

ALTHOUGH improbable, one must hope that the knowledge of law of the Minister of Justice, Legal and Parliamentary Affairs, Patrick Chinamasa, is somewhat greater than his awareness of economic affairs. Last week, he demonstrated that he very clearly does not appreciate or understand the circumstances of the Zimbabwean economy. Confronted with the fact that he has withdrawn government’s request of the United Nations Development Programme (UNDP) for $127 billion of funding for Zimbabwe’s 2005 general elections, he stated that the reason for that withdrawal is that with the upturn in the economy, Zimbabwe is able to fund the election without international assistance. (Of course, if he says that is the reason, there couldn’t possibly be any other, such as that UNDP would wish to evaluate the legitimacy of Zimbabwe’s electoral process, could there be?  No, of course not!).

But if Chinamasa believes there is an economic upturn occurring in Zimbabwe, he either does not understand anything relative to economics, or is a victim of governmental self-delusion, for far from there being any upturn whatsoever, the economy is continuing in its seemingly endless decline. Maybe the minister and his colleagues have been misguided by the momentary fall in inflation in December last, when the year-on-year inflation diminished by 3,36%. However, if they were duped by that almost unique decrease (!!) in inflation, they must have overlooked that in January, inflation resumed its upward climb, rising from 598,7% to an all-time record high of 622,8%.

There is much, much more that evidences the intensely distressed state of the economy. It is estimated that at least three-quarters of Zimbabwe’s employable population is currently without gainful employment. That is despite the fact that the employable population has diminished by about 3 million people, being those who have sought employment in South Africa, elsewhere in southern Africa, in the United Kingdom and mainland Europe, the US, Australia, Canada and various other countries. Nevertheless, more than 4 million Zimbabweans desirous of employment remain in Zimbabwe, but are either unemployed or only partially employed. The unemployed include hundreds of thousands of displaced farm workers, many retrenched miners as the mining industry was progressively forced to curtail operations, due to rising costs and inadequate revenues, and vast numbers of contract workers laid off by industries suffering from shrinking domestic markets and loss of competitiveness in export markets.

An even more horrifying statistic is that more than four-fifths of Zimbabwe’s population is barely subsisting, at levels below the Poverty Datum Line (PDL), and more than half of those poverty-stricken Zimbabweans are so impoverished that their very survival is in doubt, they existing at levels below the Food Datum Line (FDL). They are grossly under-nourished and suffering the ills and pangs of grievous malnutrition.

Zimbabwe needs 1,8 million tonnes of maize per annum to feed itself, but the current crop inclusive of production in the communal lands, is unlikely to amount to even 300 000 tonnes. Minister Made will attribute the inadequate crop to climatic conditions, but the realities are that the government has brought commercial farming to its knees, has only belatedly — and inadequately — made inputs available to new farmers, and that even in optimal climatic conditions, total maize production would have been most inadequate. So too will be this year’s production of wheat, and of many other crops.

Perhaps Minister Chinamasa bases his contention of economic upturn on the fact that the provisional estimates of gross domestic product (GDP) in 2003 reflect a negative growth of 15%, whereas forecasts for 2004 suggest that GDP will shrink by 12%. But it stretches credulity too far to interpret a marginally lesser contraction of the economy in 2004 from that of 2003 to indicate an economic upturn! And if one is to accept Chinamasa’s statement that the economy is now in recovery mode, it is necessary to ignore the fact that present estimates suggest that government’s fiscal deficit will, this year, be about 15% of GDP, raising government’s borrowings by many, many billions of dollars, which will in turn fuel further inflation.

The allegedly reviving economy is in such a state that many exporters are teetering upon the precipice of collapse. This is partially a direct consequence of certain of the prevailing monetary policies of the Reserve Bank of Zimbabwe (RBZ). Although those policies were formulated with the best of intentions, and after wide-ranging consultation by RBZ’s governor, Gideon Gono, some of them are having dire repercussions upon exporters (and upon many other industries and economic sectors). Exporters, who were dependent upon a realistic, “blended” exchange rate late last year of about US$1: $4 800 to achieve viability in an operating environment of continuously rising costs, are suddenly faced with a “blend” rate of about US$1: $3 200. At that rate they cannot survive, and particularly so as their costs of production continue to rise, and concessional interest rate loan facilities do not suffice to close the gap between operational costs and revenue receipts. Exporter circumstances are worsened further in instances where their foreign exchange needs exceed the foreign exchange that they are entitled to retain from their export proceeds, forcing them to buy currency in the foreign currency auctions, generally at a higher price than that at which they had to sell export proceeds.

As if the survival of export enterprises is not sufficiently in jeopardy, they are further afflicted by the Zimbabwe Electricity Supply Authority (Zesa) not only applying unjustifiable, draconian tariff increases, but also demanding payment in foreign currency (and having the unmitigated gall to apply the spurious US$1: $824 governmental exchange rate, instead of the weighted average auction rate (of US$1:$4 138 as of the second of last week’s auctions).

The conditions confronting exporters are such that many have had to discontinue export operations, and this must result in a contraction of the amount of foreign currency as will be available at future auctions, after whatsoever small currency stockpile as the RBZ governor has been able to accumulate has been exhausted. Already, the amounts bid for at each auction are at least 50% greater than the foreign currency available at each auction, and that despite the fact that the auction committee is restricting bids in accord with a priority listing. The prospects, in the very near future, are bleak, for the amount of foreign currency as will be available will be well below national needs. As a result, Zimbabweans can anticipate recurring shortages of fuel, medications and many other imports, and increasingly frequent and lengthy episodes of electricity load-shedding.

So stupendous (sic!) is the economic upturn that almost all wholesalers and retailers enjoyed (sic!) low levels of trade in December last. Whilst normally the weeks and days ahead of the festive season are times of greatest trade volumes for the distributive trades, with the populace applying year-end bonuses, leave pay and other emoluments to the purchase of long-desired goods, that was not the case at the end of 2003. So great had been the inroads of inflation throughout almost all of that year, that most consumers resorted to the shops only for essential consumables, foodstuffs and the like. Those fortunate enough to have any remaining funds after those purchases, held them to pay school fees, municipal rates, and the like in January.

The result has been massive overstocking of furniture, clothing, textiles, footwear, and many other products, and therefore the orders placed upon industry after the end of the annual industrial recess were few and far between. Retailers are desperately trying to dispose of excess stocks and, in an attempt to do so, are reducing prices considerably, and in some instances below cost, in order to generate greatly needed cash flow. These reductions may have had some impact upon inflation rates in February, but that impact will be short-lived, for rising costs of imported inputs for commerce and industry in response to progressively increasing exchange rates at the foreign currency auctions, due to a growing scarcity of foreign currency, rising wages and other costs will all shortly fuel inflation upwards once again. Is that the economy which the honourable minister alleges is in upturn?