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