Eric Bloch Column

Myopia triggers economic disaster


THERE are numerous causes for the distressed state of the Zimbabwean economy, but undoubtedly one of the principal triggers of the endlessly continuing deterioration of the economy is that government is totally unable to accept a

ny reality that is unpalatable to it.


If there is any factor which will impact negatively upon the economy, government has so great a short-sightedness that it cannot recognise it or, on the rare occasion that it does, it cannot conceive that it would be a result of its own action or inaction.


If there is any occurrence which is at variance with government’s ideologies, its policies, or its self-interest, it fails to take note of it, let alone address it, or it attributes blame to others for having brought it about.


And if there is any need for governmental action of a nature which would evidence that need was as a result of that which government has or has not done, then total myopia sets in. It cannot see that need must be fulfilled.


The examples are manifold. One of the foremost is demonstrated by the ridiculous projections which emanate annually from government as to anticipated levels of agricultural production.


Prior to the commencement of each agricultural season, forecasts of output are proudly released. Each such forecast is markedly higher than the actual production in the preceding season, but government always has some justification for the anticipated increases, while it disregards any circumstances which negate that justification.


Agriculture has always been the foundation of the Zimbabwean economy. At its height, tobacco produced 237 million kilogrammes, most of which was of exceptionally high quality. At that time, Zimbabwe not only produced the 1,8 million tonnes of maize required to feed the populace, but it also produced a surplus for export to neighbouring territories.


Zimbabwe was, to all intents and purposes, the region’s granary. It produced large volumes of sugar, considerably in excess of the national consumption need, and yielding much valuable export-generated exchange. It had a national herd which was three times the size that it is today, constituting world-class beef for home consumption and for export.


The cotton crop was acknowledged to be the finest cotton in the world, and was produced in great volumes. Now the quality has deteriorated markedly, and it is of substantially less value than before. Similar circumstances apply to almost all other Zimbabwean agricultural produce.


However, none of this deters government from annually projecting remarkably greater production, instead of recognising the real causes of the near-demise of the agricultural sector. And, even if that is disastrous for the country and its people, government can readily afford to give such projections, deluding itself and some of the gullible population. It is already apparent that 2005/2006 will be no exception to this devastating trend of short-sightedness, and of an inability to see realities, or of an unwillingness to do so.


The realities behind the accelerating demise of agriculture, unseen by a government which has grossly impaired vision, is that it cavalierly ejected from the lands the thousands of farmers who had long proven their very great skills and productivity, doing so in total and contemptuous disregard for justice and equity, international law and human rights.


Moreover, it replaced those who had fed the nation, who had provided employment for over 300 000 farm workers, who had steadily reinvested the profits of their efforts into further development, and who had fuelled economic growth and well-being with, in very many instances, those diametrically opposite to those attributes.


Of course, some of the new farmers are very able, capable and motivated. But many were only interested in vandalising the farm improvements in order to dispose of them for gain more easily achieved than from working the lands. Selling the asbestos sheeting, doors and doorframes from farm buildings, pumps, motors, irrigation equipment, fencing, stocks of chemicals, fertilisers and insecticides yielded quick returns at considerably lesser effort than farming.


And for those desirous of working the lands, most had little or no resources, or access to them, precluding them from doing so. Compounding the catastrophic regression of agriculture, year after year government has promised timeous availability of operational inputs, but year after year they have failed to materialise.


In the last few weeks government has once again shown its pronounced blindness to realities, with inevitably appalling consequences looming ahead. Because of its almost total inability to contain its expenditures, government is ravenous for borrowings to supplement its revenues.


It has so destroyed its international creditworthiness that it cannot access foreign lines of credit — save, very possibly, for a loan from South Africa, which despite pronounced protestations to the contrary will undoubtedly be linked to an array of conditions focused upon transforming the Zimbabwean political and economic environments to one of stability and international acceptability. So, instead, it has to seek the loan funding from within the domestic market.


Aware that attracting the large loan inflows necessary would be extremely difficult, and very costly within the prevailing interest rate regime, government had a brainstorm. It was very conscious that the greatest financial resources lie in the hands of the insurance companies and pension funds, so government saw a golden opportunity to raise the monies needed.


Those companies have always been required, in law, to invest a proportion of their funds in prescribed assets which, essentially, comprise governmental loan instruments. However, to achieve the amount of funds required, the specified percentage to be so invested would have to be raised to untenable levels, so some other methodology would have to be resorted to.


And that is where the “brain-storm” came in. With a bureaucratic stroke of genius, government announced in the mid-term fiscal review that hereinafter the specified percentage of funds to be invested in prescribed assets must be computed upon the market value of the institutional assets.


This is not only foolishness in the extreme, but also the final nail in the economy’s coffin. If all the assets of the insurance companies and pension funds must be valued at market value, the amounts required for investment in prescribed assets will be gargantuan. In order to have such massive amounts of funds available, the institutions will have no alternative but to withdraw very considerable money market investments from the banks and building societies.


So great will be those withdrawals that Zimbabwe could well be confronted with a banking sector crisis of equal or greater magnitude to that which prevailed in early 2004, with a concomitant loss of confidence in that sector on the part of economic players. The radical extent of such unavoidable withdrawals could well collapse several banks and building societies, and others dependent upon the financial bodies.


Of similar, or even greater catastrophic consequences, is the possible total failure of the Zimbabwe Stock Exchange (ZSE). In determining the market value of their assets, the insurance companies and pension funds will necessarily have to value the quoted securities held by them by reference to the last sales on the exchange of such securities.


But, upon the institutions offloading vast quantities of equities into the market, the values must inevitably fall very significantly, and especially so as normally the institutions are the principal buyers of quoted securities, and yet now they will be the sellers. There will be very few buyers, and that will depress the sale prices very considerably.


Over and above the plethora of other calamitous repercussions of a collapse of the ZSE, the ability of the private sector to source investment capital by reverting to listings on the bourse, and to rights issues, will cease, resulting in yet another major hindrance to the much needed economic development.


The old adage, “look before you leap”, applies, but government’s myopia is so great that it regularly leaps into the chasms of economic disaster, worsening the lot of all Zimbabweans.

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