|The ZIMBABWE Situation||Our
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The Fuel Crisis
Despite all the promises made by the Minister of Energy, Amos Midzi, Zimbabweans were unable to obtain even the most minimal amounts of liquid fuel over the Christmas season. For most people and the media this was the most graphic illustration of the collapse of the economy and the inability of the government under Robert Mugabe to provide any solutions – even after 3 years of staggering from one crisis to another. When the deal with Libya was struck about a year ago, the country experienced a long period of reasonable supplies – most were able to obtain their needs and the frustration of periodic "stock outs" at fuel stations were really just an irritation. This was to some extent compensated by the fact that even though prices were rising, the price of fuel somehow remained the same over this time, in real terms, getting cheaper all the time and giving rise to speculation that price rises were imminent.
So what is the real situation, why this most immediate crisis and is there a solution? The real position is complex and simple – complex in the sense that it is multifaceted and simple in that it really is just a question of supply and demand. In this briefing I will try to open the position up for those that are interested and postulate the only solution.
When the economy was functioning normally (say 5 years ago), consumption was about 5 million litres of liquid fuels a day. Two thirds came into the country via Beira and up to Harare by the pipeline. The other one third came in by road and rail from South Africa. The sole importer was Noczim, a corrupt and bankrupt parastatal that has been one of the main sources of state driven corruption since independence in 1980. The price was fixed by the Ministry of Energy and margins for both bulk buyers and retailers were set by the State. Noczim sold the fuel to the major distributors for cash and the bulk users then looked after the retail trade and other bulk customers. Peak demands were driven mainly by the farming industry at planting and reaping times. Two thirds of all consumption was diesel and the balance other fuels.
Today consumption is down to about 3,5 million litres of liquid fuels a day. This demand is inflated by cross border demand as in real terms; liquid fuels in Zimbabwe are the cheapest in the region. The local price in market terms is about US$4,5 cents per litre compared to over a dollar (US) in Zambia and roughly US$50 cents in South Africa. Even with this lower level of demand, Noczim’s ability to meet demand has been deteriorating rapidly. The reasons lie in two areas – the deteriorating credit worthiness of the State and Noczim and the shrinking flow of foreign exchange into the coffers of the Zimbabwe government.
In the first instance, every deal that the Zimbabwe government has struck with friendly governments – often after direct intervention by Mugabe personally, has become unstuck because of poor performance against promises made. The deal with Malaysia, Libya, Kuwait and South Africa and even little Botswana, have all come unstuck leaving Noczim with huge debts in hard currency. The Libyans are holding tens of billions of Zimbabwe dollars that are deteriorating in value by 1 per cent a day and those governments who put up the guarantees to make the deals possible (SA, Botswana and Malaysia) are faced with hard questions from their own people.
In the second instance, 5 years ago foreign exchange inflows peaked in this country at about US$3,4 billion. This was almost US$10 million a day. At that time the price of liquid fuels was about US$14 cents a litre in international markets and the primary cost of our total import demand was about US$1 million a day, including port and inland transport charges. A very comfortable position. Today we estimate that total foreign exchange inflows in 2002 will have been a third of the level achieved in 1997 at about US$1,35 billion or US$3,5 million a day. Because the poor track record of Noczim and the State itself, we pay a premium for our liquid fuels over and above the world market price. This is exacerbated by corruption in procurement and transport arrangements and this drives up our procurement costs to about US$35 cents per litre – a daily demand of US$1,25 million in hard currency. Recently rising world oil prices and the hardening Rand exchange rate have further exacerbated this situation.
Until November 2002, the state had operated within a system where it took 40 per cent of all foreign earnings outside of the tobacco and gold industries at official exchange rates. The foreign exchange of the tobacco and gold sectors all went to the State at controlled exchange rates except for an allowance to the industry for use to import essential inputs. This flow of foreign exchange was then used to meet essential imports like fuel and under normal circumstances left them with a comfortable surplus to play with. They sold some of the surplus on the market at a premium, used some for food imports and essential drugs and the rest for military hardware and travel.
With the rapid fall in the inflows of foreign exchange (the withdrawal of aid and credit plus the fall in exports and income from services) this system was no longer able to supply government with its needs. In November 2002 they reinstated exchange control and took over all corporate foreign exchange accounts. They also took steps to close down the thriving parallel market for foreign exchange. Under the new system 50 per cent of all inflows of foreign exchange is now automatically converted at the official exchange rate by the banks and the balance is transferred to the control of the Reserve Bank with the proviso that the exporter can use it if they get permission within 60 days. Any foreign exchange not used by that date is forfeit to the State.
In reaction, private business cleaned out their FCA’s before the new measures were implemented – denying the State of about US$30 million in immediate foreign exchange inflows and then decided to withhold from their own Banks any expected further inflows. This action has been reinforced by early indications that the State has not been true to its word and has in fact taken 100 per cent of all foreign exchange inflows to date at official exchange rates. The temptation to do this was simply too great given the huge crisis over fuel. As a consequence, instead of yielding an immediate increase in the availability of foreign exchange at controlled exchange rates to the State, the inflows have dropped to a trickle. With the final collapse of all the fuel deals on which they had been relying, having to put up hard cash and even to settle some of the outstanding debt before any fuel could be obtained, meant that fuel supplies simply dried up and the Christmas nightmare began.
What will happen when companies start to reopen in January is anyone’s guess, most exporters, faced with the complete collapse of local revenues as a consequence of their actual exchange rates falling from a mid rate between the official rate and the parallel market rate, will simply not be able to operate. They will start by withholding earnings and perhaps selling some of those earnings illegally on local markets to fund local costs, but if forced by the exchange control authorities to remit through the new system, they will simply close down. Either way, foreign exchange inflows are likely to be negligible for some time. No foreign exchange, no fuel, unless South Africa puts its neck on the collective block and supplies fuel on credit. No fuel, no economic activity.
In agriculture the State overestimated its ability to run the system without the help of the existing management and owners and we now have a near total collapse of the existing industry and exports. In industry they might have been speculating that if existing private owners of industry were driven out of their companies by these new regulations, new Zanu PF linked owners could do deals and reopen the enterprises with the minimum of disruption. We see under the counter deals being struck every day by Zanu PF linked business, however, to assume that this mechanism can be used across the board in a short period of time without disruption would be another serious mistake. The consequence would be to spread the economic chaos to industry and commerce and even the services sector, the total collapse of the economy under those circumstances cannot be ruled out.
There are signs that some business enterprises are "doing deals" with the State to maintain their activity. The mining houses are talking deals similar to that struck by Zimplats, some industrial firms have permission from the Reserve Bank to keep a higher ratio of foreign exchange for their own use – I know of one which is allowed to hold 100 per cent of its earnings off shore.
These deals will not be enough to hold the system together and judged by its own track record we have to say that at this point in time its is impossible to see Zanu PF finding a solution – they have run out of time and space for maneuver.
So what is the solution – well there is none so long as existing management is in control of this particular ship of State. The only solution is a complete change of government and then sweeping policy changes which will unlock the proven ability of this country to meet its own needs and prosper. Sound a bit trite? MDC had a complete fuel programme ready to be implemented after the March 2002 presidential election. We had even drafted the necessary regulations to make the new system possible and had held negotiations with those in a position to resolve the fuel crisis within a fortnight of the swearing in of the new government, with no subsequent repetition of shortages and stock outs. In April this could have been achieved without even a significant price rise.
Bulawayo, 26th December 2002.
From The Zimbabwe Independent, 20 December
$2b set aside for militia centres
Government is setting up more national youth service training centres across the country as it steps up measures to institutionalise its militias, the Zimbabwe Independent has established. The move is part of a programme by government to establish training centres in each district of every province during the first half of the year. Sources within the Ministry of Youth Development, Gender and Employment Creation told the Independent that half of the ministry's 2003 $4 billion budget had been set aside for the establishment of the national youth service training scheme. The sources said a large chunk of the funds would go towards the upgrading of Kamativi Training Centre in Matabeleland North, which is expected to be the largest national youth training camp in the country. "At least half of the ministry's budget will go towards the setting up of national youth training centres throughout the country," said the source. "The $2 billion allocated in this year's budget is not enough to set up enough centres as we anticipate an increased enrolment of youths for the national service programme."
Currently there are five youth training centres in the country: Guyu in Matabeleland South, Border Gezi in Mashonaland Central, Kamativi in Matabeleland North, and Mushagashi and Dadaya in Midlands province. Youth Development, Gender and Employment Creation minister Elliot Manyika confirmed the drive for more centres saying there was nothing sinister in this as government announced the move a "long time ago". "We are setting up national youth training centres in places where there are none and places like Harare, Bulawayo and Mashonaland West are our top priority," Manyika said. He said there were people bent on disrupting the programme but vowed it would go ahead despite public criticism. "Even if you people criticise the programme, we will go ahead with it and come January everything will be in place," Manyika said. Graduates from the Border Gezi National Youth Training Centre have been used by Zanu PF to harass opposition party supporters during election campaigns. So far over 9 000 youths have graduated from the programme and the majority have been absorbed into different ministries as reward for their support during election campaigns. The setting up of the new training centres, according to sources, will work in tandem with government's policy announced two months ago which stipulates that "O" Level certificate holders cannot proceed to "A" Level and government institutions without a national youth service certificate. The government has in the past defended the youth training programme as essential for instilling a sense of patriotism among youths.