Tuesday, 2 October 2018

2008 LOOMS

As Zimbabwe's economy continues to come apart at the seams, experts say it is time for President Emmerson Mnangagwa and his dithering lieutenants to bite the bullet and make the requisite changes needed to turn around the untenable situation.

If this doesn’t happen as a matter of urgency, both business and economists told the Daily News yesterday, the country risks sinking to the dire levels that were seen in 2008 when record hyperinflation decimated the Zimbabwe dollar and left millions of citizens impoverished.

Amid clear signs that the local economy situation is deteriorating fast and worryingly — marked by acute foreign currency shortages as seen in the fact that Zimbabwe is now left with just $200 million worth of import cover where billions are required — this has resulted in the prices of basic consumer goods shooting up in the last few months.

Not surprisingly, the ruling Zanu PF is now questioning the genesis of the economic calamity and the consequent price increases — which it suspects is a result of sabotage by some local players.

Economic analysts told the Daily News yesterday that Mnangagwa — who returned from New York late last week, where he had gone to drum up support from international investors — was under growing pressure to deliver on his electoral promises to rebuild the country’s shattered economy.

They also said that the only way that the 76-year-old Zanu PF leader could mitigate the situation was for him to make “painful but gainful” urgent decisions to breathe life into the economy.

“Zimbabwe is at a stage where if the president wants to turn around the situation he must now make radical decisions. He must also guarantee property rights by giving title deeds to farmers on the ground who have demonstrated their competence.

“These farmers must pay money on a rent-to-buy arrangement and they must conduct their farming activities on a commercial basis, using their title deeds to borrow capital.

“It is not sustainable for government to keep funding farmers, as they must fund themselves on a commercial basis,” economist Trust Chikohora said.

“Farming is a commercial venture. The money from rentals can be used to contribute towards compensating the white former farmers in accordance with our Constitution,” he added.

Another economist, John Robertson, also said Mnangagwa needed to woo back white commercial farmers, and to also support his new Finance minister Mthuli Ncube in scrapping bond notes before year-end.

“The most damaging policy decision in the past was the cancellation of the market and collateral value of billions of dollars-worth of commercial agricultural land.

“When that happened, banks could no longer lend to farmers and the country became dependent on food imports. This was a crippling blow to the whole country as food imports cost so much and so many people had to leave the country to find work.

“But it can be fixed. Government could place all the land back onto the market immediately, restore its collateral value and invite experienced farmers to rebuild the whole sector,” Robertson said.
“That one move would do amazing things to confidence, investment, production, employment, exports and tax revenues. The important question is why the government does not want to take this step.

“Other radical changes are needed in the labour law area. Workers are so protected through restrictions to dismissals to the extent that employers are reluctant to take them on as full time employees.

“Government employees also now add up to about half the total number of formal sector workers because government cannot afford to dismiss the ones they no longer need,” the veteran economist added.

“Government must change its policies and not just promise more reforms. The basic policy now in place was designed to put government in control of business.

“One of the main policy changes needed is for government to let business take charge of the development process. Any reforms that place business back in control will deliver very big increases in investment,” Robertson said further.

Zimbabwe is in the middle of a huge economic crisis which has seen prices of basic consumer goods increasing on the back of a thriving black market for scarce United States dollars whose parallel rates have shot up to more than 200 percent.

As a result, companies importing raw materials have been struggling to meet market demand, leading to price increases and at times product withdrawals from supermarket shelves.
Robertson also told the Daily News that Mnangagwa needed to do more to back Ncube to introduce 
“shock therapy” to the economy — including completely removing bond notes from the market.

“The bond notes drove the US dollar out of circulation … Government should now buy back the bond notes at a 1:1 relationship with the US dollar ... and then the bond notes should be destroyed,” he said.

Writing in his weekly blog, another respected economist and former senior opposition official, Eddie Cross, said Mnangagwa needed to introduce “an economic state of emergency” to save the battered local economy.

“One of the main reasons for a declaration of an emergency is to lift normal controls on decision-making and to get everyone to understand that decisions have to be taken, and fast.

“The man who has to deal with this emergency, apart from the president, is the new minister of Finance. What does he have to do?

“First a mini budget in the very near future ... in that statement he has to report on the state of the fiscus and detail the problems. He has to give a clear analysis of expenditure against the 2018 budget and highlight areas that need immediate attention,” Cross wrote.

“In my personal view, he has to raise additional revenues, he has to trim back State spending to the essentials and he has to ensure, overall, that he has dealt with the fiscal deficit which currently is headed for 40 percent of all State spending and 16 percent of the formal GDP.

“No progress is possible until he does that — like a traffic casualty in intensive care, stop the bleeding. Then he has to deal with exchange control.

“The reason for this is that this is the policy which, like a rope around our necks, is going to strangle the economy. Why? I have always argued that exchange control is loved by crooks and Reserve Banks and no one else,” Cross added.

“The reason being that the system allows the transfer of real assets from the private sector which is creating wealth, to the crooks in our midst and they are many.

“The other reason is that the system gives power to the unseen officials who sit in offices in government buildings and at the Reserve Bank, who create nothing and do little else that is productive, but they control who gets allocated what little hard currency (real money) is available at an artificially low price.






“The only way to cure this is to scrap exchange controls completely and let the market fix the price and distribute what will always be a scarce commodity,” Cross said further. Daily News

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