MOVEMENT FOR DEMOCRATIC CHANGE

ECONOMICS COMMITTEE

 

Economic Review of 2003 and Prospects for 2004

 

The economy in 2003 – an even more disastrous year

 

Under Zanu-PF government, Zimbabwe’s economy has been declining every year since 1998, with the rate of decline increasing each year.  On official figures, in 2002 GDP decline was 8.8%, while in 2003 GDP decline was 13.2%.  The Budget Statement for next year, despite claims about the importance of its ‘supply-side measures’, projects a further 8.5% decline in GDP in 2004.  In MDC, we think the economy has shrunk even more than this, but the official figures are startling enough, giving cumulative declines of 38% to the end of 2003 and 44% to end of 2004. 

 

The cumulative reductions in GDP per capita are even more devastating.  The legacy of the Mugabe epoch is such that it will take more than a decade of East Asian Tiger rates of growth in per capita GDP just to get back to Zimbabwe’s level of GDP per capita in 1998. 

 

One of the major contributors to the sharp decline in GDP in 2003 was the demise of commercial agriculture and its replacement with a subsidy-dependent, low technology, subsistence-oriented small-scale farming sector.  Tobacco was the most visible casualty, with production falling to 83 million kg in 2003 as compared with over 200 million kg in the past.  The agriculture sector’s overall contribution to GDP has fallen to about half what it was at its peak in 1999.

 

Given the engine-room importance of agriculture in the Zimbabwe economy, the contraction of manufacturing and services linked to agriculture is hardly unexpected.  The process has been hastened by adverse factors affecting every productive activity, such as the on-going interruptions in supply of fuel, coal, power, telecommunications, transport, water and shortages of other inputs to production processes. 

 

The short-term solution to most of these problems has come to revolve around the shortage of foreign exchange.  The availability of forex was sharply reduced by the parallel market restrictions introduced after the November 2002 Budget speech.  Predictably, the effect of these measures was to drive the parallel market further underground, increase the extent of capital flight, reduce the forex available on the domestic market and drive down the value of the Zimbabwe dollar. 

 

Merchandise exports are estimated to have declined by more than half since their peak in 1996, while import requirements have been increased in certain categories, notably staple foodstuffs.   Zimbabwe went into arrears on foreign payments in the year 2000.  Accumulated arrears are expected to reach US$3 billion by the end of 2003, twice the level of total exports.  Total foreign debt (including arrears) is estimated to exceed US$6 billion, which is well over 100% of GDP.  Domestic budget-related and parastatal debt has also grown sharply over the year, but the full extent of the implied future burden has not been revealed.

 

The Herald’s ludicrous claim that ‘despite the chronic shortage of foreign currency, the Z$ held steady at Z$824 to the US$’, is belied by the fact that on the parallel market the Zimbabwe dollar has lost approximately 80% of its value during 2003.  The well connected continue to be given access to foreign currency at Z$824/US$ and resell it at rates in excess of Z$6,000.  The seemingly irrational exchange rate mechanism remains in place because it is the principal means both for the looting of state assets and the externalisation of funds by the ruling elite.

 

Due to unprecedented inflation, the loss of purchasing power of the Zimbabwe dollar in the domestic market during 2003 is likely to be even greater than the 80% loss of foreign purchasing power.  The acceleration of inflation during 2003 has been the most persistent and harrowing problem for the ordinary Zimbabwean citizen.  In December 2002, year-on-year inflation was just short of 200%.  One year later it will be at least 600% on official figures, while the actual experience of rising prices indicates that a much higher level of inflation is being faced by the average family in its daily struggle for survival. 

 

Like the previous few years, 2003 will be a year most Zimbabweans will want to forget.  For the majority eking out an existence in the communal and resettlement areas or the burgeoning informal sector, the ravages of inflation, and the shortages of food and other basics have turned life into a struggle for survival.  NGOs working with rural and urban communities no longer talk of ‘economic development’, but rather of ‘coping strategies’.

 

People on fixed incomes, including pensioners, have been reduced to penury.  The shrinking number of people in formal employment (around 900,000, down from 1,350,000 in 1998) have managed to have their wages adjusted but few have achieved increases which have kept pace with inflation.  So even for the employed, 2003 brought more shortages, frustration, uncertainty and declining living standards.  By the fourth quarter, many workers were finding themselves having to pay well over half of their wages just to get to and from work. 

 

The disproportionate rise in the cost of transport is in part due to the cynical opening  up of fuel procurement to private sector operators.  The way this has been done, without any regulatory mechanisms to protect  consumers and the general public, has provided new opportunities for the well-connected to grossly enrich themselves at the expense of ordinary people.

 

All of the problems households have been forced to face in 2003 have been worsened by the deterioration in government services.  Despite the huge budget deficit, which is a major underlying cause of the economic crisis, expenditure in key sectors such as health remain grossly insufficient and inefficient.  Despite the urgent necessity of addressing the HIV/AIDS pandemic, the government seems willing to see the health sector collapse entirely, reacting to the recent hospital strike by arresting and harassing the few doctors still willing to work in the demoralising environment of collapsing public health services.

 

Economic policies of the incumbent regime

 

The incumbent government’s economic policies are a mix of denial and hypocrisy.  The denial is symbolised by the unwillingness to confront reality and hence, for example, calling the devaluation from Z$55/US$ to Z$824/US$ in March an ‘export incentive’.  Another example is the refusal to print banknotes with denominations commensurate with 500% inflation (and rising) resorting instead to expensive, temporary ‘bearers cheques’.  No wonder that in common parlance these are called ‘burial cheques’.

 

The hypocrisy is more serious.  The government tries to pretend that its economic policies are relevant to improving economic conditions for the poor, while in fact they’re designed to enrich people at the top and reproduce Zanu-PF legally and extra-legally.

 

The truth about Zanu-PF’s economic policies is the exact opposite of the party’s rhetoric – it is precisely the heady concoction of Zanu-PF’s mischievous economic policies which is responsible for accelerating inflation, declining output, shortages of basic necessities and widespread poverty. 

 

Prospects for 2004

 

Arising from Zanu-PF misrule, all the existing adverse trends are set to continue in 2004 – fewer jobs, declining living standards, poorer health and education services, greater poverty, more oppression.  The government intends to spend 20% more than the entire health budget just on the wages of what under Zanu-PF are the repressive organs of state – the army, air force, police and prison service.  Within this gloomy scenario, the two most daunting prospects for the people of Zimbabwe in 2004 are more severe food shortages than hitherto experienced and the rate of inflation rising to 1,000% pa and beyond.

 

On food, the fact that only limited quantities of seed and other inputs were available at the start of the 2003/2004 means that even if the rains are more favourable during the rest of the season than they’ve been in November, there is no possibility of maize production being more than 1,2 million tonnes.  In relation to a 2 million tonne annual requirement, this is level of production would imply a shortage of 800 000 tonnes.  With lower production being likely, the shortage may well be even larger. 

 

The government’s denial about the adverse impact of the fast track land reform programme on agricultural production and its unwarranted antagonism towards the international community, has resulted in a situation where donor supplied food will be far short of the requirements to fill the gap.  As long as the incumbent government clings onto power, it will continue to manipulate the distribution of food for political ends, making worse the underlying shortages.

 

In respect of inflation, the fecklessness of the government is evident from the Budget Statement irresponsibly avoiding making any statement on the government’s macro-economic policy stance.  The monetary policy statement which is supposedly to be made by the Reserve Bank Governor by mid-December, was left to deal with the crucial issues of the exchange rate, interest rate policy and inflation.

 

There is every indication, however, that there will be little if any change in the main elements of the government’s present macro-economic policy stance (negative real interest rates, fragmented  credit markets and distorted controls over the foreign currency market, both encouraging speculation and arbitrage, plus a large fiscal deficit).  Under these policies, inflation, which accelerated from around 200% to a projected 600% of more by the end of 2003, will rise to 1,000% early in the new year and will continue accelerating thereafter throughout 2004. 

 

The flouting of the requirements of responsible government evident in its economic policies are reason enough for the incumbent government to be considered a rogue regime.  Although there are a few dissenting noises on the government side, there will be no shift from the Zanu-PF side that is fundamental enough to begin to address the severity of the crisis into which they have plunged the country. 

 

It is only the MDC which has the will and the vision to begin the difficult task of reversing this catastrophe.  The MDC’s economic blueprint, RESTART, stands for reconstruction, stabilisation, recovery and transformation.  RESTART has been designed to tackle the deep economic crisis through a comprehensive five year programme of fully co-ordinated fiscal, monetary, exchange rate, sectoral and trade policies.  RESTART will launch the MDC’s industrialisation strategy, through which the economy will provide rapid growth in high income urban employment and, with complementary policies, ensure a sustainable, equitable pattern of national development.   

 

Every day that the present government continues to destroy the economy moves the starting point for RESTART further back.  The sooner MDC assumes power, the sooner we can start addressing the crisis, moving the country forward again and bringing hope to the people of Zimbabwe.