HomeBusiness DigestMugabe victory to worsen economic meltdown

Mugabe victory to worsen economic meltdown

THE possibility of mayhem in business in the event of a victory by incumbent President Robert Mugabe in tomorrow’s election looks almost certain with the economy already showing signs of further meltdown.

Economists have warned the possibility of a severe crisis if Mugabe wins the elections.
Prices have been rising steeply in the past two weeks as inflation continues to skyrocket. Prices of basic commodities have increased by an average 240% in the past two weeks.
The Zimbabwe Stock Exchange (ZSE) continued to suffer heavy losses for the second week in a row ahead of the elections.
A lot of businesses have shut down in the run-up to the elections with some companies indicating that their opening will depend on the outcome of the poll results.
The Zimbabwean dollar this week continued with its dramatic drop against major currencies. Confidence in the business sector is at its lowest levels following Mugabe’s threat that he will crack down on businesses that overcharge and take over 400 British-owned companies after the elections.
Economic commentator Eric Bloch said it was highly likely that most mining and manufacturing businesses would not re-open unless radical changes are implemented by Mugabe upon being re-elected.
“On the basis of his track record, such radical changes would not occur,” Bloch said. 
The ZSE has been losing an average of between 5-8% daily in the past 10 working days as fears heightened of another five years under Mugabe’s rule.
The fears have heightened on speculation that the elections are likely to be rigged.
“The ZSE is very volatile. It reacts to news of a looming price blitz, what more of news of a Mugabe victory and another five years of bad policy making, deep-rooted suspicions and conspiracies that only hurt the market?” said one Harare-based economist.
Stock market investors off-loaded their shares and raked in their profits in the longest bear run recorded on the local bourse this year.  Investors are now holding on to foreign local currency or investing in other non-volatile investment destinations such as real estate.
Other investors opted to liquidate shares they held in other volatile counters to opt for more stable counters like Old Mutual and PPC.
Production also hit rock bottom this week with industry sources saying it had declined to below 5% as many businesses shut down and adopted a “wait and see” attitude in the wake of new threats by a Mugabe of a government takeover made against business.
The signs of trouble are already showing. Expert estimates show that Zimbabwe’s gold production will drop to three tonnes this year. The Chambers of Mines has said Zimbabwe has an installed capacity to produce 125 tonnes of gold annually.
The exporting sector is already bleeding after the central bank failed to release their foreign currency.
University of Zimbabwe economist Professor Tony Hawkins said Mugabe’s victory would prolong economic ills which are already characterised by hyperinflation, negative real interest rates, an overvalued exchange rate and a very high budget deficit.
Hawkins said inflation was likely to reach 500 000% adding that history has shown clearly that Mugabe is not capable of reviving the economy which has slumped by 60% over the past decade.
“He will be forced into leaving,” Hawkins said.
“If he wins, the economic will be in deeper trouble than it is now. An international rescue package will be required and those offering it will not negotiate with him. The price of such a rescue package is his leaving.”
Bloch said if Mugabe is re-elected but failed to implement radical changes, he would find himself hounded out of office.
“Although Zimbabweans are very peaceful and a revolution is not the way forward, if things do not change, it is almost certain that a revolution will occur in the near future.”
Mugabe went on the offensive this week threatening to take over British-owned companies.
This further entrenched the widely held view in the international market that Zimbabwe was not an investor-friendly destination.
Analysts say that statement coupled with the new Indigenisation and Economic Empowerment Act will make it impossible for Zimbabwe to get foreign direct investment especially if Mugabe remains in power.
Consumers are feeling the effects of a further reduction in production through steep price hikes by retailers.
In just one week, the price of 750 ml of cooking oil shot up from $80 million to $125 million a litre, while fuel rose from $52 million to $56 million a litre.
Two litres of Mazoe Orange Crush increased from $30 million to $80 million while a 2-kg of dressed chicken rose from $80 million to $170 million.
Transport fares went up from $15 million to $20 million and then $30 million in less than a week. Mugabe’s government has presided over 10 years of consecutive economic decline due to poor policy making and inconsistent policies which have scared off investors.
The dearth of foreign investment has compounded the crisis in an economy. Instead of reforming, Mugabe has become more reactive by putting in place price controls. This has caused company closures.
John Robertson, an independent economist, said Mugabe’s attempts to control market forces and commandeer the economy were similar to attempts to control gravity adding that no government in the world was strong enough to control market forces.
“Trying to control market forces is like trying to control gravity. The market serves those who respect it and it hurts those who oppose it,” Robertson said.
“If you respect gravity, you won’t get hurt. If you don’t respect it and jump out of the window, you will get hurt. Understand market forces so they work for you, like gravity, instead of against you. Mugabe believes he can control them though, it’s tragic.”
The Reserve Bank of Zimbabwe (RBZ) this week announced new policy measures that are likely to cause more problems for the banks.
The measures which included raising accommodation rates and statutory reserve requirements for banks were made after the market surplus hit one quadrillion dollars.
This followed an astronomical increase in money supply last week to cover salary increments for civil servants.
The bulk of the money was printed to fund the election expenses and the farm mechanisation programme which analysts have attacked as vote buying.
 “Mugabe has tremendous and damaging influence on people like (RBZ governor Gideon) Gono who wanted to devalue and to run the economy with very little intervention,” Robertson said.
“Mugabe tells him to print money and not to devalue and he has to follow instructions if he wants to keep his job.”
The RBZ, credited with printing large sums of money to fund recurrent government expenditure remains mum on the latest money supply figures. However, market surplus doubled from $429 trillion to $950 trillion signalling a very dangerous position that could stoke hyperinflation to higher levels.
The situation was enough reason for the central bank to panic. On Tuesday last week, when the market surplus figure hit $950 trillion, the RBZ could get investments worth only $3,2 trillion — a figure representing 0,3% of excess liquidity. The domestic debt surged to $1,6 quadrillion.

By Kuda Chikwanda

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