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Wednesday, 27 June 2007

Inflation in Zimbabwe, 3rd Edition

The BBC Reports that "Zimbabwe has ordered factories and firms to cut the price of basic goods and services by up to half, in a bid to tackle rampant inflation". Apparently some economists think "that the measures are likely to lead to shortages, as companies either stop producing because they cannot afford to, or sell their goods on the black market".

I think I am with these economists on this one - I am assume its the Oxfam/IMF/World Bank chaps. I say "I think" because these chaps still assume that the economy is functioning. As I have previously argued the concept of price is non-existent in Zimbabwe. Its now virtually a barter economy. But there's another reason for the hidden caution. Its because of late Zimbabwe is becoming a battleground among economists trying to out do each other.

To illustrate : On Friday I agreed with the Oxfam/IMF/World Bank chaps that "
Zimbabwe was on the brink" but apparently not every economist on the planet agrees - surprise, surprise! Media reports now tell us that some economists think that doomsday predictions of a meltdown are over the top. Apparently economists interviewed by IWPR disagree, saying total meltdown is not imminent, and crediting Zimbabwe's informal sector with keeping disaster at bay when under normal circumstances everything should have ground to a halt a long time ago. In their words "Zimbabwe has defied all conventional economic and political theories, so that predicting the imminent demise of its economy is risky". Personally I think these guys are just overly cautious and possibly too lazy to analyse the situation, but you can read more here and make up your own mind. What is the "evidence" telling you? Assuming it is speaking...

9 comments:

  1. The poor in Zimbabwe have been suffering since 1965. This isn't something new for them...

    It would have been better to just put caps on land ownership. The caps would go down each year for a period of 10 years.

    If you were over the max amount of land you could either sell it by the end of the year or the government would take it.

    In the 50s the mining companies in Zambia had their head quarters in Zimbabwe. The British didn't want to live in Zambia. Looking back, Zambia got very lucky.

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  2. Anonymous,

    This has nothing to do with land ownership. This has to do with Robert Mugabe saying no to the IMF, and being the international mobsters that they are, they continued to do a job on the Zimbabwe economy. Their strategy has been a total cutoff of foreign exchange and loans, which in turn laid bare everything that was ordinarily wrong with the Zimbabwe economy (and most of the economies surrounding Zimbabwe). Read the Zimbabwe Democracy and Economic Recovery Act of 2001. I guarantee you it has no more to do with democracy and econcomic recovery in Zimbabwe than the 'Clean Skies Act' has to do with clean skies, or the 'No Child Left Behind' program had anything to do with child welfare and education.

    It was co-sponsored by Jesse Helms.

    Cho,

    Media reports now tell us that some economists think that doomsday predictions of a meltdown are over the top.

    This issue is highly politically charged. Why do you think this 'prediction' was made by the US ambassador to Zimbabwe?

    A loyal Bushy too, I'm sure.

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  3. But economists interviewed by IWPR disagree, saying total meltdown is not imminent, and crediting Zimbabwe's informal sector with keeping disaster at bay when under normal circumstances everything should have ground to a halt a long time ago.

    This is why you cannot have a foreign owned economy, and expect to retain your national sovereignty as well.

    Ask yourself why are these people - including at the BBC - rejoycing in hyperinflation in Zimbabwe?

    The Heads of Agencies report, issued last week and compiled by private consultants to raise awareness among international organizations, donors and their staff in Zimbabwe, said aid groups should brace themselves for a scenario where shops and businesses closed, the Zimbabwean currency became utterly worthless; unrest broke out among a destitute population; and a state of emergency was declared by the government.

    You see, this is what they want to achieve. This is what they are looking forward too.

    And Morgan Tsvangirai has been calling for this for years.

    Do you really want him at the head of Zimbabwe, so he can sell off what state enterprises and assets there are to western corporations? Because that is what the MDC promise to do in their manifesto.


    Yet some local economists argue that while the economy is "deeply stressed," it is unlikely to collapse in the next six months – because it is being saved by the relatively vibrant "informal sector." This term means small businesses, traders, and craftsmen and women, and service providers who operate outside the reach of the taxman and whose activities are not captured in national statistics.

    This is why it is essential that we develope the REAL economy, which has nothing to do with foreign companies, foreign investors or anythign else. It has to do with the million tuntemba owners, the millions of small scale farmers.

    That is where Zambia's human capital lies. They are the ones who deserve massive government support in both money and intellectual capital, so the economy can move forward.

    If all these individuals had a middle class income, generated locally or regionally, the economy and society of Zambia would become extremely stable and dependable.

    This is the major failing of neoliberalism - not valuing the local and national economy and it's own people.


    "My understanding is that [the economy] hasn't collapsed because of the people who are the bottom of the pyramid; that is, the informal sector," said Crispen Mawadza, whose company finances small- to medium-sized businesses.

    Now there is an expert. He would be the first one to know if there was a true, wide spread economic meltdown of SMEs, because his customers would stop payments.


    Economist David Mupamhadzi concurred with this view, saying it was misleading to posit economic meltdown on inflation indicators alone. Before this happened, other key economic variables would need to have deteriorated to unmanageable levels, including unemployment and social indicators such as the functioning of healthcare.

    "It will not happen in Zimbabwe - not in six months," predicted Mupamhadzi. "It is a fact that our economy is overheated and most of the key indicators are in the negative - the economy is in dire stress.

    "However, if you look at Zimbabwe's economy, what is carrying it is the informal sector. The informal sector is driving Zimbabwe's economy as it tends to cushion people [from their hardships]. If the economy was totally formal, it would have totally collapsed a long time ago."


    And this is true for most African countries, including Zambia. Seventy percent of the population living on $1,- per day? This is only possible when the informal sector is huge. And it persists, because it is the real economy.

    The lesson is the same for neocolonialism as it was for colonialism - you cannot develop a country and leave the majority of the population behind.

    Even as disrespected and ignored as they are, they are still the real actors in the national economy, and it is time that the economic and political elites woke up to the fact.

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  4. It is about land ownership in some ways. Rhodesians owned the 40% of the arable land and accounted for 85% of the foreign exchange.

    Instead of distributing the land, Mugabe merely replaced the Rhodesians with his cronies.

    The British started sanctions etc etc. Obviuosly the west does want the economy to collapse. That's what the sanctions are for.

    Plus Mugabe is an idiot and a crook . This half price law is insane for example. So that hasn't helped the economy either.

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  5. The remittance flows from the millions of Zimbabweans now in the diaspora have been crucial, and the magnitude of the flows may not have been given sufficient weight in some of the economist's models. Foreign exchange from remittances and informal sector barter and production have been keeping the majority of citizen's heads above water. Unfortunately ZANU-PF is so obsessed with market controls that they are doing everything in their power to finish off what operation Murambatsvina began and eliminate the informal economy from urban areas. [Meanwhile rural Chiefs have learned the true value of cash as well.]


    Loansharking thug tactics are to be expected from the IMF, they've gotten depressingly good at them over the years, and once you take their money they've pretty much got the whole kneecapping routine down to a science. Very few of their clients have escaped unscathed (if at all), and recent moves to reward compliant states with loan forgiveness represents the carrot in their draft-horse vision for Africa -- Zimbabwe is getting the stick.

    The IMF has by no means stopped loaning money, or stopped charging interest, and they remain under no particular pressure to reduce their own operating expenses. Like a wise fisherman who discovers he has been depleting the schools on which he preys, rest assured that any short term reduction in IMF's "harvest" also serves to fatten the unwary in the long run. Having been spared once by "catch and release" luck, Zambia must be a smart fish and not swallow the hook along with the bait a second time. Knowledge of the hook can transform bait from deadly trap to tasty snack, and avoid the fate of struggling on the bank suffocating like Zimbabwe.

    Powerful and frightening as the IMF is, it has been unable to produce a total cutoff of foreign exchange or loans, especially through trading partners which have refused to support a strategy of sanctions against Zimbabwe such as COMESA, SADC, China, Iran, and several Gulf States. While the British government has joined in attacking the nation's credit, Barclay's has been expanding its local branch network in the country, and BP continues to supply oil at market rates via a pipeline from Mozambique.

    As the output of the Zimbabwean manufacturing sector has declined, Zambia's share of its exports has increased. This may be in part due to favorable rates of exchange against the kwacha for Zambian consumers, but much of it is the consequence of toll-manufacturing, whereby a Zambian company provides the inputs and operating expenses to the manufacturer in advance, shipping inputs one way and outputs the other, avoiding the Zimbabwean materials stream in every way possible.

    Neighboring countries are especially sensitive to the Zim situation, but even they have become wary of ZANU-PF accounting habits, as evidenced by Namibian insistence that unexpended funds from hydropower project loans must remain in Namibian banks until they can confirm that, at each stage, the money gets spent for the intended purpose. Meanwhile lack of reinvestment has caused coal production to fall below demand (they were net exporters a few years ago but new shafts have not being drilled), depriving the power company enough fuel to manage peak usage rates, and of course the inevitable government order not to raise rates or reduce load with temporary shutdowns of grid portions. Only after repeated insistence by the electrical engineers that without more fuel (which would have to be imported at market price and not subsidized government prices and therefore require raising rates) or reduced load, total blackouts would inevitably continue to occur and cause much more costly disruptions to the economy, only then did the government agree to allow them to shutdown parts of the grid (but not to raise rates high enough to import coal). Ironically, the trains are all run on diesel fuel, so even domestic coal supplies may cease to reach power plants if diesel imports continue to fall.

    Zimbabwe needs and deserves help, but ZANU-PF cannot keep playing the angels in orwellian fashion, they have at best been abysmal stewards of the national economy in time of crisis, at worst they are all that which their opponents characterize them to be. Suicidal attempts to eliminate the informal market aside, when they divert national resources to police raids on playhouses featuring satirical works while industries languish at 10% of capacity due to lack of inputs, it demonstrates that paranoia has long since overtaken productivity on the priority list.

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  6. CHIEFS and headmen from Uzumba-Maramba-Pfungwe in Mashonaland East province have asked Government to give them fertilizers and other agricultural inputs instead of paying them monthly salaries.

    Ironically, you can make fertilizer yourself, using worm manure, or part of their own crop. Put it in a container, add water, wait a couple of days or weeks, and you have the perfect fertilizer.

    And, a fertilizer that is 100% organic, and superior to any chemical based fertilizer.

    So I don't understand why they need the government to supply fertilizer to them.

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  7. Yakima,

    Zimbabwe needs and deserves help, but ZANU-PF cannot keep playing the angels in orwellian fashion, they have at best been abysmal stewards of the national economy in time of crisis, at worst they are all that which their opponents characterize them to be.

    Their (and South Africa's) media is white owned, their land is white owned, their companies are white owned, the IMF, the US and the UK want to destroy their economy and overthrow the elected head of state. Their economic policies are second guessed at every point from their own soil by former colonials like John Robertson, who, instead of they themselves, gets to represent Zimbabwe at the BBC.

    I say they have earned the right to be paranoid.

    And I still don't trust bad news unless it comes from the government, because the reporting on Zimbabwe has been seriously compromised.

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  8. Well perhaps I am just cynical, but given that the opposing sides seem willing to see quite a lot of people suffer and/or die rather than back down from their respective positions, I don't trust either of them. I expect both of them to spin the truth or outright lie to me in order to shape my opinion in their favor.

    That said, the news about the Chiefs not wanting money anymore (and you are so right about vermiculture) comes from the Herald, as does the news of Zambia topping the export list. The anecdote about the situation between coal production, electrical generation, load dumping and pricing, and government regulation is my own conclusion drawn from my reading of the minutes of the August 2006 meeting of the Confederation of Zimbabwe Industries Congress , in light of recent developments. Oh, and one of the more ironic things about trying to censor a popular play by shutting it down while the performance is in progress is the inconveniently large number of eyewitnesses with reserved seats.

    The state papers all bemoan a lack of "foreign exchange" as the cause of all ills, and only occasionally and grudgingly admit that this is because they do not have the wherewithal to trade for it and with the IMF kneecapping them in the credit rating department they are finding it rather hard to borrow any more from their remaining friends than they already have. The Chinese gave them a nice loan to buy chinese tractors with, perhaps they can get another one for the deisel, another one for fertiliser, and don't forget deisel irrigation pumps (also from China), all the things they apparently need and don't have and then maybe they will be able to feed themselves. Curse the mighty IMF for making them so helpless! Can you honestly take a sentence like this, "Economists yesterday lauded the Government for reviewing the minimum non-taxable income for workers from $100 000 to $1,5 million effective next month saying the move was long overdue and demonstrates policy flexibility on the part of the authorities," at face value? "Long overdue demonstration of flexibility," might be a more accurate wording perhaps?

    Certainly ZANU-PF has the right to be paranoid, there are most definitely people "out to get them." It is not the presence of paranoia which distresses me, but the degree to which it seems to have come to dominate the decision-making process and distribution of resources. They need to produce, anything and everything that they can, stop borrowing money to pay the government deficit, and put the credit of the State back on sound footing. Forcibly quashing allegedly subsersive elements of society, while loads of fun for everyone involved, costs money, which they haven't got. Leave the patriotism up to the people and get on with the business of government. A mosquito bite may carry a deadly case of malaria with it, and it is not unduly paranoid to assume that all mosquitos are potential carriers, but if one is dangling over a precipice, it is unwise to waste energy swatting at insects.

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  9. Yakima,

    "The remittance flows from the millions of Zimbabweans now in the diaspora have been crucial, and the magnitude of the flows may not have been given sufficient weight in some of the economist's models. Foreign exchange from remittances and informal sector barter and production have been keeping the majority of citizen's heads above water."

    Quite right.
    And i think the Times Online article below supports your position.

    Paying for the man they hate

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