Ncube’s Davos half-truths

The Brett Chulu

FINANCE Minister Mthuli Ncube (pictured) was in Davos, Switzerland, last week attending the World Economic Forum meetings.I am disturbed that half-truths about our economy were shared at Davos. Ncube seems to be telling the world that 2020 will be twenty-plenty.

The first incomplete truth is that our finance minister claims that inflation is coming down. This is what he said: “Inflation is coming down slowly but of course year-on-year inflation remains high but that is expected, that is what happens when you liberalise a currency and it is trying to find its equilibrium, it is trying to find its footing, we believe it is stabilising, it has been quite stable actually.”

To bolster his claim, he seems to lease inflation statistics from ZimStat, arguing that inflation (month-on-month) fell from 17,5% in November last year to 16,55% in December. As per the statistics, month-on-month inflation seems to be falling. The minister did not tell the other side of the truth that is more relevant. He chose to conveniently ignore the fact that although the month-on-month inflation seems to be falling, prices are still rising. Ncube knows that fact very well but for the sake of projecting a picture of an improving Zimbabwe to the world — he is trying hard to prove that the economic stabilisation measures are working, by hiding behind the technicality of mathematics that is largely not understood by the vast majority of the populace.

A falling rate does not mean prices are falling, it is like a car accelerating — reducing acceleration does not mean the car is reducing speed, it means it is increasing speed less rapidly.

The experiences on the ground for both producers and consumers are not the technical intricacies but a frequent encounter with rising prices. Even for those who understand the technical eruditions shared by Ncube at Davos on inflation know that there is trouble when month-on-month inflation is at such levels—it is disastrous for income protection. Not only is it disastrous for income protection, but also an indication of policy failure. We should not even be talking about single-digit month-on-month inflation in the first place it is a big embarrassment. It is an admission of price stabilisation policy failure.

Nations that have price levels under control, talk of single-digit year-on-year inflation, not month-on-month. If we reach month-on-month inflation levels of less than 1%, then Ncube can crow as much he likes as he would have really achieved price stabilisation.

If we would delve into inflation calculation methodologies, there is every reason to cast aspersions on the accuracy of the inflation statistics Ncube is relying on.

In my estimation, our inflation is understated. The black-market prices for goods in short supply such as fuel and mealie-meal are not being captured. In the end, the real inflation is the one consumers and producers experience in the marketplace where statisticians do not go. In the end, the economy that our authorities insist is improving is a theoretical construct existing only on paper.

Second, Ncube claims that the ZW$/US$ exchange rate is stabilising. Again, the economics of convenience and selective statistical citation are at play. Ncube seems to be pointing at the inter-bank forex market as the sign that the exchange rate is stabilising — it is a half-truth. Indeed, the interbank rate is trading within a narrow band between 16 and 17 to the US dollar, giving a semblance of stability.

The informal forex market cannot be ignored as the majority of economic players are relying on it. In the past week, the black market forex rates moved from 20 to the US dollar in December to 25 to the US dollar.

The lull in the black market in December and early January is a seasonal phenomenon owing to a fall in forex demand due to annual production shutdowns. The movements in the black market are the true barometer of the real economy, not the make-believe economy officialdom cites. The gap between the interbank and the black market forex rates is very wide currently. The black market is 56% ahead of the interbank.

The semblance of stability in the interbank is due to its quasi-market status where there are more willing buyers and many unwilling sellers — it is not a mature market. The currency stability claim by Ncube is clearly a half-truth apparently meant to prove to the gathering of influential global decision makers that the government’s economic stabilisation measures are working.

Third, the claim by Ncube that the food situation is under control is a half-truth. Maize is our staple and therefore food security for the nation is largely dependent on maize availability. Only recently did the minister responsible for Agriculture, Perrance Shiri, indicate that our maize reserves are dwindling. We cannot dispute Ncube’s claim that contracts for maize imports from Zambia, Tanzania and the Atlantic (possibly Brazil, Mexico or Argentina) are being signed.

There are facts we know surrounding maize imports. For starters, Zimbabwe requires about 100 000 tonnes of grain a month. At the current world market producer maize price, the country needs at least US$13 million to purchase our monthly maize imports. The landing cost will be much higher when shipping and surface freight costs from the African ports to Zimbabwe are factored in.

Between US$240 million and US$300 million may be required for maize imports this year. This adds huge additional demand on forex. Government does not have this kind of money — it has to either borrow it from the market or print local currency to mop up forex. If international aid agencies and other well-wishers do not step in, the food security situation will deteriorate gravely and extend to other basics such as cooking oil and wheat as maize imports get priority.

Zambia and Tanzania have put restrictions on maize exports, leaving us with Brazil, Mexico or Argentina as the most reliable maize imports sources. Brazil and Argentina are the second and third largest producers of maize in the world, respectively. Coupled with our maize subsidy for local millers, the business of feeding the nation is going to be very expensive this year.

This might force government to breach its 2020 budget deficit targets and, once again, rely on helicopter money (excessive money printing). Corruption will worsen the situation as maize finds its way to the black market. This points to an outlook of increasing food and overall inflation in the next few months.
The Zimbabwean economy painted by Ncube in Davos, current and in the outlook, is not as white as snow. Systemic analysis points to troubled days ahead. Half-truths will result in the wrong prescription being given to the patient.

Ncube knows that the fundamental issues that must be addressed in order for the economy to recover are primarily political reform and the political will to implement the economic reform package in full, not the cherry-picking that is currently happening. In short, Ncube must insist that the Transitional Stabilisation Programme (TSP) is fully implemented. Many of the critical commitments contracted in the TSP are being flouted; policy confusion is still reigning, property rights are under threat, lawlessness is on the rise, corruption is rife (the latest Transparency International corruption index places us in the league of the worst offenders) and free-market forces are being stifled by cartels.

Facts before us dispute Ncube’s claims. The year 2020 will not be twenty-plenty.

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