At The Market with Tetrad – Market awaits sequel to budget



A LEADING American political economist of his time, JK Galbraith espoused, among other things, the view that economics is shaped not by ideas but by events. He could include Zimbabwe on examples

of what he meant.


Judging from the reported remarks commentators generally have concluded that this years` budget is long on good intentions but short on concrete steps for achieving them.


This was particularly so with inflation on the subject of which Herbert Murerwa Minister of Finance and Economic Developments opinion that it remained the country’s ‘number one enemy’ is universally shared.

Undoubtedly shared too is the view he expressed that economic contraction constituted the other major threat to national stability.


Since the budget overall is considered largely non-eventful, it follows at least according to Galbraith`s position, that it will have little practical impact. The over 26% gain in the stock exchange`s industrial index in the 10 trading days since November 12 would appear to accord with such a conclusion, the minister`s warning that in the present environment the country could ‘not afford to do business as usual’, not withstanding.


Markets are not infallible. A reassessment of events may be required after the governor of the Reserve Banks monetary policy statement promised by the minister by mid December.


But for the moment the business community appears to have concluded in effect that no news is good news.


What is undeniable is that it is totally naïve to have expected the minister, or anyone else for that matter, to achieve the politically impossible.

While there is no disputing, for example, the vital importance of coquering inflation the responsibility for doing this cannot honestly be replaced, as he sought to do, upon the shoulders of all stakeholders.


The minister attributed the current parlous state of affairs to the rapid development of informal and parallel markets for goods and foreign exchange, rampant corruption in both the public and private sectors; and to a loss of work and business ethics in the scramble to acquire instant wealth.


There is no doubt that imports and increasingly, local goods, are being priced according to parallel rates of exchange because apart from the fortunate few who can access foreign exchange at official rates these are the prices which must be paid to procure or replace them. There is no doubt that either businessmen and those who exact a price for facilitating there activities are greedy, that tread unionists are grasping and that the population generally will go to almost any heights to acquire money – and spend it – before it loses even more of its purchasing power.


But modern day inflation arises as a direct result of a rapid increase in the quantity of money per unit of output and none of those groups has the ability to print money or create credi6t. These are prerogatives of the state and only the state can determine how much money to print and how much credit to create.


The government has not deliberately sought to create inflation. It is the outcome of an overzealous response to the wishes of its constituents. But having once embarked upon an inflationary course it seeks to apportion blame upon other people for its unwelcome results.


The Reserve Banks’ 2002 Annual Report acknowledged that monetary expansion and the growth of domestic credit were driving information.

This year’s budget holds out little prospect of any meaningful improvement in these respects. The deficit for 2004 is projected at a standstill position of 7,5% of gross domestic product excluding the costs of subsidising exchange and interest rates for quasi and local government activities and the productive sectors.


The latter are estimated to have added a further 3,5 percentage points to this year’s deficit and were responsible for fuelling the frenetic purchase of consumer durable and other assets, including equities, deemed to provide a hedge against inflation.


Failing a strongly supportive fiscal policy the RBZ’s new governor will find it difficult if not impossible to implement the measures necessary to curb inflation and stimulate production for export.


A real danger exists therefore of the minister having held out unjustifiably high hopes of next month’s monetary policy statement being able to cure the country’s current ills of hyperinflation, projected to rise to more than 700% next year and economic contraction, estimated to further shrink the economy’s productive base to well under 60% of its 1996 output levels.


Against this background the stock market’s current surge should perhaps be seen as no more than the distillation of received business sector wisdom on the outcome reckoned most likely to result from these latest fiscal and monetary maneuvers.


The rally that was alluded to above in which the industrial index has gained 26% or 146 830 points in just two weeks, has been driven by gains all round.


Of the 82 listed counters 72 recorded a gain of some sort, the range being 188% 0 3%.


The top five performers over the period were Econet, up 188%, David Whitehead, 127%, Finhold, 100%, Art, 98% and Wankie, 92%.


Eight counters traded unchanged while the only two counters to trade weaker were Delta and BAT, which lost 4% and 10% respectively.


Adding extra excitement to the market this week was the listing on Monday of financial services company First Mutual Ltd.


With the allocations to policy holders, rights offer and private placement shares having been issued at $35, there were no doubt many happy investors as the share opened trading at $62 before eventually closing Monday’s trade at $60, where it has traded since.


Seventy one percent uplift on the day of listing, not bad indeed!

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