GOVERNMENT has resorted to command interventionist measures, including using law and order instruments and intimidation, in an increasingly desperate bid to control spiralling market forces fuelling currency volatility and a wave of price increases.
The move shows that hardliners in the corridors of power — particularly those based at the ruling Zanu PF’s headquarters in Harare — are gradually gaining an upper hand over reformists as turmoil over monetary, fiscal and currency policy engulfs the market.
President Emmerson Mnangagwa and Finance minister Mthuli Ncube are the key proponents of reform, while Zanu PF heavyweights like secretary for administration Obert Mpofu and other former ministers now redeployed at the party headquarters are resisting the current measures.
Yesterday, police detectives went around interviewing and intimidating private players and individuals over currency and price issues, signifying a radical departure from government’s economic reform agenda.
“While Mnangagwa and Ncube want reform, some Zanu PF leaders are resisting and are influencing government from the party headquarters as they hold sway on policy — they claim the party is superior over government — to intervene in the market through committees, law enforcement agents and intimidation,” a company executive interviewed by the Criminal Investigations Department (CID) detectives in Harare yesterday said.
“They are going around claiming to be investigating currency and pricing issues, but in reality they are on a futile campaign to fight markets forces and trying to intimidate the private sector, that is businesses, companies and enterpreneurs, as well as individuals because government’s fiscal and monetary policy interventions are not working. Resorting to Stalinist measures to deal with market issues can only make the already bad situation worse.”
Since taking over power in a military coup last November and in the aftermath of the July 30 general elections which he marginally won, Mnangagwa has positioned himself as a reformer who supports a market-based economy in sharp contrast to his predecessor Robert Mugabe who upheld a command economic model with disastrous consequences.
To reinforce his reform posture, Mnangagwa appointed the market-friendly Ncube who was running the Quantum Global Research Lab AG in Switzerland, while also lecturing at the prestigious University of Oxford in Britain.
A former chief economist at the African Development Bank, Ncube was also a respected professor of banking and financial markets at the University of Witwatersrand in South Africa.
When Ncube landed from his former base in Geneva, he hastily pronounced a fiscal and currency reform agenda, but no sooner had he settled in than he found himself on a collision course with some senior government officials, monetary authorities and Zanu PF mandarins stubbornly resisting reform.
Ncube’s fiscal measures, which came soon after Reserve Bank of Zimbabwe governor John Mangudya issued his monetary policy on September 28, triggered turbulence in the market, with exchange rate volatility escalating and prices spiralling.
In reaction, senior Zanu PF officials have also registered their displeasure at his policies, saying they were not consulted before the reforms were implemented.
“We were not consulted and we think the current problems are tell-tale signs of teething problems of the new arrangement which Zanu PF is working to resolve. I think government is used to coming up with policies after their deliberations which it then pronounces.
“You will realise that Zanu PF did not have a working system with permanent people, but the situation is different now and we have a functional structure that must be consulted before any policy pronouncement,” Zanu PF secretary for administration Obert Mpofu said recently.
“The so-called new financial reforms which have caused price hikes and the response you have seen from business were done without consultations and Zanu PF will not allow that.”
Law enforcement agents have been trying to control black market forex dealers and private sector players as government resorts to desperate interventions. CID detectives yesterday visited some companies enquiring on forex issues.
Efforts to get comment form the police late last night were unsuccessful.
CID moves are in addition to heavily armed police teams which have in recent weeks been roaming around the streets of Harare hunting down black market forex dealers.
Zanu PF youths have also been protesting over prices increases, claiming “illegal foreign currency trading” was “the major source of the problems bedevilling our economy”.
Last Friday a gang of rowdy suspected Zanu PF youths also tried to burn and shred products belonging to Alpha Media Holdings (AMH) — publishers of the Zimbabwe Independent, NewsDay, The Standard and Southern Eye insert — over newspaper cover price hikes.
Information minister Monica Mutsvangwa and AMH chairman Trevor Ncube and their delegations met this week to resolve the situation
The chaos came as Imara Asset Management, which provides among other things investment services, this week said Mthuli Ncube was confusing the market through conflicting policy pronouncements.
“Conflicting signals from the Minister of Finance during the week he was in Bali however and post the monetary policy and transitional stabilisation programme have unfortunately further undermined his and the authorities’ credibility,” Imara says in its latest investment report.
“At Chatham House in London the Minister appeared to agree that the value of an RTGS$ was different from the USD.
When the black market exchange rate collapsed whilst in Bali he then suggested that the Afreximbank would underwrite RTGS$ balances at one to one which we believe would not only be impossible but highly unlikely. That aside, having announced the transitional stabilisation programme, the minister and his team now need to put their words into a credible action plan or walk the talk.”
Imara also expressed concern over the unsustainable levels of government expenditure.
“Whilst he made it clear that government needed to slash its own spending to reduce the budget deficit, the first and only policy announcement he gave was to increase taxes,” it says.
“The imposition of a 2% tax on all non-cash money transfers came as a surprise to all and we suspect it followed little if any consultation. The announcement was followed by widespread panic and heavy criticism from all sectors of the economy to the extent that the Minister was forced to announce a number of exceptions to the tax which in practice may also be unworkable or administratively burdensome.
“Had the tax been 0,2% with a maximum limit he might have got away with it but sadly the damage has now been done. His credibility has once again been called into question. A tax on transfers is not unusual and has been introduced elsewhere in Africa as a means to capture tax revenues from the largely informal sector. It is however a regressive tax as it hurts the poor more than the rich,” Imara said, adding that while the new government’s interaction with the international community has been commendable with recent meetings in New York, London and Bali, follow-up action needs to be taken as evidence that important change is afoot in the country.”
Besides local businesses, Ncube’s measures appear to have also ruffled the feathers of the big foreign investors who were keen to come to Zimbabwe until recently.