2 March 2018

Zimbabwe: No Economic Uhuru After 100 Days

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One hundred days have just receded into history since President Emmerson Mnangagwa seized the sceptre. It's not yet economic uhuru.

Within the first 10 days of South African President Cyril Ramaphosa assuming the leadership of the African National Congress, the rand strengthened against the United States dollar and the cost of borrowing came down significantly. The rand is 26% stronger than when the then Finance minister of South Africa, Nhlanhla Nene, who is back in the money, was summarily sacked in December 2015. Our imports from South Africa are now more expensive; it's bad news for our trade balance. But we are importing things we shouldn't -- thanks to agricultural politics.

One hundred days after the current government took over the cost of inputs for production is still high. Electricity is still at nine US cents per kilowatt hour while Zambia and Ethiopia are charging five US cents and four US cents per kilowatt hour respectively. The cost of water is still higher than what countries in the Sadc region are levying. The main drivers of these high tariffs and utility charges are shortages of foreign currency and the operational inefficiencies of utility providers.

There is still no blood on the floor pertaining to profligate public enterprises providing utilities. Foreign currency premiums are traceable to the doorstep of government. The floor of foreign currency premiums over our quasi-currencies during the first 100 days of the new regime has been 25% for bond notes and 40% for electronic balances.

When the Reserve Bank of Zimbabwe injected bond notes into the market in May 2016, the quasi-currency was immediately discounted by 5% and afterwards the discount clambered furiously away from the forced US$1:1 bond note parity. Clearly, the first 100 days have not reduced the foreign currency premiums; the grey market is still holding sway as much as it did during the winter of the erstwhile regime. The new regime is not showing signs kicking out the custom of its predecessors of borrowing heavily from the market to plug a yawning budget deficit. Command agriculture has played a big part in driving government over-expenditure. Over-expenditure kissed US$1,5 billion last year as was reported in the 2018 budget statement; indications are the final count for 2018 will see the budget overrun touching the US$2 billion mark.

It is such over-expenditure that is forcing the banking sector to flood our economy with pseudo-dollars which the market, justifiably, discounts heavily. Industry is paying the heavy price in the form of high input costs for imported raw materials.

Why is government creating un-backed money? No one wants to lend us money because we are not creditworthy. Ii is estimated that government owes at least US$6 billion (including accrued interest) to farmers who lost their fixed and moveable assets when farmers were ruthlessly hounded out of their farming businesses. Government owes domestic creditors (excluding former commercial farmers) close to US$6 billion. Government owes international lenders US$7 billion, the likes of the multilateral financial institutions and the Paris Club. Since no one wants to lend government money, it has resorted to money-creation to fund its way out of pressing obligations and has the temerity to call the money US dollars. The fact that foreign currency premiums persist tells us that the new regime has not managed to make a breakthrough in wooing in foreign currency through loans and foreign direct investment. The Robert Gumede and Aliko Dangote-touted investment billions are not yet in. Lobola is yet to be paid.

Playing agricultural politics

In its halcyon days Zimbabwe's economy was driven by agriculture and mining. It is agriculture that had the greatest multiplier effect in our economy, not mining.

In South Africa, farming assets are currently worth US$38 billion, with US$12,5 billion of that value secured against loans from banks. Previous farming assets in Zimbabwe made up of confiscated land, improvements and movables is estimated by experienced valuators at US$10 billion. This translates to US$3,3 billion quality assets that would be on the balance sheets of our banking sector. All that value is absent from banks' balance sheets because commercial farming land in Zimbabwe has no market value. Politics vaporised all this potential value.

The past dominance of agriculture in our economy can be seen by way of its imprint on our towns, cities and the big industry players. Sample the following list: Hippo Valley Estates, Tongaat Hulett Zimbabwe, Delta Beverages, British American Tobacco Zimbabwe, Sable Chemicals (Kwekwe), Libix (Gwanda premium canned beef export producer), Chicken Inn, Bakers Inn, Lobels, Cold Storage Commission, National Railways of Zimbabwe(NRZ), Olivine Industries , Mazoe Orange Crush, Morewear (Bulawayo engineering giant), Bata Shoe Company, David Whitehead (Kadoma), Cone Textiles, Dairibord Zimbabwe, Zimplow, Seedco, Cottco, Grain Marketing Board, Lever Brothers, Anchor Yeast (Gweru), National Foods, Tanganda, Hunyani, paper milling (Mutare), Willards, Cashel Valley, the list is almost endless.

All these familiar Zimbabwean brands are directly dependent on agriculture; agriculture is their mother. Some of these brands are now defunct, thanks to destroyed agriculture. Case in point: Morewear tanked after the NRZ got sick and the NRZ's morbidity is largely related to the collapse of ranching in Matabeleland South. The CSC's demise is for reasons similar to Morewear's passing away. As a result, a huge de-multiplier effect vaporised significant commercial and industrial activity in the City of Kings. The same can be said of Gweru, Kwekwe, Kadoma, Chegutu and Mutare.

Our supposed land reform programme either hamstrung or vaporised some these industries as our rushed land distribution policy cut the supply of raw materials to these industries. Bata is now importing cloth from Kenya, thanks to a dead cotton and textile industry. We are importing newsprint; Mutare paper manufacturing industry is virtually dead. Fertilisers are imported; Sable Chemicals is practically dead. Our dairy herd is a far cry from the noon of dairy farming in Zimbabwe.

Our 100 000 tobacco farmers are producing what less than 3 000 farmers produced. Soya bean and sunflower farming is largely neglected and we are importing raw materials to manufacture cooking oil. It's no wonder we have a problem of foreign currency shortages; we liquidated agriculture, the mother that gave us numerous industries that sustained our towns and cities.

De-politicise agriculture

If our new government thinks that it will revive this economy without restoring agriculture to its former glory we are in for a rude awakening. Our high input costs, eroding competitiveness, are unswervingly related to agriculture. The bygone regime used land as collateral damage in its political war of attrition with the West. This is what clogged the flows of foreign direct investment, culled foreign currency generation, even in non-agricultural sectors like tourism. Politics got us into this mess. Politics is the one to get us out of this muck. Agriculture was and is still the epicentre of the political economy of Zimbabwe.

Government must address the land tenure issue, making the 99-year leases transferrable and tradable. In Zambia and Malawi land leases are transferrable and tradable. One simple decision like this will begin to restore our stymied agricultural potential, re-activating the agricultural multiplier effect on which Zimbabwe's economy has always thrived on. Whatever money Zimbabwe gets after settling Lima arrears should immediately be used towards compensating farmers who lost land, striking a deal with any returning farmers to plough the compensation package into recapitalising their collapsed farming ventures. We hope the next 100 days in which we expect elections to be held will finally ED(ify) the national economy.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer reviewed international journal. 

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