By Nhlanhla Nyathi
THE long-awaited mid-term monetary policy review statement finally came and as usual Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono, under very d
ifficult circumstances, managed to pull one or two tricks from his bag.
Whether these tricks will amount to some positive changes to the man on the street remains to be seen.
The last three months have admittedly been the most horrific for everyone and moreso for Gono as he tried to balance free market economic policies in the midst of overbearing political considerations.
He found himself being an apologist on the one hand and an accommodator on the other for the sake of facilitating progress and finding common ground.
Particularly because of the additional challenges presented by the effects of the price controls on the supply side of the economy, his job just became that much more intense.
Although addressing the shortage of basic commodities is not part of his mandate, the governor felt obligated to do something to alleviate the suffering of the Zimbabwean populace.
Since his appointment, his interventionist strategies in the whole economy have been justified on the grounds that Zimbabwe ceased to operate as a normal economy when multilateral organisations severed ties with the country in 1999.
Gono made it clear that he would not be following economic policy recommendations from the International Monetary Fund (IMF) to abandon quasi-fiscal operations perceived to be inflationary.
To make matters worse, he widened his tentacles through quasi-fiscal activities by announcing wide-ranging loans to public utility enterprises. This puts him on a collision course with the IMF and other multilateral institutions.
Massive amounts in foreign currency and local currency were made available to Noczim, Zesa and Zinwa as part of the process of arresting deteriorating service provision by all public utility companies.
Given that scenario and the fact that Gono has publicly announced that Zimbabwe continues to be a member of the IMF while lobbying for its transformation, more or less seals Zimbabwe’s fate as an outsider.
It would be foolhardy for the ordinary Zimbabwean to think that the transformation of the IMF and the World Bank can come at the insistence of Zimbabwe because it feels disgruntled.
The IMF and other international financial institutions of repute are controlled by a select group of developed countries who contribute significantly towards the financial resources required to fund developing countries. As a result, the veto power to influence decision-making and policy is vested with those developed countries that bankroll the institutions.
Our brothers in the African Union and Sadc might pledge solidarity with Zimbabwe, but unfortunately cannot influence policy direction adopted by such institutions as they themselves are recipients of the same funding.
The question that keeps lingering in people’s minds is: how does Zimbabwe survive if multilateral institutions that by our own admission contributed significantly to the economic development of Zimbabwe in 17 years are to completely cut us off?
What is Gono’s approach and does he hold all the answers for Zimbabwe’s problems post-IMF?
Before focusing on the strategy employed by Gono since his appointment people need to understand the economic and political status of Zimbabwe prior to and at the time of his arrival in office.
Zimbabwe has gone through a recession for the past 10 years with its economy contracting by over 50%. Despite the good infrastructural development inherited in 1980 and subsequent improvements up to 1999, productive capacity has declined to below 30%.
The consequent impact on inflation and unemployment has been terrible. Zimbabwe has been compared to war-torn economies and countries experiencing civil unrest.
Multilateral organisations responsible for BOP support, infrastructure development and other social activities suspended their support in 1999 in response to the crisis.
Zimbabwe has failed to feed its own people and yet prior to the economic recession it occupied a respectable position of food security within Sadc.
Gono’s presentations seem to suggest that Zimbabwe can achieve an economic revolution through concessionary loans to the productive sector.
Considerable financial resources have been invested in procuring farming implements and purchasing inputs at the onset of every farming season. A significant part of the money has been spent on crafting quasi-fiscal operations targeted at developmental projects in the productive sector. The strategy in a nutshell was to empower players in the productive sector through provision of concessionary loans for working capital purposes. Maximisation of production as a direct result of the various loans would boost the economy through exporting excess reserves and reducing imports through import substitution.
In the absence of support from the IMF, the World Bank, and the African Development Bank since 1999, the governor’s strategy finds justifiable credence.
Prior to the suspension of BOP support, the government of Zimbabwe had various alternatives to finance its activities. After the suspension of support in 1999, Zimbabwe has operated from domestic resources which have mainly led to significant money supply growth.
Public utility enterprises and various arms of government get allocations of foreign currency from the Reserve Bank earned through dwindling exports of mineral resources, tobacco, cotton, and the tourism sector.
The question then is why Gono’s policies have not worked to revive the economy?
During his term, inflation has soared to astronomical levels and the social structure for many Zimbabweans has broken down. Inflation is currently at 6 500%.
Does this mean the massive outlay of resources poured by Gono into the productive sector has just gone to waste with no real returns? What is happening?
The non-responsive nature of the productive sector to the massive input of financial resources suggests an underlying problem that might have been overlooked.
An analysis of the Zimbabwean economy will show that because the country went through 10 years of economic recession, infrastructure in all productive sectors had been seriously eroded so that much of the loans extended by the RBZ meant for working capital were not adequate to trigger the anticipated economic revival.
What was required was a recapitalisation of the productive sector through foreign direct investment and provision of reliable support activities such as electricity, water and roads.
The mining sector has failed to replace processing plants and equipment because of the mineral pricing structure in the country.
The foreign currency retention structure has not been viable enough to sustain the maintenance of the heavily capitalised plants and equipment for most mining companies.
With depleted plants and equipment, no amount of concessionary loans in local currency for working capital could trigger the desired gold production levels.
To make matters worse, public utility companies entrusted with providing essential back up services to this sector have also been battling. Power outages due to Zesa and serious shortages of fuel due to Noczim have created a whole new dimension to the complexity. Skills shortage has also been a problem for this sector as most qualified personnel have fled to neighbouring countries which have better remuneration packages.
The agricultural sector is struggling because of the flawed nature of the land-reform process. Farming skills and marketing strategies that were amassed by the country through several generations of white commercial farmers were lost literally overnight because of the land reform process.
Although the process was a noble and very necessary transference of land ownership, it led to loss of infrastructure due to vandalism from unruly elements who had hijacked the process for their own selfish gain.
The overall effect was that our new farmers did not have adequate resources, skills, and the marketing prowess to profitably access world markets.
In addition, the failure of Zesa to facilitate uninterrupted supply of electricity for irrigation purposes has rendered several hectares under plough useless.
Some of the new farmers who have been accessing subsidised fuel from Noczim have instead sold it on the black market rather than putting it to agricultural use. Partly because of these reasons, the agricultural sector has not helped the economic revolution that Gono has anticipated all these years.
The isolation of Zimbabwe on an international scale has had massive ripple effects on the tourism sector which has suffered from an international media onslaught. A once vibrant sector feeding off Zimbabwe’s many natural wonders became the victim of Zimbabwe’s isolation.
Despite concessionary funding in this sector, tourist numbers have continued to decline because of a negative perception of the country. No amount of concessionary funding can influence tourist numbers unless the international perception changes.
Like all other sectors, the manufacturing sector has also been on a downward spiral. Production levels are estimated to be around 30%. The massive shortage of foreign currency has had a serious problem in procuring raw materials required for production.
Inconsistencies on the part of Zesa and Zinwa have played a big part in the fall of this strategic sector. Significant financial resources have been ploughed into this sector through various loans and facilities to no avail.
The tenacity of the RBZ governor is commendable but the hurdles are heavily stacked against him. It is very doubtful that the Reserve Bank can fill the void left by multilateral institutions.
Zimbabwe has limitless natural resources that can be best exploited through the assistance of multilateral institutions and foreign direct investment for the benefit of Zimbabweans.
The efficient running of an economy depends on the interaction of various local and foreign funding mechanisms to effectively harness unexplored resources for economic advancement.
Multilateral institutions are useful in assisting in developing social facilities and capital projects of which in part the Reserve Bank had overlooked because of limits with respect to foreign currency. After all we have access to Zimbabwe dollars, but the elusive US dollar is in short supply because of reduced exports.
More loans in local currency to the productive sector mean greater demand for foreign currency as most of these strategic sectors use a significant part of imported inputs.
* Nhlanhla Nyathi is an independent financial analyst. He can be contacted on 0912 250 092.