Mealie-meal black market economy parable Part Two

The Brett Chulu

THE black market for maize-meal produced by registered millers is being openly sold in the streets at a heavily inflated price, 75% above the subsidised retail price. This phenomenon is a parable of our struggling economy.

Cannibalisation

As the output, productivity and area under maize declined since 2010, the same three variables improved for tobacco. This remarkably shows that tobacco cannibalised maize production — emerging farmers shifted their attention to tobacco with higher returns than maize. During the heyday of Zimbabwean agriculture, the large scale commercial farmers used to produce only 30% of our maize, with the small-scale farmers accounting for the bulk of our maize output.

The income per hectare for tobacco is much higher than that of dried maize; the emerging farmers have invested more attention to tobacco — just the erstwhile large-scale commercial farmers. The good maize farmers have shifted to tobacco, leaving the less-skilled and less-resourced farmers concentrated in maize production. That has contributed to low national average yield per hectare for maize.

Command agriculture may not be able to significantly raise maize yield per hectare because the bulk of the relatively skilled farmers are concentrating on high-value crops. This is simple capitalism at work — the economic rational farmer will go where the money is.

Tobacco farming is now under threat. You only have to look at the 2020 budget statement — it scarcely mentions tobacco — a tell-tale sign that all is not well in the tobacco industry. When the national budget almost says nothing about the second biggest forex earner, it portends troubled times ahead.

Tobacco was providing a credit lifeline for the central bank as trade finance loans from a pan-African specialist trade finance bank was partly collaterised from future tobacco. One can only imagine how difficult it will be for the central bank to continue to secure this lifeline given a forecast of depressed tobacco output for 2020.

Government, besides the poor consecutive rainy seasons, through its punitive forex retention policy, has disincentivised tobacco production. This has created a double whammy that will hit us heavily this year — a drastic reduction in tobacco output and exports is expected 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 or corruption.

Inflation distortion

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, for a commodity that 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.

The same challenge exists for other goods and services that inflation statisticians may not pick. For instance, we have three different prices for fuel; the official retail price, the black market price and the US dollar price. It is a well-known fact that fuel sold in US dollars is more expensive than fuel sold in Zim dollars. When the US dollar fuel price is converted to Zimdollars, even when one uses the interbank rate, the forex fuel is more expensive — but that fuel is not in the statistician’s basket.

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 statements a compendium of sophisticated mumbo jumbo.

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. We have to be very careful with words here; I am not saying the 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. Cartelisation distorts the operation of free market forces, promoting rent-seeking behaviours that over-price commodities and the creation of artificial shortages to shore up prices, calculated to increase the rents of carteliers.

Pauperisation

Extreme poverty has increased since 2017. Black market mealie-meal typifies poverty increase perfectly — many people who used to afford mealie-meal will find it hard to access it on account of lack of affordability.

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 co-efficient 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 channelling 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 further unequal society. If we let cartels thrive a day longer, we will push our Gini coefficient towards the surreal coefficient of 1.

Cartels rob income from the populace, concentrating income among a connected few. The ultimate driver of our economic malaise is 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.

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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