The Economic Fundamentals
Despite the paucity of statistics in Zimbabwe due to the near collapse of
the system, it is possible to analyse the present economic situation based
on what we know of the fundamentals. It is clear that inflation is now at
record levels exceeding the experience of other countries who have gone
through such a phase and that economic activity has slumped to new lows. The
traffic in the towns are a clear indication of this.
If what we believe is happening, the GDP will have slumped to a new low of
about 40 per cent of the level achieved 10 years ago. It certainly will
decline by 12 per cent or more this year alone. This process is being driven
by falls in the real output of all industries and sectors of the economy.
Even mining, despite high international prices and demand and some new
investment in the platinum sector, physical output is falling.
Industry seems to be the most affected at present and whereas output last
year would have been about 60 per cent of 1998 levels, by the end of 2008 it
will be perhaps half of this - driven by a cocktail of problems from power
shortages, to foreign exchange shortages and price controls. Tourism shows
no sign of recovery and if it is actually possible, farm output is in steep
decline driven by insecurity and lawlessness, low prices and the shortage of
virtually all inputs.
The inflation spiral we are in is being fed by a massive budget deficit -
funded by printing money mainly, and by the abuse of the foreign exchange
system. The latter is being managed both to reduce the real value of
remittances to Zimbabwe and to allow those associated with the regime to
secure hard currency at very low 'official exchange' rates. This is
tantamount to printing money as the RTGS system is used to buy hard currency
on the local market at massive premiums.
Unable to cope with the very rapid depreciation of the currency and watching
their working capital being consumed by inflation, business organisations
are now simply closing down. Major wholesalers and retailers are
particularly affected as there are no credit facilities available and they
are unable to finance their stocks. A serious breakdown of the distribution
chain has taken place. Manufacturers are not far behind and only those who
are exporting a majority of their output are surviving.
In the mining sector, threats of nationalization without compensation
together with the continued control of marketing and the use of the
interbank rate for the payment of local currency for a proportion of export
sales and the maintenance of an artificial price for gold, is affecting
returns and confidence. This, coupled to shortages of essential inputs and
electrical energy, are further curbing output and investment.
In the agricultural industry, maize production in the past season is now
estimated as only 425 000 tonnes while winter cereal production looks as if
it will only be a fraction of last years output. This is due to a shortage
of inputs as well as continued farm invasions and insecurity. Tobacco sales
are down on last year and it is expected that output could decline again
this year due to uncertainty and the non-availability of essential supplies
and electricity. Oilseed production is down and for the first time there is
a shortage of tea, fruit and sugar - all normally in free supply.
One immediate consequence of this situation is a critical shortage of all
basic foods. What little is available is now priced at levels significantly
above those prevailing in South Africa - a reversal of the historical
relationship. This situation is so serious that it is likely to result in
mass starvation if it is not attended to soon. Political controls over the
supply and sales of food are now universal and seriously affecting the
welfare of those in the cities and in the rural areas who supported the MDC.
One of the new consequences of this state of affairs is the inability of
staff in all State controlled institutions to cope with the situation.
Poorly paid at best and with salaries that simply cannot keep up with the
inflation, they are unable to maintain their standard of living. Many State
departments and services are collapsing. How the PTC and ZESA are
maintaining their activities is anyone’s guess.
Couple this situation with the widespread violence and intimidation and you
can understand why millions of people are on the move. They are desperately
trying to get out of the country - to anywhere that might offer a means of
support and shelter. South Africa is the main destination and I simply
cannot even imagine how many people are moving south on a daily basis.
Today a local businessman said to me that traffic from South Africa to
Bulawayo was running at 25 pick ups per hour to the City and 4 times that
number to Harare. This is as South African migrants respond to the
increasing desperation of their families at home.
The Zanu PF regime shows no sign of understanding or being even willing to
do what is required to bring this situation under control. I cannot believe
that they do not know what to do - its quite simple really but needs
political will and a determination to get things right. Both seem to be
almost completely absent.
I said to a friend recently that Mugabe and Zanu PF are like a small boy who
has been chasing a large bull in a field. At last the bull has stopped and
they have the bull by the tail - but they have no idea what to do with it
and run the risk that this will annoy the bull that, with further
irritation, might turn around and toss the kid into the bush with its horns.
The other danger for the kid is that the bull will do what comes naturally
and Zanu PF will find itself covered in you know what!
Whatever, the kid is not in charge of the bull and they know it - but they
simply do not know what to do - the wise thing would be to drop the tail and
run. But then Zanu PF is not given to wisdom - in any field.
Bulawayo, 12th July 2008