Eric Block Column

Budget facts and myths


By Eric Bloch

LAST week’s presentation by the Minister of Finance, Herbert Murerwa, of Zimbabwe’s 2007 Budget, was yet another masterful demonstration of government’s immense

prowess at presenting myths as facts, applying those mythical facts to policy formulation doomed to fail, due to the lack of foundation, and total disregard for unpalatable realities.


It boggles the mind to understand how a person with such proven, unquestionable, intellect as the minister can enunciate so much as is devoid of factuality, and to do so with an impression of total authority.


One must assume that either absolute loyalty to a misguided and inept government, or to a staff myopically unaware of the real circumstances of the Zimbabwean economy, repeatedly blinds the minister’s intellect to the genuine circumstances impacting upon the economy, and lowering it ever further.


Admittedly, the minister did recognise that the economy’s distress continues to worsen. He acknowledged that the economic “challenges” include ever-increasing prices, continued distortions in the pricing of key commodities and utilities, unemployment and rising poverty levels, foreign exchange shortages, low industrial capacity utilisation underutilised allocated land, inadequate measures to deal with rising levels of corruption in both public and private sectors, deteriorating provision of basic public services, from maintenance of infrastructure, inconsistency of policy pronouncements, and declining clarity over the role and accountability of the key institutions of government.


In particular, he noted that “one of the consequences is of the lowest paid workers earning below the poverty datum line”, and that “the deterioration in the welfare of our people has seen their capacity to access basic healthcare services, education, housing and other amenities collapse overnight, under the prevailing hyper-inflationary environment”.


However, whilst having realistic recognition of the distraught state of the economy, not only was there no demonstration of like realism in identifying the causes of the state, but there was also no credible veracity to the expectations of reversal and recovery. Once again, government denies all liability for causing the economic morass.


Instead, once again it trotted out the specious contention that the cause is that “the country remains under siege, facing sanctions from the West, characterised by lack of balance of payments support, lines of credit, foreign direct investment and deliberate efforts to undermine our economic turnaround initiatives.”


What unadulterated hogwash! No country has legislated a prohibition upon investment in Zimbabwe, but who wishes to invest in a country which is authoritarian instead of democratic, has no respect for law and order, contemptuously disregards human rights, excessively regulates its derelict economy (to the extent of harsh imprisonment of business directors whose crime was to try to ensure the survival and viability of their businesses, and availability of bread for the populace), alienates the international community, overrides property rights, mismanages government, and does nothing to contain corruption or curb state expenditure, but fuels endless inflation?


In like manner, which banker will advance lines of credit to a country (or any other borrower) that has extensively defaulted in debt servicing, and whose circumstances are such that continuing default is virtually inevitable. Yes, the USA’s Zimbabwe Democracy Act precludes that country supporting any provision of funding by the International Monetary Fund (IMF) to Zimbabwe, but in practice there is, in any event, no possibility of such funding for so long as Zimbabwe continues to have all the characteristics of a delinquent, high-risk, borrower, so there is no effective sanction.


And, far from seeking to undermine Zimbabwe’s economic turnaround activities, the world at large continues to support Zimbabwe. The European Union buys more goods from Zimbabwe than it sells to Zimbabwe. So too does the United States!


Zimbabwe has a significant favourable trade balance with both the EU and USA. If they wished to prevent economic turnaround, they would not engage in trade favourable to Zimbabwe. It is incontrovertible that foreign direct investment (FDI), balance of payments support, and lines of credit, would accord some relief to the aforesaid state of the economy, but their absence is not the reason for that state and, unless the causes are clearly identified, and constructively addressed, the long-desired economic turnaround must remain a mirage.


Unfortunately, there is no evidence of any will, on the part of government, to identify such causes, let alone to try to address them. Instead, government compounds its destructive delusions by relying upon unattainable economic developments to bring about the economic recovery.


The minister foreshadows an economic upturn on the back of agriculture, which he expects will surge upwards as a result of timeous availability of inputs, and facilitated by access to capital by virtue of the issue of 99-year leases. However, he disregards that only some of the required inputs have been timeously received, many of those received have not been productively used, but have been onsold into other economic sectors (such as diesel and petrol, supplied by Noczim at nominal prices, and sold on the black market at five or more times such prices), and the leases are a farce which accord no collateral value.


Not only have very few leases actually been issued (275 in all!), but the extent to which the State has retained powers of termination, and the non-transferability of the leases without restriction, renders the leases meaningless as security for borrowings. Those factors, the extent to which agricultural lands have not been prepared, and the absence of substantive planting, makes it irrefutable that any increase in agricultural production in 2006/7 will be minimal.


However, the minister has not pinned his hopes exclusively upon agriculture. He informed Parliament that “polices to improve viability in the mining sector will be vigorously pursued by government. This should support the revival of mining production”. But he made this statement at the very time that mining viability is being destroyed by maintenance of an unrealistic exchange rate, and by inordinately delayed payouts to gold producers for their gold deliveries. It is also at a time when government endlessly speaks of intended economic empowerment legislation so draconian as to deter any investment into the mining sector.


Tourism is yet another sector upon which the Minister focused for economic recovery. His positive prognostications were founded upon a 45% growth in tourist arrivals during the period to September, 2006 over the same period in 2005. Disregarded, however, was that much of that growth in arrivals was represented by cross-border traders, by day-trippers residing at luxurious hotels on the Zambian side of the Zambezi River, and by back-packers, none of whom provide any significant economic benefit to Zimbabwe.


Yet a further source of economic development will, according to the minister, be FDI. Commendably, he said that “in order to attract and give confidence to foreign investors, government is fully committed to honouring all its international obligations under various protocols and international agreements, including the Bilateral Investment Promotion & Protection Agreements (Bippas).”


Unfortunately, the minister then digressed from his prepared speech, by adding that compliance with Bippas will be determined “on a case by case basis”. No potential international investor will glean comfort from the existence of agreements which will only be selectively honoured at the whim of government.