Eric Bloch Column

Zanu PF ignorant of fundamentals

By Eric Bloch

FEEDBACK from many who attended the eighth People’s Conference of Zanu PF at Mzingwane two weeks ago concentrated almost entirely upon two aspects.

The first was the amazement a

t the abundance of food available to delegates, ranging from 50 cattle, to estimates of several hundred sheep and goats, kudu, hundreds of kilogrammes of maize meal, and much else. Clearly there was very bountiful feasting, apparently reminiscent (for some) of the reputed orgies of ancient Rome and Greece.

That such gastronomic revelry was possible was not surprising, for over and above receiving vast donations from the well-endowed of the party members, and equally vast donations from numerous businesses in Matabeleland South and in Bulawayo (undoubtedly responsive to subtle pressures!), the party also received a “donation” of $1,5 billion from Zimbabwe United Passenger Company Ltd (Zupco). It is a company owned by the state, and one must ponder as to what pressures may have been applied upon its management to make that donation.

One must also ponder as to whether the donation was not a devious, albeit technically legal, circumvention of the legislative limitations of funding by the state of political parties. (Why did Zupco not make simultaneous donations to MDC, UPM and the few fringe political parties?)

Although all, or almost all, who partook in the bunfight, undoubtedly enjoyed the feasts, there were clearly a conscientious few who had a sense of guilt, and qualms of unease, prompted by awareness of the many millions of Zimbabweans unable to access even if minimum food needs. With so many suffering from malnutrition, with under-nourishment increasingly becoming the order of the day for a growing number of Zimbabweans, there appear to have been some conference delegates who had twinges of conscience and a sense of shame as they revelled unabated, whilst numerous Zimbabweans were starving.

Possibly it was this which caused many to focus upon Zimbabwe’s hyperinflation during the deliberations of the conference. More probable, however, was that that focus was driven by a fear of progressive loss of support from the electorate as hunger, poverty and misery intensifies. Inevitably there must be an increasing party concern that its 25-year grasp on power would progressively be in greater jeopardy, as ever more would blame government for the economic ills afflicting Zimbabwe or, even not holding government culpable for those ills, nevertheless blaming it for not reversing them.

Apparently there were two overriding views as to the causes of inflation, and the necessary measures to contain it. The first was, yet again, that soaring prices are naught but the machiavellian machinations of commerce and industry to realise excessively great profits, or as malicious techniques of businessmen to undermine confidence in government.

It appears that these politicians have an impenetrable barrier to their brains (if they have any), barring their recognition that, first of all, businesses cannot survive if they do not make profits, and secondly that attainment of profits without price escalations is near impossible if costs are rising (including wages and parastatal charges), and if sales volumes decline as a result of foreign currency shortages, declining consumer demand, and other factors.
The ability to survive and to engender even a reasonable return on capital employed is further exacerbated by dependency upon greater borrowings, as working capital needs soar in response to inflation, and consequentially greater interest charges.

For businesses to contain price increases, they need an adequacy of operational inputs on a regular basis, which is dependent, for many, upon availability of foreign currency, so that they can maximise their utilisation of productive capacity to best advantage, achieving greater volumes to bear apportionment of fixed costs. Moreover, greater productivity generates greater volumes of the products, fuelling competition, and there is little that can curb price escalation more than can competition. But delegates, with a paranoid conviction that the business sector wishes to destroy the party by using prices to turn the populace against it, will not face realities.

Their repeated calls for price controls can only destroy private enterprise, other than the black market, but they remain rigidly oblivious to this long-proven, internationally recognised, incontrovertible fact.

The second, even more economically dangerous, perception very voluably exposed at the conference, was that the primary cause of inflation is the depreciation of the Zimbabwean dollar, and that not only must that depreciation be halted, but also that it must be reversed. It is undeniable that a very, very major contributant to inflation has been the declining value of the national currency, for that has fuelled a massive rise in the landed costs of imports, be they agricultural, mining, industrial or other inputs.

But the demands from numerous conference participants, including a significant number of ministers, that the Reserve Bank of Zimbabwe be directed to effect an arbitrary gargantuan revaluation of the Zimbabwe dollar demonstrated an abysmal ignorance of economic fundamentals. Their demands evidenced that they have absolutely no understanding of the devastating, disastrous consequences that would flow from such an action.
Those demands were that the exchange rate then prevailing of approximately $75 000: US$1 should be adjusted to the rate of some years ago of $824: US$1, and some even suggested that the rate should revert to the one time rate of $55: US$1.

The repercussions of any such rate adjustments would be catastrophic in the extreme. Each and every exporter in Zimbabwe, including producers of tobacco and other agricultural products, mining, manufacturers, and the tourism industry, would be faced with irreversible, immediate collapse. With such exchange rates they would not be able to fund even the most basic of their operating costs. Overnight, at least a million Zimbabweans would become unemployed. The total cessation of exports would mean that the only foreign currency inflows into Zimbabwe would be those of international aid agencies, embassies and NGOs. Even the present extremely limited imports of fuel, food, agricultural inputs, health care products, and the like, would cease. The Zimbabwean economy would no longer be ill, it would be dead!

The politicians are correct that Zimbabwe needs exchange rate stability, for diverse reasons, including inflation containment. But the manner of achieving that stability should not be by destructive regulation. It must be brought about by ensuring that the availability of foreign currency is equal to, or greater than, the demand for it.

That must be achieved through a number of actions, including containing inflation by curbing state expenditure, containing money-supply growth, increasing productivity (and especially so in agriculture, which must be de-politicised and restored to viability), encouraging competition, eliminating waste, and halting corruption. That inflation containment will stimulate export performance.

Increased availability of foreign currency must also be brought about by other export stimulatory efforts, including meaningful incentives, consistency in export processing zones’ policies, encouragement of toll manufacturing, recourse to barter trade, and to import substitution, and the like. Concurrently, non-confrontational policies impacting upon international relations will enhance availability of foreign lines of credit, and of aid. And all these factors, if reinforced by restoration of genuine democracy, and of law and order, will motivate foreign direct investment.

Those at the conference who so foolishly advocated and demanded regulated exchange rate revaluation need to think again (or is it, begin thinking?) and recognise that the exchange rate must reach conducive economic levels by constructive, stimulatory economic measures.