Eric Bloch: Economy Shackled

THE recent 2009 national Budget Statement, closely followed by the Monetary Policy Statement for the first half-year of 2009, contained much that was highly commendable, targeted at stimulating and facilitating the very long-awaited and very overdue, greatly needed, economic turnaround.

Tragically, however, that turnaround will be markedly less than is so desperately needed to restore wellbeing for the grievously distressed, grossly impoverished, majority of Zimbabweans, for both statements were cataclysmically imbalanced in that, notwithstanding many positive contents, there were equally many facets of the intended new policies which are not only inconducive to economic recovery, but will also retard the extent of that recovery.

Of the numerous economic issues which have to be urgently and constructively addressed, the first and foremost is the horrendous hyperinflation which has raised the cost of living to atmospheric heights, beyond the means of almost all. (No authoritative  inflation data exists, in the absence of any releases  from Central Statistical Office (CSO) for more than six months,  but it is indisputable that  the annualised rate of inflation is many trillions per cent, or even more.)

 The need for dynamic inflation-reduction actions was unequivocally acknowledged by the Acting Minster of Finance, Patrick Chinamasa, in his Budget Statement, but inconsistently with that recognition of the necessary, he then tabled several proposals which will markably increase inflation, instead of reducing it.

Amongst the inflationary measures is the imposition of the previously foreshadowed fuel levy of 22 US cents per litre.

There is not a single element of the Zimbabwean economy that is not heavily fuel dependent, be it for public transport to and from employment, the carriage of goods to and from industry, the operations of the agricultural, mining and tourism sectors, or any other socio-economic activity.

Whilst the fuel levy will generate considerable, very much needed revenues for government, it will be an immense direct and indirect burden upon the economy as a whole and upon the consumer population in particular.

Not only will the consequential hardships of the populace be immense, but the inflation occasioned by the fuel levy will severely impact upon the economy, and therefore have very negative effects upon other governmental revenue flows.

In like manner, the long-intended levying of toll fees on national roads, now to be introduced by March 1 2009, will exacerbate inflation, for they will apply to the very considerable heavy-duty haulage vehicles which ply the intercity roads, carrying manufacturing inputs to industry, finished goods for distribution to consumers, agricultural produce to markets, and much else, as well as also become a substantive costs to all other road users.

As if these measures do not suffice to increase inflation to a gargantuan extent, customs duties on many imports have also been very increased. Although it is very meritorious that the Acting Minister of Finance desires to protect local manufacturers against undue import competition, the new range and level of duties do not only pursue this objective but, in innumerable instances, markedly increase the landed costs of very many essential imports.

It is incomprehensible  that government  should increase  the costs to consumers of absolutely essential  products, and particularly so  when most consumers are already so impoverished  that more than half of Zimbabwe’s population is desperately struggling to survive  on incomes  far below  the food datum line, whilst over three-quarters of the population  barely subsist at levels  below the poverty datum line! Such actions by the government verges upon the criminally irresponsible.

But these appallingly ill-considered budgetary actions were not the only ones which will catastrophically worsen inflation, causing ever-greater suffering for most Zimbabweans, and potentially accelerating economic collapse.

Government has approved massive tariff increases for various parastatals, and especially so for the Zimbabwe Electricity Supply Authority (Zesa). Admittedly, previously prevailing tariffs were unrealistically low, and were relatively minuscule by comparison with those prevailing elsewhere in the region.

But government has now moved from one extreme to the other, raising the tariffs to as great as five times  those applicable in neighbouring territories.

The impacts of those increases will not only be upon the general population of Zimbabweans, as consumers, but will have volcanic operational cost effects upon all economic sectors, and therefore upon the prices of all goods and services (whilst concurrently further eroding export market competitiveness, with consequentially great reductions in production volumes, which will in turn very considerably increase all domestic market prices).

Similar, overly-great tariff increases have been approved for diverse other parastatals, with similar adverse repercussions.

Compounding these and many other governmentally-created triggers of yet greater inflation is the authorisation of Zesa, various other parastatals and local authorities to require payment of service charges in foreign currency by all, other than in certain respects by residents of high-density areas.

Not all enterprises in commerce and industry, and not all residents of medium and low-density areas are recipients of foreign currency and, therefore, in order to fund access to essential services, many will have no alternative but (unlawfully) to source foreign currency needs in the “alternative” black and parallel markets.

Moreover, not all businesses will be able to obtain foreign exchange licences from the Reserve Bank, in view of the prohibitively high  license fee of US$12 000 per annum. Such fee is far beyond the means of low turnover enterprises of a nature which does not qualify them to be registered SMEs (for whom lesser fees apply), but whose revenues cannot sustain a fee of such magnitude.

Such enterprises will be confronted with only two  options, being either to discontinue operations or, in the alternative,  notwithstanding  the constraints of law, to source required  foreign currency  illegally, at high cost, impacting upon their pricing  policies and therefore, upon inflation.

Yet another highly inflationary determination of government contained in the Budget Statement is the obligation, imposed upon all businesses as are registered VAT operators, to effect payment of VAT to the Zimbabwe Revenue Authority (Zimra) by the third day of each month.

Any businesses that extend credit to customers will, to a very substantial extent, not have received payment for sales by that date, and therefore will have to fund the VAT payments from own resources.

With most having suffered severe capital erosion due to hyperinflation, they will have to fund the VAT payments from bank overdrafts or other borrowings, at interest rates   exceeding 40 000 per cent per annum. To do so, they will have to cost the burden of interest into selling prices, representing yet further inflation.

How does the Zimbabwean government expect to achieve the long overdue, critically necessary economic recovery, when it is the catalyst for yet further, untenably great, inflation? Despite the various positive measures in the Budget, nevertheless government has cruelly, once again, shackled the economy, and it must urgently rethink those foolhardy intents.