via Zimbabwe: The high price of instability 02/06/2014 by Eddie Cross in NewZimbabwe
Stability and freedom are inextricably intertwined in national affairs; you cannot have the one without the other. The instability that has taken a grip on the countries of North Africa has profound implications for everyone – Europe especially as they are in the front line for the millions who are being displaced; just as South Africa has been the main recipient of the millions of people who have been displaced by two decades of instability in Zimbabwe.
The instability can be caused by economic, political and armed conflict problems. In our case it is a mix of economic and political instability, in North Africa military conflict is playing a key role. China has chosen a path characterized by market freedoms but retains a repressive political system holding power firmly in the hands of the Chinese Communist Party. How they justify that intellectually I simply do not understand as market freedom is totally incompatible with Marxist ideology.
In our case, the wheels fell off in Zimbabwe when we allowed the Reserve Bank to assume the role of a parallel Government and to take macro and monetary policy away from the Ministry of Finance. The result was a sustained economic implosion, starting in 1997 and peaking in 2008 when inflation was doubling prices every few hours and the capital assets accumulated over 100 years of enterprise and modern government were simply wiped out. When the madness was curbed by the GPA and then corrected by the GNU in early 2009, we were in a terrible state – all banks, building societies, insurance funds and other financial institutions were bankrupt. 70 per cent of our population was being fed by the international community led by the USA and our schools, universities and hospitals were either closed or barely functioning.
The collapse was not just due to the errant behaviour of the Reserve Bank but also due to decades of managed micro economic fundamentals – exchange controls gave the State the capacity to manipulate the value of the local currency and thereby insidiously to strip the private sector of its assets and profits. At its peak the Reserve Bank extended this process to quite simply just taking what was not theirs and replacing it with local, worthless currency.
The Government exacerbated this with radical price controls – they ordered companies to cut their prices by half – not once but several times, leading to the wholesale collapse of companies who had been in business for many decades and who watched helpless as their retail and wholesale outlets were stripped bare. My personal losses at this time ran into millions, our business has never recovered.
It is no wonder that the business community in Zimbabwe views any discussion on the return of the Zimbabwe dollar with apprehension and horror. They see this as the first step on the road back to the conditions in the first decade of the 21st century that had destroyed what was left of the formal economy. At the slightest hint of any return to the bad old days, capital flight assumes new momentum and the formal sector retreats into the informal economy.
If Zimbabwe is to find its way back into the interactive global world and to be able to resume its efforts to raise living standards and become self-supporting, it has to accept that the observance of macro-economic fundamentals and market freedom are not optional extras but are the very foundations of a progressive and rapidly growing State.
The bounce back which occurred between 2009 and 2012 was on the basis of three policies – the adoption of foreign currencies as the means of exchange, the abolition of price controls and the lifting of exchange controls. Just to highlight the importance of the latter, the production of gold in Zimbabwe fell to very low levels in 2008, after lifting all controls on the sale of gold and lifting restrictions on the ability of people to own and market their own gold, output has reached an estimated 40 tonnes per annum worth US$2,2 billion. Recent attempts to reintroduce controls, have led to the immediate withdrawal of gold from local formal sector markets.
Macro-economic policy sounds very complicated but it’s not really, it just involves not spending money you do not have, living within your means. Managing personal finances is just the same. If you are going to run a deficit on current account – you must keep it below the average growth rates being achieved in the economy at large. Micro-economic policy is much the same – but governs policy at the household level and involves markets prices and interest rates.
We have an efficient and effective taxation system managed by a relatively competent authority in the form of ZIMRA. This collects a very high percentage of our GDP as revenue to the State at a relatively low cost (7 per cent of revenue). Our main problem therefore is not related to the capacity to collect what is owed to the State in the form of taxation, but to curb our State driven expenditure. Our Civil Service is just too big; our armed forces are too large for our security or defence needs. We simply cannot fund our bloated government and need to expand our economy by at least three times before this relationship can be brought into balance.
The use of foreign currency as the means of exchange imposes a harsh form of discipline on the State and this is the main problem. It means they cannot spend more than they earn unless they incur credit on local and international markets and anyone who sells anything to the State here on credit is going to have to wait for their money and may never be paid. We have to show that we can be trusted with the management of our macro-economic fundamentals and our own currency before the use of other currencies as a means of exchange can be eased.
Further we have to recognise that market freedom and economic stability is also critical to long term growth. Any attempt to curb economic freedoms will fail and be counterproductive; imposing controls on gold sales and production will shrink or go underground. Any attempt at price controls over anything, will simply result in the product disappearing and queues for everything.
I hear lots of loose talk of import controls to protect local industry; I think that would be disastrous in the long term. What we need to identify is what we can do profitably and in competition with the world markets. We should import the rest and take advantage of the intense competition that exists “out there” for everything that mankind produces and consumes. Prosperity lies in engagement and competition and not isolation and protection.
COMMENTS
Eddie Zimbabwe has been going downhill since 1980 and you were part and parcel of that decline given your economics background. It seems as everyone knew then what was in store. And let’s face it the current leaders including you don’t have an idea of how to fix it. Zimbos have two choices go on mass to the streets and throw out the current govt or continue till it collapses. Western and eastern goodwill and trust has been completely demolished by zanupf who are seen as thieves and thugs. So don’t expect any bail out. Don’t expect any investment. Only a completely new govt will do top to bottom.
Spot on! Eddie does nothing but talk and talk and talk…Indaba maningi. Useless. Action is what’s needed.
Mlimo. Agree. Citizens must go to the streets – there really is no alternative now in spite of a little bit of window dressing going on by ZPF
Eddie Cross can be there with his knowledge since 1980 but as long as no-one listens to him, considered as a capitalist opinion, the leaders will still run down the economy based on Socialistic n Marxist doctrines. Eddie has not been a governor of RBZ nor a minister of Finance
Only a New Rhodesia will bring the much needed investment and prosperity, with a contented and happy life for all. The Zimbabweans have to realize that they were tricked and deceived into believing the Rhodesians were their enemy. They have to realize and accept that they fought and died in a liberation war for nothing! Pull down the Zimbabwe Flags, and fly the Green and White of our New Rhodesia on every flagpole! The Rhodesians, will return in their thousands, to re-build the great country, that it was!
Rhodesia is history. We need to look forward now and build a new Zimbabwe. Let us try and do it without all the hatred, bitterness, destruction and mistrust that have been the hallmark of ZPF. There is no fear of God there and that is a terrible dark place to be. Repent!
With all due respect, it’s 2014 and this is independent Zimbabwe….the ‘when we’ attitude is unhelpful….we all yearn for a free and democratic Zimbabwe, all inclusive of race, tribe and political persuasion…we pray for prosperity once more in our country. 1 man 1 vote is what was fought for pre 1980 unfortunately it has never succeeded due to personal greed and selfish ambition by a few who are in the minority in their political thinking….who continue to abuse their power and leadership….May God bless Zimbabwe and our people of all race and tribe….
Way back in Ian Smith’s time, I was lecturing City and Guilds Subjects, at the Technical College. These are excellent courses, designed to give the students very good Skills training, – to enter the rapidly expanding industries and development projects throughout Rhodesia. But how can these students benefit and improve their Skills, when the Population is forced to believe that white Rhodesians are their enemy? Work opportunities in industries, and farms, were starting to be destroyed in a civil war! To this very day , all the responsible government functions are failing, including the transport systems, water and electricity supplies, hospitals and schools, and many others, all because of no Skilled people left in the country, to maintain them. The millions of Zimbabweans, here in South Africa, are working very hard to learn new Skills, to be readily employed, and to employ others. It might take them six months, or even three years, to learn the type of skill required, to sustain themselves, and their families, here and at home in Zimbabwe.The are all part of the family of New Rhodesians, working with the white community, waiting to re-build their Country. Therefore, the civil war in Rhodesia, was never an anti-white Rhodesian war. It was carried out by that section of the population, still locked into the idea, that to survive, you must kill!, kill the animals!, kill the man who has the cattle!, and take whatever he possesses. Kill or be Killed,and destroy everything in his path, – the farms, the food supplies, the total destruction of the lives of others, the destruction of the country, and himself! The shooting down of the Viscount, and the murder of the survivors, on the ground, was never a race war! Just kill those that have, and take what you want, for yourself! This attitude has no place in civilized society, then, and now! The people who carry out these atrocities,have no marketable Skills. They have become vermin in society, because they were tricked and deceived, into believing, that the Rhodesians, were their enemy!