Policy reviews must learn from history
By Eric Bloch
AFTER six continuous years of economic decline, the Zimbabwean economy embarked upon a tentative recovery and upturn in the course of 2004, mainly attributable to the
monetary policies introduced by the then newly incumbent governor of the Reserve Bank of Zimbabwe (RBZ), Gideon Gono.
Admittedly the turnabout was, inevitably, a very slow one, the economy continuing to be extremely distressed, but nevertheless there were the first positive changes since 1997.
Inflation began to fall, exchange rates commenced to stabilise as exports grew and greater, albeit still insufficient, foreign exchange became available in a slightly more orderly foreign exchange management system, there were indications of investment being forthcoming, interest rates were falling and much else.
A sliver of hope and optimism began to develop among the populace in general, and the business community in particular, although guardedly so in the light of the preceding six appalling years, and continuing signs of vacillating governmental policy.
Then, as Zimbabwe progressed into 2005, and particularly in the second half of that year, the economic gains were speedily reversed, and the economy fell into greater depths than ever before. Nothing effective has been done to halt the free-fall of the economy, despite fairly vigorous efforts by RBZ, for the government obdurately refused to recognise the causes of repeated economic regression.
Instead, the economy has plummeted to its lowest ever depths, with year-on-year inflation to May 2006 amounting to almost 1 200%. Despite frequent forecasts to the contrary, much of agricultural production has continued to fall — as evidenced by a 2006 tobacco harvest of less than 50 million kgs, against 237 million kgs in 2001. The 2006 crop is an all-time low in the last 60 or more years!
Zimbabwe continues to be without self-sufficiency of food, sugar remains in short supply, and much other agricultural production is well below 20th century levels.
Mining production is also shrinking. Utilisation of industrial production capacity is believed to be at less than 25%. In four years the poverty datum line for a family of five has risen from less than $4 million to over $61 million. Unemployment has soared upwards.
The list of characteristics of a collapsing economy is endless and undeniable, and the need for dynamic economic reform measures is immense.
Over and above the fact that the government has launched yet another programme for economic reform and recovery (the seventh in 26 years) — the National Economic Development Priority Programme (NEDPP) — the government is due shortly to undergo and present its 2006 mid-term fiscal policy review and the RBZ will be presenting its 2006 first half-year monetary policy review.
Those reviews, if realistically aligned to NEDPP, could become the launch pads for the economy to begin to upturn once again, and if NEDPP is pursued in a genuine consultative mode with the private sector, instead of the façade of consultation that has prevailed for much of the years since Zimbabwe’s Independence, and if the reviews enact courageous measures for change, notwithstanding that implicitly some of those measures may be irrefutable confirmation of causes of the pronounced economic ills that afflict Zimbabwe, that upturn will materialise.
In 2005, Gono included in a quarterly monetary policy review a frank assessment of what had gone wrong in the years up to and including 2003 and what had been done right in 2004. He identified 19 challenges that faced the economy in 2003, being:
* shortage of foreign currency and diminished export competitiveness;
* price and exchange rate distortions;
* under-capacity utilisation and reduced corporate sector viability;
* contraction in economic activity;
* low savings and investment;
l declining levels of both foreign and local investment;
* high and recurring budget deficits;
* domestic debt overhang;
* unstable energy supplies;
* supply side bottlenecks;
* growing incidence of private and public sector corruption;
* financial sector indiscipline;
* strained international relations;
* high perceived country risk and reduced international credit rating;
* deteriorating and over burdened infrastructure;
* weak economic empowerment and worsening poverty;
* accumulation of external payment arrears; and
* high incidence of brain drain.
Each and every one of those characteristics that prevailed up to 2003 have resurfaced in 2005/2006, save and except that there has undoubtedly been a significant reduction in financial sector indiscipline, as a result of the determined controls introduced by the RBZ over the last two-and-a-half years. And yet, almost all of those characteristics had been meaningfully addressed in 2004 and early 2005, setting the economy on the road to recovery, only to be deviated therefrom.
Therefore, in formulating the mid-term policy reviews, the government and the RBZ need to reflect upon history, identifying realistically what had been the causes of the barrage of economic ills and what had been the measures which had begun to reverse them, only to be negated by policy reversals or lack of commitment.
Politically, although there is much that is needed, the three overriding priorities are that, first and foremost, the land reform programme must be reformed to restore agricultural wellbeing, including an absolute halt to farm invasions, belated respect for Bilateral Investment Protection and Promotion Agreements, equitable and just redistribution, fair compensation, assured tenure, and timeously available inputs, with realistic producer prices.
Secondly, the government must determinedly contain its spending. The days of fiscal profligacy must be assertively ended.
Thirdly, the government must resolutely pursue reconciliation with the international community, abandoning its convictions of omnipotence and inability to err, and discarding its misplaced persecution complex.
The monetary policy review will also need to cover much ground, but foremost must be a focus upon the exchange rate system and foreign exchange generation. Viability for exporters must be restored rapidly, thereby not only enhancing the inflows of critically necessary foreign exchange, but also being a major tool in containing inflation, for increased industrial productivity flowing from export growth would substantially and favourably impact upon inflation.
However, the most critical need is for the fiscal policies to be synergistic with, and supportive of, the monetary policies and vice versa. One of the greatest reasons for the reversal of the economic upturn, commenced in 2004, was the magnitude of the conflict in 2005 and 2006 between fiscal and monetary policies.
The state cannot expect economic redemption if its policies recurrently conflict with the monetary policies, if it continues to isolate Zimbabwe from most of the world, if it only listens to the private sector when it says what the government wants to hear and if it does not learn from its errors. History is there to be learnt from!