Zim’s economic growth crippled by hyper-inflation
A STABLE and dependable currency is an essential foundation for economic prosperity. While some can blame hyper-inflation on the United States imposed Zimbabwe Democracy and Economic Recovery Act (Zdera) of 2001, which sanctions Harare against the International Monetary Fund (IMF) and the World Bank (WB) loans and grants, the government’s response of unilaterally expanding money supply fuelled a disastrous hyper-inflationary environment. This ultimately brought the economy to its knees by 2009.
Currency printing has once again been adopted post-2013; not through the printing press but through Treasury Bills (TBS) sold through banks in reaction to biting currency shortages to pay civil servants salary increases. The TBS increased money supply. This inevitably led to hyper-inflation currently besetting the economy. Hyper-inflation pushes prices of goods and services, which may lead political unrest and instability. Inflation rates remain high in Zimbabwe at above 400% as of November 2020 and excessive currency printing is not a panacea to the mounting economic challenges.
What was demonstrated over the two periods of hyper-inflations was that politicians and decision-makers made facile political judgments not supported by economic realities. The economic fundamentals measure goods and facilities produced so that the money supply reflects economic growth. Some of the physical goods include maize, tobacco, minerals, housing and infrastructure while facilities may encompass education and health services, industrial production and growth as well as internet services. The economy can be measured in a number of ways, for example, by comparing imports versus exports. Over the two periods — pre-2009 and post-2013 — imports outweighed exports. For instance, Zimbabwe imported hundreds of thousands of second hand cars but very few houses were built. Farms were provided free of charge but most owners cannot afford equipment and inputs. Agricultural production shrank with the exception of tobacco.
Services have deteriorated although courageous teachers, doctors, nurses, engineers and industrialists have bravely continued despite poor remuneration and working conditions.
The 2021 national budget offers an economic turning point because for the first time in 20 years, the national purse intends to invest in the real economy rather than dealing with crisis management over salary increases. However, it stands to be tested whether the budgetary “intentions” will become a reality. All along the State budget offered little to stimulate the real economy. Instead, we have been waiting for foreign investors mainly for the tobacco and mineral industries.
Apart from tobacco, agriculture has nose-dived particularly maize yet farming could easily be a key economic growth area. The fact is Zimbabwe has more than 2 million farmers, many of whom are excellent producers. But thousands of them - whether commercial, communal or resettlement farmers cannot afford to buy inputs and implements. Inputs such as fertiliser, water and electricity and now even legally enforced workers’ wages are unaffordable.
Every farmer is grateful to get a bag of fertiliser; today a bag of fertiliser is a typical “bribe” to obtain any service. What the majority of farmers need is affordable seed and fertiliser to boost food security. This could be remedied by providing technical as well as foreign currency support to fertiliser companies rather than importing cheap fertilizer, which undermine local industries.
Our neighbours — Malawi and Zambia, have been providing about US$100 million a year to support fertiliser companies, including Zimbabwean companies. This birthed a boom in the neighbouring countries’ fertiliser stocks.
The Grain Marketing Board (GMB) used to provide invaluable services to farmers.
Small scale farmers who could not access bank loans, depended on seeds and fertiliser from the parastatal, which they repaid by selling their produce to the GMB. The GMB was practically destroyed by bad advice of Economic Structural Adjustment Programmes (Esap). Subsidies to the GMB stopped in 1996, exactly the same time food shortages started. Boosting the GMB services by returning to the efficiency and effectiveness of the first 16 years of independence will certainly contribute to food self-sufficiency.
The GMB’s decentralised and low cost services have not been replicated by high interest rate and centralised banking services. The very low subsidy given to the GMB in the 1980s and early 1990s needs to be replicated.
Another area of concern is minerals beneficiation as lorry loads of precious stones are being shipped in their raw form. Buyers decide the price which is usually far less than the real value of the minerals.
Manufacturing is a big sector and can provide most of the jobs and complement the number of farmers and workers earning a pittance in agriculture. The inherited Rhodesian industries provided a good example on how this can be done but their target markets were basically the small number of middle class Europeans. The African market was ignored.
Europeans comprised less than 4% of the total population at their height. Today this market is dominated by Chinese and South African companies. Chinese goods cater for the low income population by producing plastic shoes and fashionable but not durable clothes. However, these cheap goods remain affordable.
The manufacturing industries in Zimbabwe are expanding gigantically through the informal sector. Salaries and wages are low compared to others in the region or in Asia. A Chinese worker may earn less than US$100 a month but can produce high quality goods.
Manufacturing industries are expanding in the informal economy, which produces visibly lower quality affordable goods. This can be seen in the downtown street and high density markets. The informal economy employs 5,7 million workers compared to the 816 000 employed in the formal sector, most of whom are civil servants.
It is time that government fully supports this area of economic growth, which has so far received little or nothing. Such State support include provision of factories rather than allowing them to crowd the streets; providing rental costs ranging from very low to commercial levels over a period of years; training, upgrading and certificating informal workers; joining informal producers to formal producers so that they can benefit from each other’s strengths and upgrading the quality of informal economy products to make them fit for export.
The informal economy like communal agriculture as well as the construction industry could well do with upgrading. The upper end of these industries could rapidly rise to commercial status. It may take less than a decade to grow these two areas to competitive status but technical, policy, financial, planning and supervisory inputs are needed. This would be invaluable employment for Zimbabwe’s highly qualified and experienced bureaucracy.
Finally, while the market economy promoted by Esap is very important, it must be balanced by reality. One reality is that the staple food — maize — must have a stable and reliable price. Its price cannot double every month. It is not necessary to rely solely on price control; instead the State should support maize production by practical farmers who can be identified by the GMB at local levels. Engaging Zimbabwe’s two million farmers, including the lower income communal and resettlement farmers will boost production and reduce the price of maize.
Dr Fay Chung was a secondary school teacher in the colonial townships (1963 -1968): lecturer in polytechnics and university (1967 – 1975); teacher trainer in the liberation struggle (1976 – 1979); civil servant (1980 – 1987); former education minister (1988- 1993) and UN civil servant (1994 – 2003). This weekly column New Horizon is co-ordinated by Lovemore Kadenge, an independent consultant, past president of the Zimbabwe Economics Society and past president of the Institute of Chartered Secretaries and Administrators in Zimbabwe. — kadenge. zes@gmail.com or mobile +263 772 382 852.