Country's Economy Goes Past Tipping Point
Bill
Financial Gazette (Harare)
OPINION 20 September 2008
Tony Hawkins Harare
IT is obvious to just about everyone -- with the apparent exception of
the government of President Robert Mugabe,--that Zimbabwe's economy has
passed "tipping point".
Inflation escalated from 7,500 percent a year ago to 100,000 percent in
January and 11.2 million percent in June.
Current estimates put the annual rate at around 30 million percent for
September. But because no one is able to measure prices accurately, the
precise figure is not known.
In the past two weeks alone, the Zimbabwean dollar has collapsed from
300 to the US dollar to 15,000, on some occasions, losing half its
value in a day. Last week, the rate collapsed from 7,500 to 15,000 to
the dollar.
Production in agriculture, mining and manufacturing has more than
halved since the political crisis started in 2000, and a recent
industrial survey shows that manufacturing industry is operating at
less than 20 percent of capacity.
The shops are empty. More and more people are resorting either to crude
barter -- a cabbage for an egg, or a few tomatoes for a loaf of bread
-- or to under-the-counter deals in foreign currency.
New business areas have opened up, especially in Harare's plush
northern suburbs, where informal shops sell a wide range of products,
both imported and locally-manufactured, but also for US dollars or
South African rands.
Still further evidence of accelerating collapse came last week from
Gideon Gono, the Central Bank governor, when he "legalised" the use of
foreign currency for paying for goods and services.
A defensive Gono insisted that he was not "dollarising" the economy --
in fact that has happened already -- but merely making it easier for
shoppers because local currency is scarce due to his monetary policies.
The "reform" will help the fortunate few with access to foreign
currency while enabling the government to exercise its political
patronage in giving foreign currency licences to favoured retailers and
wholesalers.
Gono made no mention of industrialists, farmers and mining companies
who, presumably, will be forced to use the local currency.
This burgeoning informal sector is unlikely to survive for long, since
once there is a political agreement-- and so rapid is the pace of
economic decline that this cannot be too far off - the formal economy
will revive.
Accordingly, informal traders are making as much hay as possible while
the sun shines.
As a result, US dollar inflation (about five percent in the US) easily
exceeds 50 percent in Zimbabwe. It is a sellers market and the traders
are exploiting their short-lived opportunities to the full.
While economic collapse is a heaven-sent opportunity for Zimbabwe's
enterprising traders, it is a disaster for the poor, the elderly and
the sick.
Basic social services have collapsed in high-density urban areas.
Teachers do not report for work; government doctors are on strike, and
while private medicine operates relatively efficiently, it is too
expensive for the vast majority of the population and doctors and
dentists prefer payment in foreign currency.
The middle class, once the bedrock of this economy has diminished --
doctors, teachers, nurses, engineers, artisans and lawyers have left
the country.
Zimbabwe is now a highly polarised society economically, with a thin
veneer of very prosperous entrepreneurs, including government ministers
and officials, policemen and military officers and well-connected
businesspeople, known generically as "the chefs".
They have never had it so good, but their prosperity depends on their
political connections.
At the other extreme are the poor -- an estimated 80 percent of the
remaining population of some 10 to 11 million live on less than one US
dollar a day.
No one knows how many people have emigrated, mostly to South Africa,
Botswana, the UK and Zambia, but estimates put the figure at a minimum
of two million people.
Today, most Zimbabwean families depend on Diaspora income to stay
alive. Without remittances from relatives and friends living abroad,
many Zimbabweans would simply not survive.
It is unlikely that any business, outside the informal traders,
money-changers, and of course, banks, is operating at anything like
full capacity.
Even simple consumer items, Coca-Cola or local beer, have disappeared
from the shelves. One leading upmarket clothing retailer says its main
money-spinner these days is the sale of enamel pots, pans, plates and
mugs."
"That's a measure of income and living standards in Zimbabwe," says a
manager.
Each time the political parties meet for talks about forming a unity
government to fill the present vacuum, there is no shortage of business
optimists, predicting a massive boom, fuelled by billions of dollars of
foreign aid and foreign private investment.
Thousands, even millions, of Zimbabweans will rush home to cash in on
the post-Mugabe bonanza.
But will they? One methodical research study suggests that the more
skilled Zimbabweans will stay in the Diaspora, rather than giving up
good jobs for the uncertainty of a long and painful economic recovery.
Some economists reckon it will take 10 to 15 years for incomes to
return to pre-crisis levels.
Economic recovery will be seriously constrained by the country's
infrastructure "deficit" especially electric power.
Foreign currency will be scarce during a period when the country will
need billions of US dollars to finance food imports (already a third of
the population is being fed by international donors) and another crisis
year looms for agriculture.
Emergency assistance will be needed to rebuild the health and education
systems and to finance fuel and electricity imports. Most serious of
all is the void so often overlooked by businesspeople, investors and
diplomats.
That void is the country's "soft" infrastructure -- the institutions
that keep a country functioning, the judiciary, the police, the public
service rule of law, the public service, the media, the schools and
health providers.
These have been systematically undermined and corrupted by the ZANU-PF
government.
Ten years ago, when President Mugabe set out to "empower" his people by
seizing privately-owned farmland and instructing his central bank to
print trillions, quadrillions, of local dollars to foot the bill,
Zimbabwe was blessed with above-average institutions for an African
country.
Today, much of that institutional fabric has gone. It will take decades
to revive and replace.
Tony Hawkins is Professor of Economics at the graduate School of
Management at the University of Zimbabwe.