HomeLocal NewsMealie-meal black market economy parable

Mealie-meal black market economy parable

Zimbabwe Independent

THE black market for maize-meal milled by registered millers is now flourishing. Mealie-meal is being openly sold in the streets at a heavily inflated price.
This new development is just a parable of our struggling economy.

Policy reversals

The immediate cause of the maize-meal shortage we are experiencing is a direct result of a policy reversal. In the 2020 budget, Finance minister Mthuli Ncube announced the removal of the subsidy on maize, the argument being the need to reduce, the burden on the fiscus, thereby helping to reduce the budget deficit.

In early December last year, Ncube’s appointing authority categorically announced the subsidy restoration in order to make the staple affordable.

Ncube issued a press release a few days later, acquiescing to the directive, announcing the policy reversal. This is a flagrant violation of a key undertaking in the Transitional Stabilisation Programme (TSP) (October 2018 – December 2020) to desist from the confusion of different ministries sending out conflicting policy pronouncements and policy interpretations, unnerving the investor community.

The mealie-meal subsidy reversal points to a pattern. We were assured that a new local currency would only be introduced after the economic fundamentals had improved — both Treasury and the central bank gave these assurances. No sooner had these words escaped their lips than a new currency was hastily introduced — it has been a total disaster — pensions have lost value and local lenders who loaned funds to government have had their financial assets destroyed.

The consortium comprising South Africa’s rail giant Transnet and the Diaspora Infrastructure Development Group (DIDG) was awarded a US$400 million tender by the State Procurement Board in 2017, after beating 88 companies, to recapitalise the ailing National Railways of Zimbabwe. This award was revoked purpotedly by cabinet in October last year. This is after the consortium had already delivered on the initial phase of the deal.

This week, the school fees increment became the latest theatre of confusing policy interpretations.The thread running through these policy flip-flops seems to be political expediency.

Unfortunately, such policy mumbo jumbo and reversals have a negative impact on the economy. In the case of the restoration of the maize-meal subsidy, a shortage of the staple has been spawned with ugly consequences.We have the cobra effect — the price of mealie-meal is now 75% above the subsidised retail price. The reversal was a decision taken without adequate preparation and systemic analysis to ascertain the chain effect impact of the decision.

Distrusted currency

Our mealie-meal parable amplifies the distrust our hastily introduced currency is being subjected to by the markets. One of the key characteristics of money is uniformity. This simply means that the same denominated units of domestic currency should not have different values. The Zimdollar defies this characteristicn — mobile money/electronic money and hard local currency do not command the same value in the dominant retail and foreign currency markets.
A 20 kg maize-meal bag is retailing for ZW$140 on the black market, only when one is paying with hard cash.

This means that for the desperate populace who can barely survive without the staple, who most likely have no easy access to hard cash, will be forced to sell their mobile/electronic money for hard cash — this is done at a huge premium of at least 25%. Effectively, the same local monetary unit has different values. This means ours is a quasi-currency. In fact, we have two local currencies. It is strange economics where a purported local currency has an internal exchange rate. It is a flagrant violation of what money is.

This is why the US dollar has become our de facto local currency and people are openly trading in it, despite government outlawing the practice.

Under-production

The deeper cause of the mealie-meal shortage is under-production, resulting in a supply deficit. The story of maize under-production needs revisiting so that a trend that has not been brought to the fore is made known.

The data I gleaned on maize and tobacco production, productivity and the area under production from 2010 to 2017 reveal three things.

First, our maize productivity from the inception of the Government of National Unity was below one tonne per hectare up until command agriculture was introduced. In some years, maize yield dropped to an embarassing 0,5 tonnes per hectare. Command agriculture, coupled with an above-normal rainfall season, raised productivity to 1,36 tonnes per hectare, which is no cause for celebration bacause this output rate is far below what Sadc countries such as Zambia and Namibia are achieving, at above two tonnes per hectare. Second, the area under maize has been progressively declining since 2010. In 2010, we had 1 362 563 hectares under maize and in 2017 we had 988 062 hectares dedicated to maize production; this represents a 38% decline in land under maize.

Due to low productivity, the decline in land under maize caused annual maize output to fall below one million tonnes. The year command agriculture, riding on above-normal rainfall, was introduced, maize output jumped slightly above one million tonnes.

The undeniable fact is that even with good rains and state-sponsored agricultural support, the country failed to meet the annual national requirement of two million tonnes, creating a perennial maize deficit, necessitating imports. Clearly, our production and productivity challenges are deeper than financial access challenges and skill deficit.

To be continued nextweek

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.

Third, as the output, productivity and area under maize declined, the same three variables improved for tobacco. This remarkably shows that tobacco cannibalised maize production emerging farmers shifted their attention to tobacco which has higher returns than maize. Government, through its punitive forex retention policy, has disincentivised tobacco production.

We have created a double whammy that will hit us heavily this year. A drastic reduction in tobacco output and exports is expected this year as well as a serious drop in maize output. This scenario shows lack of strategic foresight, forced by short-term political pressures.

This is also the story of power generation; government neglected increasing power generation during better economic days, only to wake up when there was a debilitating crisis.

There are four other issues the maize-meal black market parable has shone light on: Inflation distortion, pauperisation of the populace and cartelisation/corruption. We will briefly look at these due to space limitations. In terms of official inflation, our official inflation statisticians will not take the black market prices for mealie-meal–they will most likely use the gazetted maize-meal price, which is not readily available.

This means both the food inflation index and the composite consumer price index will be significantly understated. The official inflation figures will be heavily understated, as a result.

Any pronouncement, crowing, self-congratulation on declining inflation will be based on fiction, not fact. It means that inflation-adjusted company financial statements will overstate profits and assets, rendering the statementsa compendium of sophisticated mumbo jumbo.

On cartelisation, there was a palpable cry that the registration of milling companies for the maize subsidy had resulted in only six millers out of the scores making up the industry being registered. I will be very careful with words here; I am not sayingthe six are a cartel. My argument is that giving the maize subsidy to a few millers creates the perfect conditions for cartelisation. This is how cartelisation was birthed in our fuel retail sector, creating artificial fuel shortages and opportunities for the fuel black market to flourish.

In terms of pauperisation, extreme poverty has increased since the coup. The gini coefficient that measures income inequality in a society is arguably creeping towards 0,5, if it has not already exceeded the mid-point. The gini coefficient ranges between 0 and 1. A zero gini coefficient means all the income of the society in question is equally distributed. A gini coefficient of 1 means one person/entity has all the income.

The last time our gini coefficient was officially measured was in 2017; we scored a gini coefficient of 0,42, showing that about 42% of our national income is held by a few people.

The channeling of more basic commodities into the black market will both raise the top and bottom measures of the poverty line (Total Consumption Poverty Line and the Food Poverty Line), pulling more people than before into poverty as well as raising the gini coefficent, creating a more unequal society. If we let cartels thrive a day longer, we will push our gini coefficient towards the surreal coefficient of 1.

The ultimate driver of our economic malaise are our political choices that prefer extraction ahead of inclusivity. This political choice calculated to engender political survival results in extractive economic choices, no matter how the politicians may preach to all who care to hear that they stand for an open economy.

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