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The Total Destruction of the Economy
This past week the government rammed through long awaited legislation
that
will require companies to sell 51 per cent of their equity to black
Zimbabweans nominated by the regime. The companies are required to fund
this
exercise themselves through a levy that is to be introduced by the
State and
which will be applied on a compulsory basis to all firms in the
economy.
This development comes on top of the price control operation mounted by
the
Joint Operations Command and the subsequent publication of regulations
that
will enable to State to take over any firm that closes its doors as a
consequence. As no company can produce and sell its products for half
its
cost and expect to survive for very long we can only assume that this
was
the real object of the exercise and it had little or nothing to do with
trying to curb inflation.
Just this past week we have seen further evidence that government is
recklessly printing money to pay its bills and even to buy what little
foreign exchange is available on the market. In Bulawayo we heard
reports
this week of a Reserve Bank truck delivering hundreds of millions of
dollars
of currency in large denominations to local dealers. The rate of
exchange on
the market has slumped to record lows as a result and a pound now
fetches
over a million Zimbabwe dollars.
No foreign firm is going to allow its local subsidiaries to be taken
over
via either route and we face a scenario where they must either fight
the
system through the Courts or abandon their assets and leave the country
or
try to dispose of 100 per cent of their assets at a half decent price.
It is
now clear that Mobil, Anglo American and the Heinz Corporation have
effectively dumped the equity they held here in some local companies.
The
international banks have already made their views known - Barclays,
Standard
Chartered, Stanbic and the MBCA have all said that they will not allow
the
loss of a controlling stake in the local companies, they would not
allow the
companies to use their brand names or systems and would dispose of 100
per
cent of their local assets, closing down the banks if necessary.
The Minister responsible responded to this statement by saying that
'they
can go'. He emphasized that the regime would not back down on this
operation. I already know of several companies in different fields who
have
been approached by Zanu PF linked people with an offer to take over a
major
or controlling interest in their companies. The private abattoirs that
were
denied licenses to operate two months ago are being licensed but on
condition that they sell a controlling stake to a nominated shareholder
and
on top of that they are being forced to buy and sell under State
direction.
So what does this mean? Are they serious? What they are trying to do is
implement a strategy for the next elections that will reduce current
urban
populations by a third or more in twelve months. The price control
operation
was designed to achieve this and as a result of the enforcement of this
campaign, the Cities are without food or water. Hundreds of thousands
of
jobs are at stake and tens of thousands are fleeing to South Africa on
a
weekly basis. By my estimate they are well on their way to achieving
this
objective. Every worker who loses his job or just gets fed up with the
situation and leaves is one less MDC vote in the election next year.
When this is over, they will pick up the pieces and resume normal
commercial
operations funded by an endless stream of resources from the Reserve
Bank.
They will then be able to go into the elections in 2008 with a sharply
reduced urban vote, the remaining voters will mainly come under the
control
of Zanu PF directed entities and all basic needs will be tightly
controlled
by the regime. Vote for Zanu PF or else will be the threat. I am just
waiting to see when they will attack urban property rights.
I fully expect GDP to decline sharply this year as a consequence of
this
operation. This will reduce our GDP to US$4 billion or less. Exports
will
also fall and money transfers rise as Zimbabweans in the Diaspora
respond to
the needs of their families at home. All investment has stopped and
only the
Chinese seem to have the stomach for this - probably because they
know they
will be given special treatment, in fact they are participating in this
exercise and are picking up long term assets for a fraction of their
true
value.
The question is will the strategy work in terms of the elections and
what
are the consequences of this situation and the deliberate destruction
of a
functioning economy that it represents? The domestic answers are
difficult
to give; I hope Zanu PF thinks that their strategy will work for them
in the
election, as this is the only way we are going to get them to
participate in
that event.
The economic consequences are catastrophic. We will now have to plan
for a
stabilisation and recovery programme that embraces the whole economy
and not
just agriculture and its support industries. The departure of
international
firms like Heinz will not be easily reversed and securing the kind of
investment we need to kick start the recovery is going to be that much
more
difficult.
But it is the regional implications that I think need to be scrutinized
closely. I was told last week by a prominent South African analyst that
South Africa had 'discounted' the threat to the South African
economy of any
further contraction in Zimbabwe. This may be true, but it does not
disguise
the fact that foreign investors, already wary of Africa from a risk
point of
view, may just find this wholesale grab of assets by a greedy elite
that
seems to have the support of much of Africa, is a portent of things to
come - perhaps even in South Africa itself.
Our trade with South Africa ten years ago was R2 billion a month. We
were
South Africa's largest trading partner in Africa and its largest
single
market for manufactured goods in the world. Two thirds of that trade
has
gone and instead we export hundreds of thousands of impoverished men
and
women to South Africa each month. Once in the South African system they
join
criminal gangs, rob banks and stores and engage in petty crime and
trading.
Cape Town last year had more murders than Britain. No State can build a
stable society on such foundations.
Time is running out on us - if Zanu PF is allowed by inertia on the
part of
the SADC States to get away with this destructive and suicidal
activity,
they will have to deal with a real failed State when finally the
political
implosion takes place or see Zimbabwe spiral downwards into a Somalia
style
situation of lawlessness and poverty.
Free and fair elections are impossible if the national crisis is not
dealt
with and dealt with in a decisive and holistic manner. We all agree
that
this is the only way out of this crisis - it is time to act to ensure
that
we can in fact vote in a free and fair manner when the time comes.
Allowing
the continued delinquency of the Zanu PF regime is simply not an option
for
any of us.
Eddie Cross
Bulawayo, 29th September 2007
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