The mirage of economic turnaround
By Eric Bloch
THE government and its propagandists are vigorously enthusing that Zimbabwe’s economy is undergoing a very pronounced turnaround. They claim that the massive economic decline that prevai
led with ever-greater intensity over the last seven years has been halted, and that it is being progressively reversed. They proclaim loudly that the economy is now firmly entrenched upon a path of recovery and that economic wellbeing is now assured.
If only that were so, but tragically it is just self-induced illusion and delusion. The harsh facts are diametrically opposite to the contentions that the economy is fast overcoming its many ills, and that economic utopia lies ahead.
The president, his cabinet, the ministerial minions and the state-controlled media found their recurrent heralding of economic upturn primarily upon the magnitude of the reduction in the consumer price index-based year-on-year inflation rate. Admittedly, that reduction has been very impressive, with the rate shrinking from its all-time high of 622,8 % in January 2004 to 133,6 % in January 2005. However, on the one hand, the latest rate is still untenably high and the trigger of intensifying poverty, hardship and misery for millions of Zimbabweans.
On the other hand, it is almost inevitable that the rate of inflation will rise significantly in the months ahead, notwithstanding the vigorous efforts of the Reserve Bank of Zimbabwe (RBZ) to contain inflation. The virtual certainty that inflation will once again be rising is based upon diverse circumstances, the first of which is the intensifying dependency upon food imports. Only a few months ago Agriculture minister Joseph Made, strongly supported by his Public Service colleague, trumpeted that Zimbabwe was on the threshold of near record volumes of food production.
They foreshadowed harvests of such magnitude that Zimbabwe would resume its role of southern African granary, exporting maize to neighbouring territories. They advised the United Nations Development Programme that Zimbabwe would not be in need of food aid in 2005, other than possibly for Zimbabwe’s Aids orphans.
They were hallucinating in the extreme! Having displaced the thousands of farmers who had the skills and resources and replaced them with those lacking in resources and, in many instances, experience, there was no realistic prospect of achieving the bountiful harvests that they anticipated.
The prospects of those harvests were further shattered by the failure of the government to provide the new farmers with promised inputs. To cap it all, drought then reared its ugly head.
The result is that Zimbabwe will have to import at least one million tonnes of maize in 2005, and the transportation and other import costs must undoubtedly increase the price of food payable by the consumer (although until the month-end parliamentary elections having come and gone, the government will use the Grain Marketing Board to subsidise food).
The post-election rise in food prices will be a major catalyst of rising inflation. Moreover, the foreign currency required for food imports will markedly reduce the availability of the forex necessary for other critically required imports. As a result of inadequate foreign currency resources, exacerbated by reduced inflows from other agricultural exports due to the forecasts of tobacco production as spurious as the food forecasts, most industries will not access the foreign currency needed to fund their imported manufacturing inputs. Already most factories are using minimal levels of their production capacities, and those levels are likely to decline further. Many manufacturers are achieving production of only 20 to 30 % of capacity due partially to the non-availability of inputs, and partially to discontinuance or reduction in exports, attributable to loss of export viability and price competitiveness as a result of almost static exchange rates.
Those rates have been manipulated into non-responsiveness to inflation, to the grievous prejudice of exporters and export earnings. In consequence, fixed overheads of manufacturers have to be apportioned over the diminished production volumes, thereby increasing unit costs and consequently forcing prices upwards.
The decrease in industrial production and of foreign currency for imports of finished products will also intensify the shortages of many products already existing. The excess of demand over supply will once again stimulate black market activity, with concomitant price increases further fuelling inflation.
Yet another stimulus of rising inflation is looming, being the continuing upward movement in world oil prices. Those prices have risen from about US$29 a barrel only a year or so ago to over US$52 at the present time.
As if all those ills do not suffice, the government is once again engaged upon a spending binge evidencing that its declarations of fiscal discipline were hollow. For a few months the government harkened to the calls for contained expenditure and minimisation of the fiscal deficit, in order to assist the drive to bring down inflation.
However, with elections looming, the government has discarded all endeavours to curb its profligacy. Suddenly it is funding fleets of costly new motor vehicles for chiefs, distributing pensions of $1,3 million per month to each of 10 000 “ex-political detainees”, representing a fiscal outflow of more than $15,6 billion per annum, increments for the Public Service in excess of inflation, nationwide donations of (admittedly necessary) computers to schools and much else.
Clearly the government is prepared to devastate the economy in order to cultivate voter support, but in so doing it is creating yet another trigger for escalating inflation. Although the government is trying to make mileage out of an alleged increase in the numbers in formal employment, its own statistics demonstrate that almost 80%t of Zimbabwe’s labour force is unemployed. According to the government, more than four-fifths of those desirous of formal employment are unemployed. How can that be indicative of an economic upturn?
And the situation is likely to worsen as more and more industries are faced with no alternatives other than to lay off contract labour and retrench much of their permanent work forces, for they are faced with diminishing domestic consumer demand for their products and can no longer compete in export markets as a result of their rising production costs not being compensated for by exchange rate movements. Further indicators of the economic stagnation include the minimal extent of investment taking place. Foreign investors are deterred from investing in Zimbabwe by the straitened state of the economy, the excessively regulatory economic environment and the non-conducive investment environment created by recurrent threats of forced disinvestments in favour of indigenous elements, and by disregard for bilateral investment protection agreements entered into between Zimbabwe and other governments.
The negative economic indicators also include the very adverse international credit ratings “enjoyed” by Zimbabwe.