Eric Bloch column

Lack of forex fuelling collapse


FOR a long time, government believed that the business community was crying “wolf” with recurrent prognostications of imminent collapse of their enterprises, due to an insufficiency of foreign currency to fund essential

imports.


Undoubtedly that disbelief was fuelled by two primary factors. The first was government’s never-ending belief that all businessmen are endlessly resorting to pronounced profiteering, at the expense of the populace and of the well-being of the economy and that therefore, if they bewailed any circumstance, they are misrepresenting realities in order to achieve even greater profits sought by their never-ending greed. Any factors given by the business community would, therefore, either be wholly disregarded by government, or would be cavalierly dismissed as being wild distortions or exaggerations, of little or no consequence.


Inevitably, the second factor that has motivated government to treat the desperate pleas of the business sector with contempt, must be assumed to be that government itself has become so prone to misrepresentation that it automatically takes it for granted that everyone else does likewise. This is compounded by the fact that government suffers from pronounced paranoia, and therefore it perceives the distressed wails of the business sector to be nothing but veiled criticisms and attacks upon government, instead of recognising that the cries of probable collapse are genuine, and are distraught appeals to government to do something constructive to resolve the looming crisis.


It is time that harsh realities are recognised: the amount of foreign currency falls far short of the national need. Such foreign currency as is forthcoming, primarily by way of export proceeds, is fast exhausted in funding a few priorities, leaving little or nothing for most enterprises. By the time food imports have been paid for (necessitated by the state’s near total destruction of the agricultural sector), fuel imports paid for (albeit for a fraction of the fuel that the country needs), and foreign currency is allocated for the purchase of agricultural inputs (in the vain hope of recovery of agriculture, as improbable as that recovery is until the so-called land reform programme is constructively restructured), there is an insignificant amount of foreign currency left for other purposes. Moreover, much of that insignificant amount is required for government’s own purposes.


Some of those purposes are very merited, such as honouring Zimbabwe’s grossly overdue debt repayment obligations with the International Monetary Fund, but it is extraordinarily difficult to justify others, in Zimbabwe’s straitened foreign exchange circumstances. How can one credibly justify the purchase of jet fighters for the Air Force, aviation fuel for consumption at air shows, and dozens of new motor vehicles for chiefs and for unnecessarily appointed additional cabinet ministers, when one cannot provide a sufficiency of foreign currency for anti-retrovirals, for the manufacture of pharmaceuticals (with some of the manufacturers not having received any foreign currency since last February), for the manufacture of goods for export (which would thereby generate foreign currency), and for the manufacture of import substitution products (thereby reducing foreign currency needs), and for sufficient fuel to keep Zimbabwe on the move? Any attempt at such justification must be spurious.


The bottom line is that numerous enterprises are on the verge of collapse. They have struggled vigorously to continue operations, sourcing whatsoever imported inputs they could by recourse to lines of credit from suppliers, until the suppliers understandably withdrew those lines, as a result of the recurrent debt default on the part of their Zimbabwean customers, due solely to the ongoing inability to access the foreign exchange necessary to service the debts.


They also tried energetically to continue operations by very careful management and productive usage of whatsoever limited stocks that they had. And, in order to meet market needs, continue to provide employment, continue to generate export revenues, and continue to be contributive participants in a declining economy, many resorted to imports financed through the parallel market, only to be prosecuted for so doing.


It is time government recognises, even though belatedly, that Zimbabwe’s economy is in crisis mode. The ranks of more than two million unemployed, who wish for employment, will soon be joined by many more, unless some very positive actions are taken, without delay, to address the crisis. The decline in the economy, which government has been foreshadowing in presidential and budget statements as being reversed, will intensify, unless effective steps towards foreign exchange generation are forthcoming without delay, no matter how unpalatable they may be. And the revenue flows to the impoverished fiscus, with its disastrous levels of debt, will shrink even more, as businesses collapse, more and more become unemployed, and the already constricted consumer spending power is constrained to an ever greater degree.


The first of the necessary steps is for government to pursue policies which are complementary to the Reserve Bank’s monetary policies. No matter how soundly based most of the monetary policies are, they cannot succeed when they are undermined by the contrary policies of government, mainly being politically driven polices which destroy investor and business confidence, are destructive of economically necessary, harmonious, international relationships, and which swell the fiscal deficit. In particular, government needs to prioritise many of the foreign currency requirements of the private sector ahead of many of its own. It needs to reduce its own foreign exchange usage to the bare minimum and absolute essentials, instead of spending on its “like to have” needs.


Secondly, it must work intensively to repair its relationships, and restore the good, past Zimbabwean image, with the international community. Doing so requires, in the first instance, to rid itself of its pronounced paranoia. It needs to disabuse itself of the misconception that the former colonial power, Britain, and its allies, are enemies of the present Zimbabwe, determined that the country should again be subject to colonialist control. That is the last thing that Britain, the European Union, and the United States actually want. Empire-building and colonialism is something of the past, to which they no longer aspire. What they do want is evidence of democracy, respect for human rights, justice and real law and order, constructive economic policies, and a desire for a meaningful contribution to global harmony and international collaboration.


Aligned to such policies must be the creation of a genuinely investment-conducive environment. That does not exist when the president threatens indigenous takeovers of equity in the mining sector, perceived nationally and internationally as being a potential replay of the injustices that characterised Zimbabwe’s catastrophic land reform programme. (The programme was very necessary, but the manner of achieving land reform was unjust, inhuman and economically disastrous.) And that investment-conducive environment does not exist when the Minister of Transport and Energy talks of forced nationalisation of white-owned businesses, even if thereafter the Minister of Industry and International Trade commendably makes a statement that no such action is contemplated, and that it will not occur.


Such an environment also does not exist when foreign investors are entitled to dividend remittances, but cannot effect them when the foreign currency is not available. And it does not exist when the speedy processing of foreign investor applications by the Zimbabwe Investment Centre is negated by inordinately prolonged delays in procuring work permits for essential expatriate employees.


Concurrently, government and the Reserve Bank must work together, with great urgency, to assure exporter viability. Although the exchange rate moved very significantly over a period of six months, the move was not sufficient, if measured against the rate of inflation, and for the last few weeks has been almost static. Exporters cannot survive if inflation-driven cost increases are not offset by appropriate exchange rate movements. Exporters can also not survive if they are obliged to surrender 50% of export earnings, in the event that their import contents of the exports exceeds 50%.


Whilst the present foreign exchange crisis requires maximum possible surrender of export revenues to the Reserve Bank, Zimbabwe is “cutting off its nose to spite its face” when it requires surrenders to an extent as preclude export operations.


Hand in hand with assuring exporters of their currency needs, Zimbabwe needs to recognise that many potentially exportable products are not export price competitive against like products, especially from the Far East in general, and China in particular, because of the magnitude of export incentives that the competitors receive from their governments. Zimbabwean export incentives fall far short of those given by China and others, and government and the Reserve Bank need to revisit the export incentive regime (within the World Trade Organisation/GATT constraints).


These are but a few of the measures necessary to avoid an intensifying collapse of a business sector which already has innumerable enterprises operating on a two or three day working week only, or under closures with personnel being required to proceed on leave pending imported inputs being forthcoming.


Time is fast running out and, if the right actions are not urgently embarked upon, the only growth businesses in Zimbabwe will be those of professional liquidators.