Eric Bloch Column

President’s speech out of touch with reality


B

y Eric Bloch



LAST week President Mugabe delivered an address on the occasion of the opening of the Fourth Session of the Fifth Parliament of Zimbabwe. Insofar as that address focused upon the Zimbabwean economy, it was so pronouncedly detached from reality that the presidential speech-writer should be unceremoniously discharged, as should all those in the various ministries of government as they must have misinformed that speech-writer to an almost inconceivable extent.


At an early stage of the address,  Mugabe said, in reference to Zimbabwe’s land reform programme, that “the fast track phase …. is largely concluded and has so far yielded tangible benefits to the vast majority of our people. There is a new sense of empowerment …. which has brought thousands upon thousands of hitherto marginalised families back into the economic mainstream”. He said that “the land reform programme has so far yielded tangible benefits to the vast majority of our people”.


How on earth can such statements be reconciled with the fact that the 2002/3 tobacco crop is about 30% of that previously attained, the maize crop approximates 10% of national requirement and the current winter wheat crop is expected to be, at best, 20% of that of prior years, and the national herd has dwindled to minimal levels? And how can such a statement be credibly reconciled with the fact that an estimated three-quarters of the Zimbabwean population struggle for survival at levels below the poverty datum line, while almost half of the population barely exists below the food datum line?


The contention of tangible benefits to a vast majority of Zimbabweans is devoid of credibility when hundreds of thousands are suffering gross malnutrition and increasing starvation is the order of the day. And that contention is irreconcilable with Zimbabwe’s recent, desperate appeal to the international community to continue and increase the provision of humanitarian food aid.


The presidential address alleged that “economic revival has often been drawn back by the shortage of foreign currency owing to depressed economic activity” and suggested that while there were various contributory factors to this circumstance, “a combination of the drought and sanctions has generally created an adverse climate for business”. While there is substance to the reference to a lack of foreign exchange, the depressed economic activity was not attributed to the major causes thereof.


Sanctions have had a insignificant impact, for Zimbabwe is subjected only to “targetted” sanctions comprising, in the main, restrictions upon travel by the ruling party hierarchy and senior civil servants and constraints upon such persons’ foreign assets. Virtually no trade sanctions exist other than that Zimbabwe has not been accorded participation in the Agoa programme of the US for textile and clothing manufacturers in Africa.


And drought had a very limited effect, for very few crops were even planted due to the far-reaching victimisation of commercial farmers, the lack of inputs for small-scale, newly settled farmers, and inactivity of many nepotistically created A2 “farmers”. Instead, the depressed economic activity is primarily attri-butable to ill-conceived and disastro-us economic policies, an a sence of law and order, gross hyperinfla- tion primarily created by govern-ment’s fiscal profligacy and econo-mic mismanagement, wide-spreadcorruption and the governmentally-created unconduceive investment environment.


The address pondered upon “a paradoxical situation where some companies and institutions are doing very well in an economy that officially is in decline”, making especial reference to the fact that “while other companies falter, several continue to record healthy balance sheets and proceed to declare high dividends to their shareholders. This is most apparent in the financial sector.”


Obviously, the speech-writer was unaware that although some enterprises, including many in the financial sector, have achieved marked profit growth in historical terms, virtually none of them have done so when their financial statements have been adjusted to account for hyperinflation. Almost without exception, profits have declined in real terms, and in very many instances the decline has been marked. Moreover, the speech-writer is evidently unaware that profit evaluation can only be meaningful if the extent of the profit is related to the quantum of capital employed and the magnitude of risk attaching to the enterprise’s operation. In an unstable, lawless and hyperinflationary economy, the financial sector’s levels of risk are magnified and should be compensated for by enhanced real earnings. For almost all, this is not the case. And similarly, the allegedly “high dividends” are not as great as they appear to be, if realigned with the change in purchasing power of those dividends.


The address then referred to yet another supposed paradox, being that “basic goods disappear only to re-appear once the magic wand of high prices is waved”. Why is it so incomprehensible that if prices are pitched at levels which do not cover the cost of goods, and which do not enable recovery of operating overheads, businesses cannot afford to manufacture, produce or sell the goods, but if prices are raised to realistic levels which do cover those costs and overheads, and enable a fair profit to be achieved on capital employed, then the goods can be offered for sale?


The partial remedy to the shortages of goods contemplated in the address was that: “There is need to strengthen price monitoring mechanisms while simultaneously encouraging companies to increase their capacity utilisation in order to get more goods at affordable prices.”


Increased productivity is a valid methodology for price escalation containment, but price controls and monitoring of prices and restraints on those prices is not. They only result in business failures, product shortages, unemployment and numerous other economic ills. Over and above maximised productivity, the only effective way of achieving lowering of prices is by stimulating and facilitating competition. Deregulation, not regulation, is a fundamental requirement for economic well-being.


Not satisfied with the extent that it has progressively discouraged investment in private sector enterprise and the extent that it has destroyed the economy, government is obviously set upon doing so yet further. The address recorded that “government will intensify the indigenisation programme by enacting an Indigenisation Bill and ensuring that companies allocate a minimum 20% shareholding to their workers”.


The address was silent on the intended modalities to be applied, but few investors will view investment favourably if they are immediately placed in a situation of a one-fifth loss of their investment. Domestic investors will simply not invest, while foreign investors will direct their investment to other countries with a less regulated and less oppressive investment environment. Indigenised economic empowerment is not only very necessary and to be encouraged but it must be motivated on a basis of merit and equity, aligned with commercial realities.


Moreover, detailed proposals for Employee Share Ownership Programmes formulated from in-depth international and national research, to be implemented constructively, prepared at the instance and cost of well-intentioned international donors, were developed at least five years ago, and have been languishing on the desks and in the corridors of government since then. Instead of considering them and their constructive advantages, government once again intends to resort to dictatorial, heavy-handed regulation. It seems that whenever it has the alternatives of constructive and destructive actions, it resorts to the latter, undoubtedly due to perceptions of attaining political advantage, and discrimination against racial minorities.


Yet a further absence of realism was shown by a statement that: “Interest rates will have to come down through decisive intervention designed to recharge this economy in ways that encourage real wealth generation as opposed to speculative wealth.” Although there is some merit, in a distressed economy, for programmes of funds provision for increased productive activity, export generation and facilitation, and to enable establishment of small and medium scale enterprises, any “across the board” lowering of interest rates is economically disastrous if pursued in a hyperinflationary economy.


Low interest rates other than for productivity, export and investment purposes encourage excessive spending, thereby further fuelling inflation and its concomitant economic and social ill-effects. Regrettably, the speech-writer appears to have no understanding of fundamental economic principles.


Hopefully MPs will, in the course of debate on the address, oppose proposals which will drive Zimbabwe’s economy down to still deeper depths and to urge government, even if very belatedly, to resort to constructive economic measures.