OPEN FORUM: Learning nothing from history

OPEN FORUM: Learning nothing from history

OPEN FORUM: Learning nothing from history

Source: OPEN FORUM: Learning nothing from history | Financial Gazette (News)

By Perry Munzwembiri

“THE only thing we learn from history is that we learn nothing from history.”
Perhaps nowhere else in the world is this statement by Friedrech Hegel more apt than in Zimbabwe.

“It`s 2008 all over again,” is the common catchphrase of late, what with winding queues for fuel becoming common, a pyrrhic bull-run on the Zimbabwe Stock Exchange fueled by absolutely nothing but fear and uncertainty, and an unhinged foreign currency parallel market, among other things.

Phrases such as “profiteering”, “illegal price-hikes” and “unscrupulous retailers” are becoming trendy again.
Zimbabwe has been here before, and with the memories of the dark hyper-inflationary period still fresh in the minds of many, it seems Zimbabwe has repeated past mistakes, and is staring down the barrel.
Before the much storied 2008 meltdown was the early 2000s crisis.

Below are just three examples showing the likely scenarios to play out in the economy, if what we have seen in the past is anything to go by. And no, I am not a prophet!
Exchange Controls

At the turn of the century, as Zimbabwe`s foreign currency reserves petered away, the Reserve Bank of Zimbabwe (RBZ) issued a directive compelling exporters to sell 25 percent of their export proceeds to the central bank, which the RBZ would then channel towards fuel, electricity and other priority imports for the country.

By the end of September 2000, external payment arrears had reached $500 million, similar to the current $600 million backlog.
This 25 percent “surrender requirement” was subsequently moved upwards to 40 percent, then 50 percent as the foreign currency crisis deteriorated.
Exporters could only access the balance under the confines of the priority list and subject to RBZ approval.
Of course, this only accelerated the rate of the increase in the parallel market premiums charged for the United States dollar, which at the time hovered around 2 900 percent.
Currently, with the mining sector, for instance, at least 50 percent of all export proceeds are transferred into the RBZ’s nostro account and the RBZ transfers the equivalent to a bank’s RTGS account for the exporter.
Price Controls
“President to act on illegal price hikes,” screamed the state-controlled Herald newspaper, quoting President Robert Mugabe last week.

To many, this presages price controls, despite this “strategy”s’ proven futility. In October 2001, Zimbabwe’s government introduced price controls on basic commodities, particularly key staples, after accusing retailers and manufacturers of “profiteering.”

The prices of basic commodities came under government control, resulting in immediate shortages.
This would go on until 2003 when, faced with the ineffectiveness of its price control policy, government introduced a Prices and Incomes Stabilisation Protocol where prices of crucial commodities and services would be negotiated under a Tripartite Negotiation Forum.

Price controls were to be re-introduced in June 2007, with similarly disastrous effects.

Officially, the latest statistics released by Zimstat say inflation is 0,14 percent.
However, given what is happening on the local stock market, the parallel market premiums and general common sense, this 0,14 percent assertion is manifestly untrue.

To get a more realistic picture of the inflation trends in Zimbabwe presently, one needs to look no further than the parallel exchange rate movements often used as a proxy for inflation.
Like we have become accustomed to, as the inflation rate inevitably gets out of hand in the coming months, the private sector will be chastised for its “profiteering” and “unscrupulous” practices, even in spite of the loose monetary policies we have witnessed from the RBZ.