Eric Bloch Column

By Eric Bloch

Reserve Bank not responsible for forex crisis

AS has become the norm in Zimbabwe when any crisis occurs, government, parliamentarians and various pressure groups seek scapegoats upon whom they can lay blame for the crisis. Their

motives for doing so, more often than not, are to divert any attention from their own roles in creating such crises, most frequently being that they had advocated ineffective and counterproductive proposals, and pressurised for implementation of those negative propositions, or where the crisis is due to their own actions, not only to avoid being blamed, but to gain advantage by blaming opponents.

Zimbabwe has suffered the consequences of lack of foreign exchange for many years, and each time that the scarcity intensified, victims of misdirected blame were readily identified. At different times the fault has been attributed to bureaux dé changé (now extinct!), to multinationals and others in major commercial and industrial operations. It has also been extended to black market currency speculators, to malevolent enemies of Zimbabwe amongst the international community, to white commercial farmers, to alleged profiteering activities of banks and others in the financial sector, on many occasions to the Reserve Bank, and to many others.

Recently criticism for the shortage of critically needed foreign exchange has been directed at the Reserve Bank in general, and its governor, Leonard Tsumba, in particular. The critics expect the Reserve Bank to access necessary foreign exchange and to ensure that Zimbabwe has all the forex that it requires, but they do not provide the Reserve Bank with the tools with which to do so, but actually make it impossible for the Reserve Bank and its governor to do anything effective, handcuffing their hands behind their backs, but still expecting them to pull the necessary triggers required to generate the foreign exchange that the nation needs.

Zimbabwe has four main potential sources of foreign exchange, namely, exports, tourism, foreign direct investment and support by international monetary organisations and donor states. Addressing these in almost reverse order, the inflow of investments is minimal, for few are disposed to invest in a country which is politically and economically unstable, and where any enterprise is severely constrained in its operations by excessive state regulation, inclusive of stringent price and exchange controls, oppressive labour legislation, onerous taxation, and intensive, excessive bureaucracy. Although Zimbabwe has much to offer investors, including an array of highly desirable natural resources, a vast and able pool of labour, and access to a regional market of over 320 million people, over and above markets further afield, all these positives are countered by the operational regime of the economy. As a result, investors favour more welcoming investment environments, and Zimbabwe figures very low in assessments of potential investment destinations.

Support from international monetary organisations such as the International Monetary Fund (IMF), the World Bank, European Investment Bank, Africa Development Bank, Development Bank of Southern Africa, and many others is readily forthcoming in instances where the institutions know that the support will be used constructively and beneficially towards the economic development of the recipient country and its population. It is not forthcoming where the countries concerned abuse the funds received, and where those countries conduct their affairs in ways that negate any beneficial use of the funds. And those institutions will not make funding available in instances where the potential recipient is known to breach agreements, to fail to service debt, to function in ways abhorrent to the international community and in reverse to the fundamental principles of good governance and respect for human rights. Thus Zimbabwe no longer receives funding from the international monetary entities, and donor support has declined dramatically.

Tourism, although still a vital element of the economy, contributes a fraction of that which it could to the economy and to the nation’s foreign exchange needs. Not only is it adversely affected by international events such as the war on Iraq and the outbreak of Sars, together with economic recession in many countries, all of which factors have repercussed severely upon world tourism, but it is also affected devastatingly by Zimbabwe’s appalling international image. Government would have one believe that that image is the creation of its enemies, including the independent press in Zimbabwe, the international media, the British government and other countries which have clashed with the rulers of Zimbabwe on such issues as contempt for human rights, justice, democracy and law and order.

The reality is that the Zimbabwean image abroad is the product of frequent brutality and oppression by arms of government, of the injustices perpetrated upon many by the state, of the baseless, confrontational mouthings of the Minister of Fiction, Fable and Myth and many of his colleagues, of the disregard for the fundamentals of democracy, and so forth. Insofar as the tourist is concerned, the image is also tainted by the collapsing economy, with resultant uncertainties of flight schedules and availability of fuel, access to tourism requisites.

Exports can, and should, be the main source of foreign exchange, but the state has progressively diminished the ability of Zimbabwe to export. The biggest export-based foreign exchange producer in times gone by was agriculture. Zimbabwe was regularly able to earn more than US$400 million from its tobacco, whilst producing almost the same amount from its other agricultural outputs, inclusive of cotton, citrus, sugar, coffee and tea, timber, and much else. However, a programme of racially based land expropriation, without even a concomitant, effective programme of empowerment of those accorded the acquired land, has turned agriculture into a shadow of its former self. At the most, the yield of the 2002/3 tobacco season is 40% of that of the past, and almost all other crops are in similar decline.

Of course, there are some examples of successful new farmers, and the governmental propaganda machine makes much of their successes, falsely trying to suggest that those successes are characteristic of the whole programme of land acquisition and resettlement. But they are the exceptions, not the rule. Agriculture has been decimated, even though government will not acknowledge it, and that decimation is a great contributor to the collapse of the economy as a whole, including the lack of foreign exchange.

The mining industry is also under very considerable stress. Its costs are soaring in tandem with inflation. It is unable to source the inputs necessary for consistent, viable operations. Although it is a generator of foreign exchange, it does not have enough for its operational needs. Wages are escalating, and electricity — when available, for its supply is erratic — costs 10 or more times than it did previously. The economic afflictions upon the mining industry have forced many small and undercapitalised operations into closure, and are severely constraining the operations of greater producers, while deterring the establishment of new mines to exploit Zimbabwe’s very considerable mineral resources.

Manufacturing is equally distraught. Cost are surging with unavoidable recurrent wage increases, massive escalations in electricity, telecommunication, transportation, engineering and all other supplies, and imported inputs are rising in price continuously as the cost of scarce foreign exchange grows endlessly. The exporting sector briefly enjoyed a reprieve when, in February 2003 government belatedly adjusted the exchange rate resulting in a meaningful increase in exporter income, but that was soon eroded by the further increases in operating costs for almost three months that followed, resulting in many in secondary industry once again finding it impossible to export profitably.

For a very extended period of time, government has been promising the introduction of substantive export incentives.

Until government becomes genuinely export conscious, and interacts positively with the private sector, and becomes proactive instead of lethargically reactive, export earnings can only continue to decline.

Clearly, Zimbabwe’s forex problems are not the fault of the Reserve Bank, and most certainly not the fault of its governor, who has demonstrated repeatedly his awareness of the necessary, but has been prevented from doing that which was and is needed. The responsibility for the forex problems is fairly and squarely at the feet of government.