THE year 2019 has gotten off to a worst possible start as the economy continues to deteriorate rapidly, which if not resolved quickly could lead to social unrest just over a year after a military coup that toppled Robert Mugabe, who ruled the country for more than 37 years.
Editor’s Memo Faith Zaba
Government’s continued reluctance to address currency reforms as well as maintaining the fallacy that the local unit is at par with the greenback has spawned a multi-faceted national crisis characterised by increased cost of living, shortage of fuel and failure by companies to re-open after the Christmas holidays. Several manufacturers could face closure if government fails to deal with the crippling currency crisis in the next 10 days. The Confederation of Zimbabwe Industries has warned that most companies now had less than one month’s stock of raw materials.
The depreciation of the local unit to the United States dollar has resulted in the skyrocketing of prices of goods and service, which have decimated the disposable income of the majority of Zimbabweans. The fuel shortages has also pushed up further prices of goods as some factor in the purchase of fuel at a premium on the black market, where five litres of petrol now costs between $25 and $50.
Beverage giant Delta Corporation is on the brink of closure, as it negotiates with government to get its monthly US$5 million to buy raw materials. It had initially announced that it will sell its products in forex. However, they have since rescinded the decision after government made an undertaking.
The erosion of the local unit has led to the strike by junior doctors which lasted 40 days and ended yesterday. Civil servants have threatened to follow suit and could go on strike if they fail to agree with government on the salary increment. Government has to deal with four major issues if it is to halt spiraling economic crisis.
Liberalisation of markets
Government should liberalise the allocation of forex. The Reserve Bank of Zimbabwe must be weaned from allocating foreign currency. The market should allocate and price forex properly. This will greatly improve forex availability. It will also rate appropriately the bond notes and RTGS balances to the greeback.
This could help deal with the fuel shortage, which is a symptom of the foreign currency rate distortions caused by government’s artificial rate. Allowing other players equal access to the Beira pipeline could also help ease the fuel shortages. There is also need to charge realistic and competitive tariffs for the use of the pipeline so that foreign suppliers can use it and we generate additional forex.
Liberalising the markets without fiscal discipline will not solve our economic challenges. Government should ensure it is walking the talk on fiscal discipline. The market controls came as a firefighting measure to clean up the financial and economic mess caused by fiscal indiscipline, which resulted in huge and unsustainable budget deficits since 2013, hence the creation of the RTGS dollar and bond note artificially pegged at 1:1 to the dollar (forex control).
Exporters bring in the forex and government takes the bulk and gives exporters the quasi-currencies at about 33% of its true value. Government gives this forex to a favoured few at a discount of 67%. So our fuel becomes the cheapest in the region. That alone ramps up demand. All this is traceable to fiscal indiscipline. Fiscal discipline is thus key issue for 2019.
Increase production levels
Unprocessed and semi-processed commodities are our major products. Gold, platinum, chrome, tobacco and granite are our big forex earners. Manufacturing is virtually not earning us any exports. It needs to be revived. This means our agriculture must be restored to its former glory to provide the feedstock for manufacturing.
Private sector-led agricultural revival is a must in 2019. Command economics in agriculture must be done away with. Government must leave competent entities to spearhead production, not stifle it by senseless interference.
This vice is holding back foreign investment. There are undue delays to create a climate for “facilitation fees” (kickbacks, bribes). Investments such as Lisulu (coal) and Essar are examples. Billions of dollars worth of potential investments are in limbo because of corruption. Corruption is stalling Ease of Doing Business and shutting out investments. This is economic sabotage. Government must ruthlessly weed out this economic crime without fear or favour.
Without dealing with these, the country will not go anywhere.