Eddie Cross: Let my people go

The story of Moses in the Old Testament chronicles the time when the people of Israel liberated themselves from slavery in Egypt. In the story, Moses goes to Pharaoh and demands that he allow the Jews to leave Egypt and travel to a land that has been promised to them by God. Seven times this demand was made and in an unusual aside, the Bible says that God “hardened Pharaoh’s heart” and he denied them their freedom.

There was more to that of course – there were nearly 3 million Jews in Egypt and they formed the backbone of the indentured labour and much of the administrative skills needed to run the country. It was only after every Egyptian family had lost a child that the Egyptians drove the Jews out and they were able to flee into the desert and eventually enter to Promised Land.

I do not want in any way to draw a parallel to this story and the struggle for freedom that we are engaged in here, but there are similarities. We have prayed, our people have suffered and we have had no outside help and indeed cannot expect any help. We are virtual slaves to Zanu PF who run a kleptocratic State that keeps the rest of us working hard and poor.
say that each time we have challenged Pharaoh he has simply hardened his heart and increased our burdens. Will this final challenge be the one that breaks the back of Pharaoh’s will and sparks a willingness to let our people go? Perhaps it is that point in our story.

Certainly if God was working behind the scenes you can see the results. On Monday we see the old bearer cheques lose their value and there is consensus that this will lead to chaos. People in the remote rural areas have not even heard the news, the Banks are simply swamped, there are not enough of the new notes available to exchange with the old. Trillions of dollars will be wiped out and fortunes lost on Monday – and it will not be the rich and powerful or the crooks who suffer, they have their positions well covered, it is going to be the millions of the poor and disadvantaged who will be the main victims.

Right now, just to compound the problems of the people, there is no maize meal available. I think Zanu PF actually believed their own fiction that we had grown 1,7 to 1,8 million tonnes of maize. We have stated as often as we can that this is pure fiction and make believe. If, as I estimated some months ago, we have only gown about the same as last year (750 000 tonnes) then this will have already been exhausted as people will have held onto stocks for their own use and what little surplus would have been traded or eaten by now. The price of this basic staple has doubled overnight – if you can get some. We brought a truckload of maize meal into town yesterday and it was sold out in 30 minutes.

I bought some Rand for a trip to South Africa last week – at 65 000 to 1. When I came home 6 days later, the price was 90 000 to 1. Fuel is in very short supply and prices rise daily. The army officer who runs our Energy Ministry declared this week that fuel prices would be fixed at half or less their present value and that they “had plenty of fuel to meet our needs”. The immediate reaction of the trade was to simply stop trading. The Minister of Industry weighed in and declared a 3-week price freeze – in an environment where our prices are doubling every two months. He was ignored.

We must pay our staff on Friday next week – 850 000 workers expect to be paid their pittances, 10 days later we must pay school fees for three million kids. Nearly all of these transactions will be in cash. We simply do not have the smaller denominations needed for these payments. There is no sign of them being available. I will try to draw change on Monday, but I have little expectation that it will be available. Yesterday we were still trading at about 90 per cent in the old notes.

Chaos as zero deadline arrives

Today is the day Gono set to be the final day ofuse of the “old” bearer cheques, which have been sporadically introduced over the last two years. Not surprisingly, the poorly planned currency change over has been so hectic and stressful that it is going to be impossible to complete the transition as neatly as Gono might have wanted.

The nauseating disregard for ample planning as evinced by untold inconvenience experienced by Zimbabweans across the board is infuriating. It smacks of the narcissistic arrogance that has been the mantra of the Mugabe regime especially over the last few years.

For illustrative and realistic purposes, travel with me if you will, to Bveke communal area in the northeastern district of Mount Darwin. Here we find subsistence farmers and other rural people who will ultimately be denied just opportunity to exchange their “old” currency for the new. Why? Because Gono et al simply didn’t think enough of these people to warrant a more intense planning so to cover the following scenario.

In Zimbabwe’s highly centralized government, Gono’s announcement that he was changing the currency probaly still hasn’t been heard by everyone in the Bveke area even though it has been three weeks now. Such policy announcements are usually carried through the media, which in Zimbabwe leaves only two options; the Herald and Zimbabwe Broadcasting Holdings.

If you live in Bveke, you probably have scant access to both of these. Both radio and television coverage are essentially non-existent in this remote area of Zimbabwe for two reasons. First and most importantly, with Zimbabwe’s tattered and rapidly regressing economy, hardly anyone in the rural outskirts can afford to mantain a radio much less a television set. It is just too expensive and simply not a high enough priority. Second and probably much more frustrating, if you own a television set and/or a radio in Bveke, those two are most likely the most underused pieces of equipment in your household. Bveke is just too far out to receive signal from Zimbabwe’s sole broadcaster, Zimbabwe Broadcasting Holdings. So even if you turned it on, the T.V. or radio will probaly pickup nothing.

People just didn’t know the change was going to happen as fast as it has. Gono knew this and did little to alleviate the mass confusion that resulted. I’ll explain that in a little bit.

Zimbabwe: a daunting social reality

The big news out of Zimbabwe last week was that inflation had dropped down to three digits. Great! We’re very happy for ourselves. But really, what does that news matter when prices went up dramatically and our currency was devalued this month on the heels of Gono’s “Sunrise,” more like sunset, project. For the record, inflation is a measure of the increase of prices over a set period. Why am I telling you this? Because dear reader, I want you not to be surprised when August’s month on month inflation figures come out; it is going to be much higher than the celebrated levels of July.

Thank you very much Gideon Gono.

Speaking of Gono, there’s a new consipiracy theory floating around out there. This one, sired by exiled businessman Mutumwa Mawere, speculates that Gono (like Jonathan Moyo) is exploiting the power vacuum in ZANU-PF to become law unto himself. Quoth Mawere

The role of emergency powers in a democratic state is a different subject that requires its own assessment but in this column, I thought it would be useful as we critically evaluate the assertion that Jonathan Moyo and Gono are probably the two most important individuals in Zimbabwe who have sufficiently understood the power vacuum in Zanu PF to effectively and efficiently use Presidential Powers to undermine not only parliament but unconstitutionally undermine civil liberties in the name of national interest.

Interesting theory.

It is startling but true that Mugabe has done nothing in both cases to reign in the apparently limitless power these “young turks” on their mediocre campaigns to “reform” Zimbabwe. On the contrary and much to the chagrin of ZANU-PF’s elder statesmen Mugabe has defended both men viciously, at times threatening to the wrath of the law to protect his young guns. This despite everyone, and I mean everyone else’s realization of how far “out in left field” their ideas and have been, to quote the oft used American analogy. What! Converting Zimbabwe Broadcasting Corporation into six strategic business units? That was Moyo. What! Converting Zimbabwe’s currency midstream and dubbing that monetary reform? That was Gono.

If Mawere is right, it’s only a matter of time before Gono’s new found influence crumbles. Just like Moyo before him.

I’ve been wondering lately, is it me or is there a real irony of ironies playing out in Zimbabwean news reports. In this report from the Herald, president Mugabe suggests (for the umpteenth time this week) that agricultural output is increasing this year. Yet over here the nation,s millers are saying,

Zimbabwe has run out of maize-meal, its main staple food, in yet another sign of a deepening crisis in the southern African country.

In a stark reminder of how the gains of independence from Britain 26 years ago were fast eroding away, Zimbabweans woke up on Monday to celebrate Heroes Day holiday held in commemoration of fallen heroes of the liberation struggle, but with shops empty of maize-meal.

The chairman of the Zimbabwe Grain Millers Association (ZGMA) that groups private milling firms, Thembinkosi Ndlovu, said the countrywide shortage of maize-meal was because the state-owned Grain Marketing Board (GMB) had not supplied maize to millers because it did not have any in stock.

Isn’t it ironic?

To be fair, allow me now dear reader to invoke yet another concept from basic economics ; market failure. A market failure is basically when the market system is unable to satisfy the public good and/or create the most efficient exchange of products and money.

(You should know by now) I belabor myself to elucidate economic concepts with just reason. The supply of grain to millers in Zimbabwe is a market. The Grain Marketing Board, a parastatal has a monopoly in this market but they are failing to satisfy the public interests. This is no small public interest either; in Zimbabwe, as in many places across Africa cornmeal is the staple. Therefore this (and can we have a drumroll please,) is a market failure. A (agricultural) commodity exchange market failure in an agrobased economy. Our economy cannot function if we cannot get agriculture right. Efficiently operating the agricultural sector is the most basic requirement for the sustenance of our entire economy.

Whatever it is, the mother of all ironies or a market failure, the reality is life on Zimbabwe’s streets is officially past impossible. This is a daunting social reality.

Technorati Tags: , , ,

Zeronomics zeros heroes

One of the lesser known calamities of Gono’s recent policy crunch is the plight of the ordinary Zimbabwean. In country where so many have given up on the formal economy and turned to “illicit” activities for the survival of their families, there is still a suprising number of Zimbabweans tryng to live by the book. Sadly, it is these, the law abiding citizens of our not so great country that are being squeezed to death by the new policy.

Not only did Gono slash zeros in his “Sunrise for Zimbabwe” pronouncement, he also silently devalued the dollar against the greenback by some 40 per cent to 1US$:250zW$ (250,000 in old currency). While the press missed this, business owners across the country gingerly raised prices citing the devaluation of the dollar as heard in a commuter omnibus in Harare,

Dhora rakadonha futi. Munofunga kuti mafuta anofambisa mota anotengwa nei? (The [Zim] dollar fell again. How do you think we pay for [imported] oil?

Immediately after Gono announced the policy commuter omnibuses, the main mode of transportation within and between Zimbabwe’s towns increased fares by 100 per cent blazing the trail for hundreds of other businesses to follow.

Why did they do this? How could they get away with such murderous greed? Tarry and I’ll tell you.

When people realized that they risked losing a lot of money if they tried to keep hoarding the “old currency” a stampede began as they hedged against inflation and the new currency by investing in goods. Of course store owners are more than happy to see the capital they have seen disappear into the “black” market willingly return. Besides, they know as long as they keep copies of receipts of sales, they will have no problem converting the old currency to the new currency as per the terms of exchange Gono stiputlated.

So for the past week, retailers in the formal economy have become transaction bankers for the informal market and Zimbabweans who were hoarding cash. They accept the cash for goods that they sell and deposit that into banks in exchange for the new currency. Meanwhile the informal traders who are buying the goods are hoarding them just like they did with the money waiting for the hyperinflationary environment to make them “millionaires” in the new currency once it’s available and has become legal tender.

So in a sense the unjustified price increases can be viewed as a tax levied on Zimbabweans using the retail system to update their illegally held currency. Simply put, as demand for goods (not services) has increased due to the currency repartriation stampede, the price of said goods has increased. This a phenomenon you learned in basic economics.

So now we return to our by the books hardworking Zimbabwean.

Never having engaged in illicit trade, he’s now seen his purchasing power parity (PPP) eroded overnight. His far stretched income is now tattered beyond reprieve as he will not be able to keep things together. While everything else has increased, wages have not. This is a reality that set in early last week but the government is only catching on this week. They can’t even do anything to fend against it.

The reality is Gono’s zeronomics are making zeros of our nation’s true hereos.

Technorati Tags: , ,

Eddie Cross: Living on the edge

The Sword of Damocles.

For those who are not familiar with the above saying, it is used to describe a situation where a heavy fighting sword is hung by a thread from the roof over the head of a person who was strapped down underneath it and awaiting death. The Zanu PF regime is in just such a position and during the Minister of Finance’s address to Parliament last week, he held a knife against that thread and threatened to cut it and in so doing, in my view, he would signal the death of Zanu PF and his own regime. The issue he was talking about was one that I have addressed several times before – the price of maize.

Maize is that stuff the Americans call corn and feed to their hogs and cows. In Africa – certainly southern Africa, it is the primary food staple and we eat huge quantities of it every day. It is cooked as porridge and eaten with some form of “relish”. Perhaps oil and vegetables, a bit of meat with some gravy or sour milk, sometimes even rough peanut butter. The great majority of Zimbabweans have not “eaten” if they have not had “sadza” at least once a day. Most poor families would have cold sadza for breakfast (left over from the evening meal) and then at least one large meal at lunch or in the evening with hot sadza as the main course.

We eat 115 kilograms of maize meal per capita per annum. It is therefore a very important component of daily life and the key to the tenuous stability of Zimbabwe lies in the fact that it is cheap and reasonably available. But there is a price to pay for this and no one – except poor old Herbert, dares to talk about it.

The facts are as follows: –

1. We need 1,2 million tonnes of maize a year for human consumption –
assuming no cross border activity.
2. We need another 600 000 tonnes for animal consumption as stock feed.
3. We need about 100 000 tonnes a year for industrial use – the production
of breakfast cereals and snacks, starch and alcohol.
4. We produced last year, about 700 000 tonnes of maize in Zimbabwe, we
imported over 1 million tonnes and maize was constantly in short supply.
5. This past season the government claims a crop of 1,7 million tonnes but
most observers think the actual crop is less than 900 000 tonnes and the expectation is that we will again have to import over a million tonnes.
6. The Grain Marketing Board has a total monopoly over maize grain imports,
purchases and sales. The Police and the military enforce this.

The economics of this trade are astonishing – even in a country and a continent where politically inspired skewed economic policies are rife. The South African grain industry grew a crop last year of over 10 million tonnes and with domestic consumption at about 7 million tonnes, had a significant surplus for export. This gave rise to price levels in South Africa at import parities and generally below R1000 per tonne. At one stage the price was as low as R700 per tonne and this threatened the viability of the whole industry.

This past year, South African farmers have cut back on their maize plantings and will produce less than 6 million tonnes – output will be below consumption for the first time in many years. As a result prices have risen sharply and are now running at about R1500 per tonne. South Africa is now importing grain from abroad (mainly yellow maize for stock feed) and is continuing to export white maize to the region.

This price translates to a landed cost of maize imported to Zimbabwe of R1750 per tonne. Transport charges from silos in South Africa to the closest silos in Zimbabwe have to be paid in foreign currency. This suggests a local landed cost of Z$60 million at bank rates and Z$140 million at parallel market rates. Local producer prices are currently set at Z$31 million per tonne.

These price profiles must be set against the selling price that has prevailed now for a considerable period of time of Z$600 000 per tonne or R17,50 per tonne – 0,1 per cent of the actual cost of imports and 0,2 percent of the local producer price.

This enormous price differential (administrative costs at the GMB are 10 times the selling price) leads to massive market distortions – cross border trade is huge as the cost of maize meal in Botswana and South Africa is equal to about Z$280 000 per kilogram compared to Z$18 000 to Z$28 000 per kilogram in Zimbabwe, depending on source and quality. Technically there are no reasons why a local farmer should not sell to the GMB. On paper the retail price of maize meal is so low that the GMB price should be very attractive. In practice this is not happening – deliveries to the GMB have been less than 100 000 tonnes total so far this year. With stock feed compounders paying the full price for imported maize and sourcing all their foreign exchange to do so in the parallel market, they offer high prices to producers even though this is illegal. Roadblocks are routinely manned by GMB staff to prevent this trade, but it happens – the differentials are just too great.

But the main impact lies with the GMB which, even though the World Food Programme is importing food to feed up to a third of our population, must itself import about 50 000 tonnes of maize a month to meet domestic needs for human consumption. The numbers are frightening: –

1. At official foreign exchange rates of 250 to 1 for new dollars to the US
dollar, the cost of imported maize to the GMB is Z$62 500 new dollars per tonne. Add to this handling charges of Z$10 000 per tonne and the cost out of a GMB silo is Z$72 500 per tonne.
2. The GMB recovers only Z$600 per tonne from sales leaving a deficit of
Z$71 900 per tonne or Z$3,6 billion new dollars a month. (US$14,4 million).
3. The cost of these direct imports will be US$150 million a year resulting
in combined losses of Z$43,2 billion new dollars.

With total foreign exchange availability to the Zimbabwe government via the Reserve Bank at about US$560 million per annum – all at about Z$250 to 1, it is most unlikely that the hard currency for these essential imports by the GMB will be available – competing demands for fuel and electricity and other essential imports will consume most available resources. I still think it likely that someone or another government is in fact funding the supply of maize to the GMB at present. Traders tell me they have no idea where the money is coming from. One local maize importer says he knows but will not tell me who it is. Whoever it is should take note that a new government here will never repay such loans – designed, as they are, to simply extend the life of a bankrupt and repulsive regime.

For the rest, it’s back to that statement by old Herbert and his threat to “review” the selling price of maize to millers. When he said that I bet every Zanu PF leader in the country shivered. Can you imagine what would happen if a 10 kilogram bag of this basic essential suddenly rose in price by 10 times. There would be a revolution. Herbert knows that time is running out – such distortions in prices simply cannot be sustained indefinitely and there are limits to the pockets of foreign donors. But for Zanu PF, the sword of Damocles hangs by a slim thread, rubbed day-by-day, hour-by-hour, by the winds of inflation.

E G Cross
Bulawayo, 5th August 2006

Technorati Tags: ,

MDC Secretary of Economic Affairs Responds to Gono’s Zeronomics

If Zimbabweans needed fresh evidence that the Zanu PF regime does not understand how modern economies work, does not have a clue about what to do to fix Zimbabwe’s staggering problems and is totally impotent when it comes to addressing these issues, the policy statement by the Minister of Finance and the Governor of the Reserve Bank provides ample such evidence.

The Minister tinkers while Zimbabwe burns and the Governor steps through a magic mirror into a fantasy world that is entirely of his own imagination.

The MDC has stated on many previous occasions that the collapse of the Zimbabwe economy can only be halted and reversed if we undertake the following with immediate effect: –

1. We agree to setting up an interim administration to oversee the return of the country to the rule of law and democratic sovereignty.
2. We collectively negotiate a new people driven constitution to replace the existing one and hold free and fair elections under international supervision to restore legitimacy to the Zimbabwean government.

Until we are in a position to resume inflows of finance and support from the international community and adopt more orthodox fiscal and financial policies, there can be no halting of the steady decline currently taking place in all sectors of the economy.

As far as the details of the two statements are concerned the MDC comments as follows: –

GDP Decline.

Since 1997, the Gross Domestic Product of Zimbabwe has declined progressively and continuously. It did so in 2005 and we expect the economy to shrink by a further 7 per cent in the current year.

The Fiscal Deficit

The IMF brought to the countries notice the massive deficit in the national fiscus in 2005 of an estimated 63 per cent. This must be compared to the maximum sustainable budget deficit of 3 to 5 per cent observed by most countries. The Minister of Finance has done nothing to address this issue except to be a little more honest than he was in 2005. The accumulated domestic debt of government at Z$43 trillion must be added to the estimate of parastatal debt of Z$73 trillion – giving rise to an astonishing figure for total government domestic debt of Z$116 trillion.

This confirms Zimbabwe’s status as a deeply indebted country and with our external debt now standing at almost US$4 billion with over US$2,2 billion in arrears Zimbabwe simply has no chance of either servicing such debt or redeeming it for many decades to come.

Of grave concern is the fact that the Minister has made no attempt to redress this issue or to halt the explosive growth in debt. This will inevitably lead to inflationary pressures being maintained in Zimbabwe and present inflation rates can only accelerate still further until more robust and substantial measures are taken.

The Absurd Monetary Situation.

The decision by the Reserve Bank to slash three digits off the national currency and to replace all existing currency in 21 days is a welcome, if stop gap, measure. The MDC hopes that the necessary administrative action to support such a radical step has been carried out in advance of this announcement or the long suffering Zimbabwean population is going to be faced to yet more chaos and confusion.

Tax Measures

The decision to raise the tax free limit from Z$7 million to Z$20 million a month is a belated attempt to redress the impact of inflation on individual incomes. MDC has argued that the tax threshold should be adjusted on a regular basis and in line with the assessed poverty datum line. Under the Ministers new tax regime, people earning significantly less than the PDL (Z$68 million a month) will pay tax at the maximum rate. This is simply another example of the depths to which Zimbabwe has sunk in the past 26 years.


The main source of corruption and theft in Zimbabwe remains the State administered system of under valuing exports in local currency and in the wholesale theft and expropriation of private assets. Mr. Gono is right to identify corruption as a major problem and one of the key areas that require the attention of the State. However, he fails to recognise that the Reserve Bank, an institution that he manages and directs, is in fact the main source of corruption in the country.


It is clear to all except those in privileged enclaves, that inflation continues to accelerate and that there is absolutely no way that this can be halted and reversed under the very conditions being created by these chaotic and piecemeal reforms. The massive reduction in interest rates will further devalue our capital stock and the massive expansion in money supply dictated by the unmanageable budget deficit, will only foster inflation and decay.


Inflation, shrinking economic output and declining foreign earnings are strangling Zimbabwe’s economy. None of the measures announced by the Minister of Finance or the Governor of the Reserve Bank will halt that process. The key to progress remains political rather than economic and monetary tinkering and time is not on our side.

Dr. F. Hove
Secretary for Economic Affairs

Technorati Tags: , , , ,

Chaos, Censure meet Gono’s “Zeronomics”

Zimbabwe central bank governor, Gideon Gono’s bi-annual monetary policy review statement is the impetus of rampant confusion and contempt barely 24 hours after he presented the review. In a feeble attempt to infuse new energy into a productive sector in extremis, Gono slashed interbank interest rates and holdings requirement rates by around 300 per cent. However, by far the most controversial aspect of the statement has to do with phase one of Gono’s two phase currency reintroduction; removing three zeros from Zimbabwean dollar denominations.

A one way commuter omnibus trip that cost zW$150,000 yesterday, today costs ZW$150. Bread, which was officially pegged at ZW$200,000, now is a mere $200. Likewise, a bottle of beer now sells for a cool 300 as opposed to the “old” 300,000. Zimbabweans have been given 21 days to convert their money to the new ‘money bases.’

But this conversion is not going to be hassle free. People will have to explain the sources of their money when they make deposits of the “old” currency in order to recalibrate. From the governor’s mouth,

Deposits that exceed $100 million for individuals and $5 billion for corporates will require proof of source of funds and a Zimra clearance certification for tax payment for a transaction underpinning the cash.

Where holders cannot prove legitimate sources of funds, the cash will be deposited into Anti-Money Laundering Zero Coupon Bonds (AMOLAZEBO), with a minimum tenor of two years.

The owner of the cash will hold the bonds pending investigations and clearance with Zimra, after which they will then be redeemed at face value.

However, those who prove their funds to be legitimate after they are locked up in the bonds, will receive interest at the prevailing Treasury Bill rates.

Therein lies the unheralded intent of the sudden changes. The goal of the new monetary policy is not to stimulate the languid economy: no, Gono wants to eradicate the formal economy’s perceived worst enemy, the informal economy. It is evident from the policy pronouncement that Gono and a his coterie of assistants along Samora Machel Avenue have been planning how best they can ambush the informal market for months.

For years now, Gono has watched as money has literally “disappeared” from the formal market as people found better ways of using it on the informal market. Estimates suspect there is up to $35 trillion stashed in what Gono lampooned as “mini Reserve Banks” in the informal market. After months of wrecking his brain, he decided the only panacea to the formal market’s anemea was to change the currency, and hopefully call the end on the informals.

Gono thinks changing currency denominations will force the informal market to fork over the money it has. In essence, recalibrating the currency is a blitzkreig on the informal market.

If it works, it will only be a matter of time before the informals siphon out the “new” currency as they seek to escape the burden of overregulation of the formal market. Even worse for the governor is the possibility that the informals could completely dismiss the “new” currency and keep operating using “old” money standards.

If that scenario plays out, we could now have two currencies; the new currency on the formal market, and the old on the informal market. That is one beast I am sure Gono did not intend to create.

Technorati Tags: , , ,

That is the economy, stupid!

While reading the Saturday’s edition of the Herald I was reminded of how badly the Zimbabwean government has misunderstood the capitalist system and how it is playing itself out our country. Generally put, the Zimbabwean government, is guilty of distrusting the market system. In their bid to correct all that is wrong with the economy, they’ve overregulated the formal market, so much that it has become inaccessible for most Zimbabweans and Zimbabwean businesses.

But there’s a minority in Zimbabwe who, in the face of the failure of the formal economy, have become part of a vibrant alternative market. In the informal market people operate laissez faire; free from the entrapments of government precipitated laws and unweilding influence. Here they have been able to unleash the power of their creative thinking and be rewarded fairly well for it. Just like it is supposed to work.

The Herald’s erstwhile business editor, Victoria Ruzvidzo, is astonished to find just how well the informal economy is doing when she immerses herself into one of it’s most prosperous markets; the Dubai cross border trade.

At least 170 shoppers travel to Dubai every week, spending an average of US$3 000 each.

Some spend tens of thousands of the greenback and have to bring their wares in containers by sea.

On each visit, one person folks out US$115 for a single entry visa and $258 million for a return ticket.

This effectively means that on average, the shoppers, or cross-border traders as they have come to be known, spend a combined US$510 000 per week or about US$2,4 million per month on their trips, enough to buy a day’s petrol supply for the whole country.

Add this to the figures spent by those who ply the China, Singapore, and other traditional routes such as South Africa, Botswana and Zambia and you have a huge figure of foreign currency that could otherwise be allocated to more deserving national needs.

Sadly, like the officials over at the Reserve Bank and in the Ministry of Finance, Ruzvidzo is resentful of the informal market because the government cannot regulate and influence it. More importanly, they cannot levy and collect taxes on most informal market activity. So they yell and scream, deride and chase, but fail to realize that they cannot eradicate the informal market.

No one can do that.

Like the Zimbabwean government, many people don’t understand that the miracle of the capitalist free market resides not in the places where the business transactions occur (eg. Wall Street, Nikkei), or in the currencies of trade (US$, Yen). No, the magic of the free market is in the mind where an unparelled creative capacity ensures the most efficient matching of needs and resources.

Look around you, is there a “black” market? It’s doing just that; making sure that people with needs are brought into contact with resources that address their needs.

In many cases, say the U.S. (where, for the most part, the formal market is doing a phenomenal job of allocating resources to the needs of people) for example the informal market becomes “black” because it isthe place where trade in illicit goods is happening.

This is not the case everywhere; certainly not in developing countries like Zimbabwe.

Those readers who’ve read me for a while know that I have long been intrigued in discovering the reason why the market economy has succeeded so well in some parts of the world, while it let the rest of the of us down. My quest has led me among other things, to Hernando De Soto and this erudite assertion of his; the free market hasn’t failed in the developing world, it just hasn’t been discovered yet. De Soto claims contrary to popular opinion, the free market is alive in the developing world; it is just not recognized as the “formal market.”

In Zimbabwe, the government and their propaganda like the Herald demonize the informal market and label it the “black market.” They terrorize it with their police conducting impromptu raids all the time. The reality is that it isn’t a “black” market at all. It sources and allocates resources like oil and foreign currency at sustainable prices, not the superficial values imposed by the government out of political expediency.

The reality is, as De Soto puts it in The Other Path

People are capable of violating a system which does not accept them, not so that they can live in anarchy but so that they build a different system which respects the minimun of [their] essential rights. p.55

In other words, the informal market which Ruzvidzo and the finance people in government loathe is doing a better job of doing what the formal market should be doing doing.

In fact they should realize that: That is the economy, stupid!

Technorati Tags: , , , ,

Hot Seat: Moyo, Raftopoulos and Robertson

Violet: We continue the teleconference interview discussing various issues of national interest with three people who have at one time or another advised some of the key players in Zimbabwean politics – political analyst Professor Brian Raftopoulos, former Information Minister, now independent MP Professor Jonathan Moyo and leading economist John Robertson. This week we are going to be discussing how Mugabe thinks. What is his mindset? Why is he allowing the country to collapse so totally? A huge part of that collapse has been economic and so we start this week’s discussion with the economy.

With inflation nearing 1200% it’s been said the economy has become Mugabe’s real opposition. So I first asked economist John Robertson to explain the state of the economy and tell us how bad things really are.

Robertson: The state of the economy is certainly extremely serious. We have lost about half of our gross domestic product. The GDP per capita has come down to less that US$1 per day for the population as a whole and at that level we have, I am afraid, a very debilitated population. I think many, many people are suffering malnutrition and because of the treatment and the various little security measures taken by the government we have also a traumatised population. Which might explain why they have not taken mass action to date. There was some evidence of courage to do that back in 1997/ 98, but the treatment that was meted out to the people after that has left them very, very cautious and very anxious not to have that experience again.
Now these problems are mounting in such a way that the economy can no longer employ most of the people. We’ve got some 300 000 youngsters turning 18 in this country every year – about maybe 10% of them can find work – the rest of them are unemployed and unable to find any kind of suitable employment anywhere. So they have to leave the country if they want work. We’ve got many of them leaving for South Africa illegally and facing very serious problems when they do that. I think that we face a very, very long recovery unless we get a massive amount of assistance from abroad. And once again I say that South Africa’s position here is the most important. We could speak of following the same path of recovery as say Uganda or Ethiopia or Mozambique and each of those cases we are talking more than 30 years and they still haven’t come right. We could come right very much more quickly with a lot of assistance from South Africa. I believe that the South African assistance could be in the form of the assistance given say to East Germany by West Germany when the Berlin Wall came down.

Hot Seat: Analysts say engagement not mass action

Transcript of ‘Hot Seat’ programme in which SW Radio Africa’s Violet Gonda talks with Professors Brian Raftopoulos, Jonathan Moyo and Economist John Robertson.

Broadcast on 13th June 2006

Violet: Zimbabwe is a country in crisis and many have asked what needs to be done internationally by all democratic forces and what role the regional and international community can play – now, and in the post Mugabe period. To help discuss various ideas I’ve invited three people who have at one time or another advised some of the key players in Zimbabwean politics. They are political analyst Professor Brian Raftopoulos who once acted as an advisor for Morgan Tsvangirai’s MDC, independent MP Jonathan Moyo, who was widely described as an advisor and strategist for Robert Mugabe and well known economist John Robertson. Welcome to the programme gentlemen. Now we will start with a common question, ah, well, there is no question, but there is a serious political crisis in Zimbabwe and that the economy has collapsed with inflation officially at 1 193.5 % but generally it’s understood to be much higher than that. Now obviously something must be done about Zimbabwe but what are the suggestions? Let’s start with Professor Moyo.

Jonathan Moyo: Well, the suggestions – I don’t think that the way our country is and how things are going invites suggestions, clearly what is needed is action. The first action, of course people would reasonably expect, that it must come from government – what government should do. And, the problem we have at the moment is that the government seems to be in a policy paralysis and it does not have a response. Although, I must say, the recent developments suggest that there is some international engagement which might lead to some resolution of this crisis because of the consequences of this economic meltdown. All this discussion around a possible initiative led by Kofi Annan suggests that the government now wants a way out and the question is, what it would be? There are a number of scenarios we can talk about in the course of the discussion.

Violet: Ok, we’ll talk about that later, but I would like to know the views of John Robertson and Professor Raftopoulos about what they think needs to be done. John Robertson?

John Robertson: I believe that the government today is completely out of its depth and doesn’t have the resources any longer to deal with these crises. Unfortunately it has constantly sought economic answers to what are basically political problems. I feel that strenuous efforts must now be made to devise political policies that are there to fix the political problems. We’ve seen a massive decline in the level of production, a total absence of new investment into the country, a massive flight of skills from Zimbabwe and the country now has no credit rating internationally. And, although we might have raised a bit of money to pay for fuel by pledging exports of certain minerals, we have come nowhere near solving any of these problems because the political hang-ups still keep the people who could help the country at arms length. So, I think that the answer has to lie in the political arena, not in the economic one.