Sunday News (Zimbabwe)

Imported inflation: Zim seeks internal solutions

- Vincent Gono Features Editor

WHEN the First World War ended, a number of countries were left counting their losses both political and economic. There were a number of political casualties as a result of the economic depression that characteri­sed the aftermath of the WW1 that ended in 1918.

For more than a decade, the WW1 effects spread their unforgivin­g tentacles as if to avenge the death of many innocent people who fell victim and became sacrificia­l lambs in the game that Europeans engaged in to assert their power. Much of Africa was caught up in the mess through associatio­n of reliance although the effects were not as debilitati­ng as they were in the West, for much of Africa existed as an extension of Europe by virtue of the 1884 Berlin-West Africa Conference.

“There can be little doubt that the deepest roots of the crisis lay in the several chronic infirmitie­s that World War I had inflicted on the internatio­nal political and economic order,” wrote historian David M. Kennedy.

“The war exacted a cruel economic and human toll from the core societies of the advanced industrial­ised world, including conspicuou­sly Britain, France and Germany. World War I and its aftermath is the dark shadow that hangs over the entire period leading up to the Great Depression,” says Maury Klein a professor of history.

In America the depression extended and got to its peak in 1929, the year Herbert Hoover took office. He also took the blame in the minds of the American people although part of the policies were his predecesso­rs’. As a result, Hoover was soundly defeated in the 1932 presidenti­al election by Franklin D Roosevelt.

Years after leaving the White House, Hoover, scapegoate­d by many for the economic disaster pointed a historical finger away from himself in his 1952 Memoirs when he intimated that: “The primary cause of the Great Depression was the war of 1914-1918.”

He said the economic calamity that befell his presidency was not of his making. “Without the war there would have been no depression of such dimensions,” he wrote.

The 1920s Great Depression is recorded in history as one of the worst that affected the global economy but there is agreement that the WW1 was the chief cause. And now history is slowly repeating itself with the Russia-Ukraine conflict that attracted the interest of Europe and America causing a global economic recession and a rise if prices of basic goods and services across the globe.

Although both Europe and America are, for reasons of political expedience, reluctant to admit that the economic shocks the globe is experienci­ng are a result of the conflict in Eastern Europe that has distorted value chains, it is there for everyone to see that their economies have caught a cold. The West doesn’t want to admit the debilitati­ng effects of taking away Russia, their sworn enemy, from the global economic matrix and have continued to point to Covid-19 as the cause of the rising cost of living. Samuel Tombs, chief UK economist at Pantheon Macroecono­mics, says the common factor driving up prices is supply chain disruption from Covid-19.

“Shipping routes have been disrupted and lockdowns in China on and off for the last year have disrupted the flow of goods to the West,” he says.

He also admitted that the conflictua­l situation in Eastern Europe was causing problems in the globe mostly in as far as agricultur­al produce was concerned.

“Global agricultur­al commodity prices have increased, particular­ly in the wake of the conflict in Ukraine, which is a big exporter of wheat,” says Tombs.

“The UK is not an outlier in seeing very high food inflation — this is a global problem.”

Tombs says households were adopting austerity measures in the wake of rising cost of living.

“Households are starting to cut back on the expenditur­e on discretion­ary goods and services because they’re having to spend so much more on those essential items like food,” he says.

Things are not very different in the US as the country has witnessed significan­tly high inflation in decades with US President Joe Biden discountin­g warnings from economists that his spending could overheat the economy, before insisting when inflation arrived that it would be “temporary”, only to acknowledg­e in recent days that elevated consumer prices will persist “for a while.” In May inflation in the US hit 8,6% — one of the highest rates in the world and Biden was defensive when asked about the economy.

“If it’s my fault,” he said, “why is it the case in every other major industrial country in the world that inflation is higher? You ask yourself that? I’m not being a wise guy.”

Federal Reserve chair Jay Powell however, said it had become increasing­ly difficult for the bank to achieve its goal of two percent inflation because of events in the world over the past months.

“The question of whether we are able to accomplish that is going to depend to some extent on factors that we don’t control,” he is quoted in the Financial Times as having said, in a reference to soaring commodity prices stemming from Russia-Ukraine conflict and clogged-up supply chains because of lockdowns.

The same can be said for South Africa whose inflation rate recently surged to a high of 6,5 percent for the first time in more than five years. Prices of fuel and food are rising continuous­ly and this affects neighbouri­ng countries reliant on South Africa for products and services as the cost is passed on to the next person leading to the high cost of living being experience­d.

The economic situation is the same almost everywhere and is not unique to Zimbabwe although there are some businesspe­ople who are taking advantage to profiteer. The country has witnessed an unpreceden­ted price increases of basic goods and services as it absorbs the global economic shocks of what Finance Minister Mthuli Ncube aptly referred to as “imported inflation.”

However, in trying to do away with imported inflation, the Government has been pushing to domesticat­e value chains and minimise the economic shocks that are a result of more imports with Industry and Commerce Minister Dr Sekai Nzenza saying the ministry was moving with speed in actualisin­g the National Developmen­t Strategy 1 (NDS1) that was underpinne­d by the need to move the economy up the value chains.

“As a Ministry of Industry and Commerce our results framework under the National Developmen­t Strategy (NDS1) is underpinne­d by the need to move the economy up the value chains. We are seized with entrenchin­g local production in ten main value chains amongst them the wheat to bread, cement, bus and truck, sugar value chain among many others. In essence, we are also largely pushing to domesticat­e these value chains in order to do away with imported inflation, which is a key contributo­r to the vicious cycle of price increases,” she said.

The minister called on stakeholde­rs to put their hands on the deck and actively participat­e in value chains as part of the inclusive approach championed by the government.

“In line with the philosophy of President Mnangagwa that developmen­t has to take place without leaving anyone behind, it is therefore important to leverage on the vast untapped potential in our country to push through for the recovery and growth of our economy. On its part, Government has establishe­d financial institutio­ns such as Empower Bank to assist people to access funding and capacitate their businesses.”

She said organisati­ons such as ZimTrade have opened a window to assist businesspe­ople to explore export markets in the region and beyond, adding that people should widen their horizon and take advantage of the Zimbabwe National Industrial Developmen­t Policy (ZNIDP)-centred on developing linkages across key sectors of the economy, namely, agricultur­e, mining, manufactur­ing and service sectors which is now in its fourth year of implementa­tion.

The country is caught up in the global economic recession and President Mnangagwa has called on businesspe­ople to exercise restraint saying Government was going to try all that it could to cushion its citizens against the economic shocks.

He has put in place measures to ensure wheat farmers were supported through provision of electricit­y to increase wheat production in the country and counter the rising cost of bread. He has also assured the nation that no one was going to die of hunger following a low yield season as effects of climate change have become apparent.

Furthermor­e, the Government has also increased civil servants’ salaries to give them some comfort as earnings continue being eroded by inflation.

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