Eddie Cross's Website

Breakthrough

I walked into a business here in Bulawayo this morning to discover that the staff was basically cleaning up prior to shutting down. The owners were already in South Africa - they had left without telling many friends that they were going. This is an event taking place across the country right now - business people are deciding that they have had enough. They cannot export at ruling exchange rates, local demand has simply disappeared and they have no raw materials and no cash to continue operating.

The Zimbabwe economy is closing down - literally. We have inflation now at nearly 1200 per cent per annum (28 per cent in May and 21 per cent in April so it is still accelerating). But unlike the situation in most other countries that have experienced hyperinflation, the Zimbabwe economy is imploding at the same time. GDP is now down about 50 per cent, exports by two thirds and if it is at all possible, output in all sectors - mining, agriculture, industry is down again this year over last.

The reasons for the implosion in the economy are largely self-inflicted. They rank from open threats against owners of businesses, expropriation and theft of assets by people associated with the ruling Party. The near collapse of the legal system and massive political interference with what is left. To this you can add total confusion in terms of macro economic, monetary and fiscal policy. Totally skewed exchange rates accompanied by wholesale theft of revenues and the misuse of scarce resources allocated on a patronage basis.

In recent weeks the reports of accelerated decline have poured in - gold output down by a third on last year, winter cropping down 50 per cent, electricity supplies down to 70 per cent of demand and threatening economic activity across the board. The tobacco crop down by a third and prospects that the coming crop could be very small - perhaps less than 20 000 tonnes. Industrial activity shrinking fast and, if it was at all possible, the numbers of foreign tourists still dropping.

The only sector that remains an area of potential growth is the mining sector - driven by the very buoyant international prices for minerals and the existence in Zimbabwe of considerable reserves of chrome, nickel and platinum, plus a host of other less strategic minerals. Even here, despite intense international interest, all maintenance and development is on hold. Threats to expropriate more than half the equity invested in existing mines have stopped the industry in its tracks.

In Bulawayo - once the industrial heartland of the country, the decline is clearly evident in the empty streets and long lines of empty parking bays outside stores in the City center. It is also evident at 17.00 hours every day when in the past thousands of workers walked from factories to bus depots for their journey home. Now the streets are virtually silent and there are no buses at all.

I know it sounds like a broken record but it is the maize situation that highlights the sheer lunacy of this regimes management of the economy for me. Just look at these numbers.

We require 5 000 tonnes of maize a day to feed the country. Of this 3 600 tonnes is for human consumption as maize meal. Last year the State imported 1 million tonnes of this product into the country and in addition donors supplied basic foods for over 3 million people every day. As I write, some 2 000 tonnes of white maize is coming into Zimbabwe from South Africa every day. This costs about R1200 per tonne (at least) and on top of this you must add another R160 per tonne for administration. So we are talking about a product that costs R1360 per tonne - perhaps even R1400 per tonne when it is finally sold to the local millers.

The selling price of the GMB is R12 per tonne at market based exchange rates, R37.50 at the bank rate. Whatever they sell it for, the loss on the product is well over 99 per cent of its cost. The numbers are just staggering - at official exchange rates (which bear no relation to reality) the loss is Z$22,4 million a tonne or Z$44,8 billion a DAY!

How do they manage this? They don't. I must assume that the South African government is in fact providing the maize on credit to Zimbabwe in an effort to keep the Mugabe regime afloat. This means that, at last years rate of imports South Africa is building up debt with Zimbabwe at the rate of R3 million a day. Add that to the power subsidies being ploughed into the Zimbabwe economy at the same time - also through another bankrupt parastatal and you come to the total debt build up of some R2 billion a year at the very least (US$350 million).

Zimbabwe did the same thing with Kabila in the Congo - we sent in 15 000 troops with all their support equipment and it cost us over US$1,3 million a day for 4 years - we got nothing back and it is one of the reasons for the collapse in the Zimbabwean economy. South Africa can afford to spend this sort of money - but I also assume the South African government has not informed its own stakeholders and tax payers of the liabilities building up. They are simply fudging the books. For his part Mugabe has no intention, like Kabila, of ever paying the debt back.

In other areas the South Africans are also covering up the real facts. Illegal migration to South Africa via Botswana has been estimated at 500 people per day and via the Limpopo border with South Africa at 2 500 a day - that is one million new illegal migrants a year. Some are caught and returned, most disappear into the murky depths of South African slums and townships. Some of this movement is simply people going home for a few days - but many are new entrants to South Africa.

The full impact of the implosion in the Zimbabwe economy has yet to be felt in South Africa, even at these horrific levels of social dislocation. Things can only get worse. I watch the great success of the German World Cup today and wonder if the South African event in 2010 will not become a victim? It could so easily. I also read in the Mail and Guardian newspaper that the ANC alliance is under threat. This would destabilize South Africa in a big way if it happened. Why play with the possibilities? All South Africa has to do is use its leverage on Mugabe. Is that so hard to understand or do? Everybody tells me this will never happen and they have all sorts of reasons - none of them very rational, to explain why. Often this argument is accompanied by a lot of African mumbo jumbo - nonsense. It all boils down to self-interest.

When the price of Zimbabwean stupidity and intransigence gets too high, those with power and leverage over the situation here will pull the levers and then I expect a real breakthrough. The question is are any of us ready for that event, or will it simply be another Tsunami that washes away the good with the bad?

Eddie Cross
Bulawayo, 14th June 2006.