Cat-and-mouse economics

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The Brett Chulu

SO much has happened in our economy in the past week. The state media went to town about a consignment of agricultural equipment said to be worth US$20 million that is docked in Durban pending its freight to Zimbabwe.

Ordinarily, this should be exciting news — but there is a catch.The march against the so-called sanctions came and went — the purported architects of the sanctions responded in kind — they were not moved, insisting that the pre-conditions for the access of financing and debt treatment outlined in Washington’s amended Zimbabwe Democracy and Economic Recovery Act (July 2018) were not going to be relaxed. The parallel market rate for foreign currency inched above ZW$20 to the US dollar.

ZimStat released data showing that the poverty datum line (Total Consumption Poverty Line) for a household of five people increased in September to ZW$2 192 from ZW$1 827 in August, a jump of 20%.

Virtually, the majority of civil servants earn about half of the poverty datum line. Finance minister Mthuli Ncube on the day of the anti-sanctions march promised to review the remuneration of civil servants upwards — a token or symbolic pay rise is expected. Ncube will not dare adjust the salaries to match the poverty datum line, let alone acquiesce to the demands to have the salaries indexed to the interbank forex rate — the Zimbabwe dollar will rapidly collapse and inflation spike as the salaries would have to be financed outside the budget.

We also learned that there is a syndicate in the grains value chain that is using Victoria Falls as the theatre of operations of their shenanigans where mealie-meal is offloaded and sold at an insane premium of 50%, with some of the stuff smuggled into Zambia in search of forex.

In a related development, a stench is hanging over government, over allegations that government is importing maize from Tanzania at an iniquitous price of US$600 per tonne, against the world market price of about US$270 per tonne.

Government has chosen silence — it has neither confirmed nor denied the allegations. In an unbelievable development, the Public Service, Labour and Social Welfare minister Sekai Nzenza went on record this week claiming that the number of people in need of food aid had gone up by 11% to 2,4 million. This is in sharp contradiction to the report from independent entities such as the World Bank that put the estimate at 8,5 million people.

The Zimbabwe Commercial Farmers’ Union president Shadreck Makombe this week indicated that the prices of seed remained elevated and the uptake of the product was low. Even with good rains, agricultural production might just not take us out of the woods.

Biti vs Mangudya round two was fireworks: at the Public Accounts Committee hearing, we learned that the Finance ministry was passing the buck to Reserve Bank of Zimbabwe (RBZ) governor John Mangudya for issuing unauthorised Treasury Bills (TBs) amounting to US$2,1 billion reportedly issued to mainly NatPharm, Seed Co and FSG.

The RBZ washed its hands, saying the TBs were the Finance ministry’s. No one wants the baby. Biti revealed in a tweet that the RBZ gave Sakunda US$366 million TBs at an exclusive preferential premium discounting rate.

The irony is sagacious: The very entity that played a big hand in creating phantom Zimdollar touching almost $3 billion to enable Sakunda to redeem the TBs, helping collapse the Zimdollar, is the same entity at the forefront of freezing the accounts of the same entity.There is just too much going wrong in the economy.

In the face of such an avalanche of things going wrong, I sought to make sense of all this; cat-and-mouse games is what seems to best describe what is happening in our political economy.Cat-and-mouse is defined differently by different entities.

The Collins Dictionary defines it as “a situation in which a person tries to confuse or deceive another in order to defeat them”. The Cambridge Lexicon puts it this way: “To try to defeat someone by tricking that person into making a mistake so that you have an advantage over them.”

The Merrian-Webster Dictionary gives a nuanced definition: “The act of toying with or tormenting something before destroying it.” It gives a further shade of meaning: “A contrived action involving constant pursuit, near captures and repeated escapes.”

The Oxford Learners’ Dictionary unpacks it as “to play a cruel game with somebody in your power by changing your behaviour often, so that they become nervous and do not know what to expect”.

It looks like the people and the government are at war. The de-dollarisation agenda has fallen flat. We warned about this in a column immediately after the ban of multi-currencies on June 24 in what I characterised as the monetary policy dawn raid that it was not going to stop dollarisation. We have been proven correct.

Economics 101: Money is simply the tangible representation of the people’s perception of worth. Money, more so fiat money, is simply perception — nothing more, nothing less. You can see how absurd it is for any economist to give advice to a government to ban people’s perceptions.

Last week, government authorities were in sixes and sevens, wondering why “small” increases in petrol price translated to disproportionate price increases of goods in the shops. We need to rescue their sanity by referring them to Economics 101. The Zimdollar is not trusted, especially when the central bank keeps pouring oceans of hocus pocus money into the economy. An increase in petrol price is a signal that the Zimdollar is losing value — so retailers are using a futures pricing model, not cost-plus. Cost-plus pricing works when the currency is trusted.

Retailers simply estimate when their stocks would need replacement and then estimate what the exchange rate will be when they replace stocks.
That future exchange rate is always higher than the current one. The prices charged currently have a future forex rate movement hedging risk premium built into them.

Government is losing the cat-and-mouse game, resorting to the tactic of blowing little positive developments into indicators that the country’s economy is turning the corner, suppressing bad news and watering down undeniable realities.

Government has resorted to its favourite hope-trading tactic of announcing half-baked mega deals — the latest being the purported US$12 billion mining deal. Few are taking the bait. Government has acknowledged that we have a food insecurity problem, but has gone on to effectively imply that independent expert bodies have over-exaggerated the problem 3,54 times.

The message is clear: it is bad, but not that bad. A total of 500 tractors, 40 combine harvesters and accessories from John Deere, the US farming equipment manufacturing giant, are said to be in Durban waiting to be shipped to Zimbabwe — this flies in the face of the sanctions refrain — here is an American firm supposedly doing business with Zimbabwe. The US company is said to be waiting for financing arrangements to be completed before giving the say-so for the equipment to leave Durban for Harare. So equipment is shipped to Durban from overseas before any financial arrangement is put in place?

That is weird. Of greater concern is the revelation that we have a deficit of 30 000 tractors and that we have only 95 functional combine harvesters out of a total requirement of 500. Government has no business importing farming equipment — a farmer is supposed to be a fully-fledged businessperson who should use skill to capitalise operations.

This business of baby-sitting and molly-coddling farmers 19 years after land reform began is ruinous to our economy. Government knows what it must do: give secure tenure to farmers — it cannot do that as that will cause the ruling party’s political leverage to vanish overnight.Tom and Jerry economics will sink us all.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. — brettchuluconsultant@gmail.com.

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