Eric Bloch Column

IN the course of a radio interview last week, Godwills Masimirembwa, chairman of the National Incomes and Pricing Commission (NIPC) stated that the commission would vigorously combat and destroy the parallel market.

Good intentions paving the way to hell

Very correctly, he said that that market was a major stimulus of the pronounced hyperinflation which is devastating the Zimbabwean economy, and subjecting almost all Zimbabweans to intense poverty, horrendous hardships, and gross deprivations.

He said the NIPC cannot allow such conditions to endure and, therefore, it would ensure the demise of the parallel market.

The motivation and intent evidenced by this declaration is very, very commendable, but demonstrates at total lack of awareness that, however good that intent, it is beyond the ability of NIPC to bring parallel market operations to an end, and that NIPC’s proposed endeavours to do so can, in reality, only worsen the already grievously distressed economy, and exponentially increase the adversities which confront Zimbabwe’s peoples endlessly.

There are two hard, incontrovertible facts that negate the NIPC intentions to terminate all parallel market operations.

The first is that until such time as Zimbabwe has a sufficiency of foreign currency, readily available in official money markets, to meet all needs of the economy, there will always be currency trafficking in unofficial, generally unlawful, markets, be they known as parallel markets or as the black market. Regrettably, it is not within the capacity of NIPC to assure that necessary foreign currency sufficiency.

The prerequisites of adequacy of foreign currency availability are, first and foremost:

lZimbabwe’s government must desist from its determination not to move exchange rates, other than only very occasionally, and then always to a ludicrously minimal extent. Undoubtedly its resistance to devaluation is driven by three misguided beliefs. The first is that devaluation is counterproductive, for it causes the landed cost of imports to rise, thereby fuelling inflation.

Normally that is so, but when almost all imports are already effected at parallel market rates, as distinct from official rates, that inflation has already been sustained.

Secondly, government clearly believes devaluation to be an admission of failure and, as it is convinced of its absolute omnipotence, admission of failure is inconceivable.

Thirdly, government (and its underlying parastatals) are the greatest users of foreign currency and, therefore, devaluation would increase the state’s deficit astronomically.

Ideally, the exchange rate should not be regulated, but should be market-determined, but until there is a stable balance of payments, that ideal is unlikely to materialise.

In the interim, the exchange rate must be very substantially moved (at the very least to US$1: $2 000 000), in recognition of the very major, indisputable erosion of value of the Zimbabwean dollar), and must thereafter be moved regularly in alignment with actual inflation.

Unless, and until that occurs, mines cannot operate profitably, and therefore increased mining production will not occur, and no significant investment into exploitation of Zimbabwe’s vast mineral wealth will be forthcoming.

In like manner, manufacturing sector exports cannot be viable when the exchange rate is not inflation-aligned, and the tourism sector’s operations are similarly impaired.

lAttraction of foreign investment, which can be a substantive source of desperately needed foreign exchange.

But such investment is naught but a misplaced hope and mirage, unless Zimbabwe has an investment-conducive environment, which must include a stable economy, non-excessive and destructive indigenisation policies, cessation of asset expropriation (generally without compensation and in disregard for bilateral agreements and fundamental principles of international justice) and meaningful investment incentives.

lReconciliation with the international community in general, and with Bretton Woods’ Institutions (IMF and World Bank) in particular, enabling Zimbabwean access to balance of payments support, and developmental aid.

None of these essential economic policies and actions are within the competence of NIPC, and therefore NIPC’s intended eradication of the parallel market cannot occur. Instead, the second hard, incontrovertible fact must arise.

The only courses of action available to the NIPC would be a combination of rejecting, in all pricing models, all impartation costs not funded through official channels, and draconian policing of all sectors of commerce, industry, mining, tourism, NGOs, and the informal sectors.

The former will occasion the failure and closure of innumerable enterprises, with concomitant mass unemployment and intensified scarcities of almost all commodities and products required by the populace.

The then near total destruction of the business sector will result in even more intensified black market operations then heretofore, and even greater deprivation and hardships for almost all.

The latter course of NIPC actions will also collapse most informal businesses, will remove from much of the population the only available sources of some livelihood, resulting in either even more extensive emigration (lawful and unlawful) to seek survival in other countries, decimation of the already severely weakened Zimbabwean skills’ resource, or in vociferous national unrest.

Neither of these courses of actions can, therefore, yield anything other than gravely negative results.

Contrary to the praiseworthy intents voiced by the NIPC’s chairman, any direct attempt by the NIPC to bring about the death of the parallel market can only occasion Zimbabwe’s hyperinflation to soar upwards at an even more horrific pace than at present, malnutrition, starvation, ill-health and death for many, many Zimbabweans, and total economic emaciation.

Instead, the NIPC should seek to use such influence as it may have, if any, to convince government to abandon its destructive economic and allied policies, and to take the much overdue steps actually necessary to bring about the economic metamorphosis so badly needed.

That economic transformation has long been needed, and even longer has it been possible, if government only possessed the will to effect the required changes.

If NIPC can imbue it with that will, the underlying motive behind its Chairman’s statement will be the result.

If not, NIPC’s good intentions can only pave the way to a hell of even more gargantuan Zimbabwean suffering.

By Eric Bloch