Economic Collapse
Economic collapse in Zimbabwe now inevitable

23^rd November 2002

The Zimbabwean economy has been languishing at death's door for some considerable time, it becoming progressively weaker and weaker. The tragedy has been that none was willing to give it the care and attention necessary to restore it to wellbeing. It has, over the five years since late 1997, become increasingly frail and debilitated, its very evident ill-health failing to motivate any remedial attention from those who could and should have been concerned at its devastating condition and the potential catastrophic consequences upon those dependent upon the economy. Instead of nursing the economy back to strength, they afflicted and burdened it with ever greater ills.

So severe was the economy's decline that all Zimbabweans anxiously awaited the presentation of the 2003 budget, hoping against hope that government would, albeit belatedly, recognise that urgent admission of the economy into intensive care was vital and that, following such admission, the economy must be diligently ministered to, and nurtured, until it was again fit, and able to support all reliant upon it.

As the Minister of Finance and Economic Development, Herbert Murerwa commenced his Budget Statement to a packed parliament on November 14, not only was his every word listened to by every parliamentarian, but in almost every corner of Zimbabwe the populace had its attention glued to radios or television sets in order to hear that which would decree either moves towards economic recovery, or a further disastrous collapse of the few remaining prospects of a return to well-being.

And, as the Budget Statement commenced, hopes were momentarily raised, for almost immediately the minister demonstrated awareness of his patient's distressed condition, and the need to address it. Within seconds he recorded that "The country is facing severe socio-economic difficulties. Their magnitude requires urgent corrective action to avert further deterioration." He highlighted the massive challenges to the survival of the economy, saying that in response to those challenges "measures aimed at bringing about the necessary macro-economic stability, increased economic production and exporting will be critical".

Having evaluated the symptoms of shortages of basic commodities, frequent price adjustments, low foreign exchange availability, huge macro-economic imbalances, high inflation levels, declining savings, investment and output, and escalating fiscal deficits, he accurately interpreted those symptoms in order to arrive at a diagnosis that Zimbabwe was afflicted with a cascading economic decline. Then he considered how that decline could be halted, and how the symptoms could be treated.

In doing so, he very correctly noted that the required treatments would necessarily have to be administered by a specialist physician and not a general practitioner, saying that "the private sector has to resume its role as the main engine of economic growth". At this stage, most who were anxiously listening to every word began to hope that the greatest health hurdle had been overcome, for not only was the disease recognised, but so too was the identification of who should treat it.

What at that stage was not realised was that rendition of the critically needed treatment would not be forthcoming, for whilst demonstrating his awareness that the private sector should necessarily be the principal engine of economic growth, he immediately thereafter derailed the engine by removing the tracks.

In fairness, one must assume that, in the light of his long-proven very considerable intellect and substantial knowledge of the fundamentals of economics and of fiscal considerations, his actions in removing the rails upon which the engine of recovery had to move must have been at the dictates of his superiors and colleagues who have repeatedly evidenced adherence to destructive economic policies and disregard for realities. Be that as it may be, he did displace those rails, the first of which is the need for international acceptability, founded upon international judgemental norms instead of those which Zimbabwe may see fit to deem acceptable.

He said that he had "to dispel negative perceptions that Zimbabwe does not adequately guarantee property rights - critical for confidence and private investment the world over". Then he said that "government recognises that Zimbabwe is an integral part of the global economy and has always respected internationally recognised rules which govern property rights."

This evoked guffaws of disbelief, derisive laughter from opposition benches, which were repeated when he compounded the unbelievable by saying that "we will continue to ensure that property rights are respected", qualifying that statement by adding "in accordance with the laws of Zimbabwe". That qualification is a contradiction of the earlier reference to "internationally recognised rules". Over 4 000 commercial farmers can give undeniable evidence rebutting any allegation of respect for property rights.

However, most catastrophic of all was the announcement that corporate foreign currency accounts can no longer exist. With immediate effect, exporters have to surrender 50% of all export revenues to the Reserve Bank, converted at the official rates which give no recognition to effective inflation over the past two years of 347%, the exchange rates having been fixed since August 2000, and the consumer price index upon which the inflation rate is based having risen from 527,7 in September 2000 to 2 357,7 in September this year. Exporters cannot price competitively when such hyperinflation prevails, and have only survived as a result of exchange gains realised in the parallel market.

In addition, the remaining 50% of export proceeds must also be surrendered to the Reserve Bank, to be held to the order of the exporter, but only being released for usage related to an as yet unspecified priority list. Thus, the parallel market is dead, and the result will be the death of most export operations (unless incentives still to be announced by the Reserve Bank will be of a nature and extent to compensate fully for the loss of parallel market exchange rate premiums). Furthermore, all enterprises reliant upon imports of a nature that will not qualify under the priorities list will also face demise.

The collapse of most export operations will exacerbate the lack of foreign exchange which already severely constrains the economy and imposes intense hardships upon most Zimbabweans. (The good news is that Zimbabwe will no longer have petrol queues; the bad news is that Zimbabwe will no longer have petrol!). The massively reduced inflows of foreign exchange will affect all sectors of society, impacting upon transport, energy, health delivery resources, production of essential commodities and so forth.

They will stimulate the established black market which thrives in an environment of shortages, thereby fuelling inflation even further. (There is a marked disparity between inflation projections for 2003 of the International Monetary Fund (IMF) and of government as stated in the Budget Statement. The former projection is 522,2%, whilst the latter is 96,1%. Both projections will undoubtedly be wrong, but all indications are that, unfortunately, the IMF projection is likely to be closer to the mark).

With almost all enterprises, whether exporters or import-reliant, condemned to closure or liquidation, the present unemployment of over 70% of the population will worsen sharply, reducing consumer spending power substantially, thereby forcing the failure of yet more businesses. Government revenues from direct and indirect taxes must fall significantly from projected levels, whilst its expenditures will soar due to high inflation. It will be driven to heavy borrowings, funded by Reserve Bank printing of money, which will force inflation still higher.

Economic death is now inevitable unless either government matches its new measures with simultaneous, meaningful currency devaluation, followed by further exchange rate adjustments in synergy with inflation, or provides exporters with incentives equating to such devaluations. Watch this column for further negatives in this year's disastrous Budget Statement!

Zimbabwe Independent - Eric Bloch Column