World Market Developments

We tend to be so preoccupied with our own problems and the economic collapse taking place here that we lose sight of what is going on in the world around us. In fact the changes in the global economy are startling and we need to know what is going on and how these changes might impact on us when we finally claw ourselves out of the hole we are in.

Just this morning for example, we note that oil prices may break through the US$100 per barrel barrier for the first time. This can be ascribed mainly to the fall in the value of the dollar, which stood at 1.45 to 1 against the Euro today. When the Euro was first launched the rate set was 1 to 1 and so this is a huge devaluation in real terms and certainly in an historical context. However itís also due to the gradual tightening of supplies of oil against rising demand. We must now accept that the oil era in global energy markets is coming to an end. In this situation any threats against supplies immediately results in a sharp rise in prices. Instability in the Gulf and many other oil exporting regions are not helping.

But these shifts will raise revenues in oil exporting regions and impact on technologies and alternative energy sources. So we expect the Angolan economy to expand 30 per cent this year over last - a huge jump in economic activity driven by itís growing oil exports. World trade is also growing rapidly - at nearly three times the average expansion in global economic activity pointing to the continued intensification of globalisation with all its attendant implications and stresses. Exports from Zambia will reach US$8 billion this year - 7 times the total exports of Zimbabwe, just 7 years ago our exports exceeded those of Zambia by 5 to 1.

Driven partly by the changes in energy markets, the prices of basic foods have all soared this year and many have doubled in real terms. This affects the markets for maize, rice, sorghum and wheat and despite the massive increase in both prices and farm returns, stocks continue to shrink. The outlook for these basic foods is regarded as being very strong and this has serious implications for those importing countries that have a basic food deficit. Zimbabwe would normally stand to benefit from such a shift but now stands to suffer along with many other countries. I estimate that our food deficit in the next 12 months will be US$700 million, more if prices rise in the next few months.

Then there is the emergence of China and India as the new economic powerhouses of the global economy. Both have economies that are growing at 10 per cent per annum - an extraordinary achievement in economies of this size and diversity. Their growth in demand for raw materials is driving the metals and mineral prices to record levels - so we see copper trading at record prices, even gold is now over US$800 a fine ounce. Commodity producers and exporters are all benefiting and we see the currencies of these countries - like Australia and South Africa, moving to new heights. This in itself has grave risks for the countries concerned - strong currencies means increased imports and invisible movements of foreign funds.

Zimbabwe has not participated in these normally very favorable global conditions - had we maintained our economy as it was in 1997 and perhaps eased up on some controls, we would have seen very strong growth in our exports and domestic economic activity. Instead our economy has shrunk as fast as the region as a whole is expanding - declining by 55 per cent since 1998. Exports have declined from US$3,4 billion to US$1,4 billion despite the massive rise in unit prices over recent years.

I think the situation here was totally predictable and understandable - what is not so understandable is the slow growth of the South African economy. When I speak to South Africans or Zimbabweans going to visit South Africa, the impression gained is that the economy is booming! Not so, despite record earnings from exports of all commodities, despite massive expenditure on infrastructural development throughout the economy and conservative macro economic policies, South Africa shows no signs of reaching the sort of growth figures that would enable her to reduce poverty or the gap between rich and poor. In fact they have reduced their forecasts of growth to just over 4 per cent - a modest figure that in my view should have sent shock waves through Union Buildings.

Tito Mboweni spoke out in Tswane (Pretoria) recently and argued that they had 'contained' the contagion effect of the Zimbabwe crisis and that it would not affect the South African Rand. In fact this statement was misleading in many respects - Tony Blair had stated in his last visit to South Africa that in his view, the cost of the Zimbabwe crisis on South Africa was equal to 3 per cent of GDP. British Prime Ministers do not suck such numbers out of their thumbs - his staff advised him of that sort of number. I agree with the estimate.

It is a commonly held view that it is only a matter of time before South Africa starts to behave in a similar manner to the rogue regime in Harare. That may not be true, but the perception alone is enough to ensure that the new wealth being earned from the surge in global commodity prices does not fund domestic growth in South Africa. Rather it funds new investments abroad in developed countries that are perceived as being a more secure haven for such resources. The strong Rand is a threat in itself - the massive deficit in foreign trade of South Africa is testimony to that - and South Africa industry is the loser.

In fact the only place where you see evidence of wealth in South Africa is in the glittering shopping malls of the cities where the new elite and their predecessors spend their money on imported goods and luxuries to the delight of global exporters.

At the same time South African business is busy carving out a name for itself in global markets - the little known group Nationale Pers now is the third largest media group in the world, SAB is number 2 and might become number one beer manufacturer. Anglo American is in the top ten of global mining companies, Rembrandt is one of the top three tobacco companies, Barlow Rand is a global cement manufacturer. The growth of these South African multinationals is not taking place at home, where it matters.

Growth comes out of communities that have confidence in themselves and their country. It stems from thousands of small decisions every day. Earning record sums from exports of basic commodities is simply translated into imports of consumption items and not real growth if conditions are not right. That is our challenge.

Eddie Cross
Bulawayo, 7th November 2007