By Mfandaidza Hove
IN the article “Local currency set to lose three digits”, (Zimbabwe Independent, July 21), it was reported that the government plans to elimin
ate zeros from the local currency following suggestions reportedly made by the Institute of Chartered Accountants of Zimbabwe.
In the same paper, Eric Bloch, in his column, supports the move and argues that “the interim solution is to eliminate the zeros, as has been done over the years by many other countries, including Italy, Brazil and Argentina. Most recently, and very close to home, Mozambique has done so, only a few weeks ago”.
He goes further to state: “Mozambique has demonstrated a capacity to apply a practical, viable solution to a critical, economically debilitating problem. Zimbabwe needs to do likewise, and to do so promptly and dynamically, with total disregard for misplaced, ego-preservation-related fears that doing so can be construed as admission of economic failure or mismanagement.”
Whilst it is true that Mozambique recently eliminated the zeros from its old currency, the metical (MZM), Bloch’s article is not only misleading the public, but is also mischievous.
The reason for this is that Bloch omitted to inform his readers that the political economy of Mozambique prior to the decision to eliminate the zeros, was and remains radically different from that of Zimbabwe.
Since the introduction of a new constitution leading to multi-party democracy in Mozambique in 1990, the country has enjoyed political stability and has experienced sustained economic growth since 1993.
Between 1993 and 1999, the economy grew at an average rate of 6,7%, and between 1997 and 1999, the country’s economy grew at an even greater rate averaging more than 10%.
Although the devastating floods of 2000 slowed down economic growth to 2,1%, a full recovery was achieved in 2001 when the growth rate was14,8%. Since that year, Mozambique’s economy has maintained an average annual growth of 7%, and is expected to continue this expansion by between 7% and 10% for the next five years.
This growth has been achieved through prudent macro-economic policies against the backdrop of a stable political environment that has resulted in significant improvements in the country’s national integrity to a level now regarded as internationally acceptable. This has made it possible to introduce impressive economic reforms, particularly regarding the privatisation of state-owned enterprises, reduction in customs duties and the much-needed streamlining of customs management. Considerable reforms have also been introduced to the Commercial Code, the judiciary and civil service.
In addition, tight monetary controls coupled with sound reforms of the financial sector resulted in the reduction of inflation from 70% in 1994 to less than 5% from 1998 to 1999.
Inflation has continued to maintain falling trends although the floods of 2000 temporarily increased it to 13% by 2003. The country’s currency has also gained significantly against major currencies — from a loss of 50% of its value against the United States dollar since December 2000, it stabilised in 2001 and has remained steady at about MZM24 000 to US$1. The decision to eliminate the zeros has resulted in a conversion rate of MZM27 to US$1.
It is against this background of a growing, and well-managed economy with a low inflation rate that Mozambique took the decision to remove the zeros from its currency. In contrast, the Zimbabwe economy has shrunk by about 44% since 1998, and is expected to deteriorate by as much as 6% this year. Such a decline is unprecedented in peacetime, and might even be worse than the average declines during recent civil wars in countries such as Ivory Coast, the Democratic Republic of Congo (DRC) and Sierra Leone.
Of special concern to Zimbabweans now is that, because inflation is still so high, we will have to repeat this exercise of removing zeros again and again. The need to do this will stop only when we have brought inflation under control.
Further negative trends in Zimbabwe are also reflected by the gross domestic product per capita that has fallen from US$880 in 1999 to less than US$400, and is forecast to shrink to US$350 by the end of 2006.
Unemployment is over 80% and the budget deficit is at least 60% of the gross domestic product when the Reserve Bank of Zimbabwe’s illegal quasi-fiscal activities are, as they should be, taken into account.
These are some of the omissions that Bloch made. Consequently, it would not be unfair to describe his article as irresponsible, mischievous and almost reckless.
It is interesting to note that a contributor to the paper’s opinion columns, RES Cook, commenting on Bloch’s earlier contributions, asks: “Really Mr Bloch, what dreamland do you inhabit? You certainly cannot be living in the land inhabited by the vast majority of suffering and struggling Zimbabweans.”
A decision to eliminate the zeros from the Zimbabwean currency will not address the severe economic meltdown that the country is experiencing. The causes of this decline are, of course, self-inflicted and include the economic consequences of the unbudgeted payments to war veterans in 1997, the costly military adventures in the DRC in 1998, the land-grab exercise since 2000 and unprecedented levels of corruption in the public sector. The “stolen” elections of 2000, 2002 and 2005 have earned the country the pariah status that it now has in the international community of nations.
Consequently, until political legitimacy is restored through free and fair elections on the basis of a new, people-driven constitution, the country will remain a “rogue state” and no one will have any business dealings with us.
* Mfandaidza Hove is MDC secretary for economic affairs.