Fear. Anxiety. Panic.
These are perhaps the best words to summarise the past week as consumers, haunted by the painful memories of 2008 hyperinflationary era, mobbed supermarkets to hoard everything and anything.
It is often said people fear what they do not understand, and hate what they fear.
The twin actions by the Reserve Bank of Zimbabwe and Ministry of Finance and Economic Development to separate foreign currency accounts (FCAs) and RTGS FCAs, and the new two percent tax on electronic transactions, respectively, were interpreted by the market to mean Government was tacitly discounting the value of electronic money or RTGS balances.
Parallel market rates went wild as the premium of accessing the US dollar increased.
But most damagingly, the market also inferred that the foreign currency crunch would lead to shortages of basic commodities.
This was further compounded by the natural instinct to hedge risk through converting RTGS balances into assets of real value.
Consumers naturally besieged shops, and despite the best efforts of the latter to restock, they couldn’t avoid the occasional stock-outs, which, unfortunately, continued to feed into fears of shortages.
Some supermarkets were spooked and fearing the unknown, they decided to close shop.
Government’s repeated assurance that there was enough foreign currency to guarantee the continued supply of basic commodities did little to allay fears.
Talk of revoking Statutory Instrument 64, which restricts the import of goods that can ordinarily be produced on the local market, in order to shore up supplies of commodities on the local market began to swell.
Will this help? Yes! But is this in the best interest of the economic plan? Well, perhaps not.
Break from the past
The market turmoil — which looks transitory as evidenced by falling black market rates — presents probably the sternest test to the new political administration’s commitment to long-term, sustainable reforms.
The default setting of the old politics would have called for a convenient and easy way out.
In the current circumstances, this might mean reversing the recent policy pronouncements from fiscal and monetary authorities and resume creating money to meet short-term obligations.
Finance Minister Prof Mthuli Ncube probably captured this trend well in the Transitional Stabilisation Programme (TSP) launch on October 5.
“Zimbabwe has never been short of blueprints of national economic strategies, development plans and programmes. . .
“Indeed, the First Republic saw the Old Dispensation craft and launch Zimcord, Transitional National Development Plans, Esap, Zimprest, the Millennium Economic Recovery Programme, NEDPP, Short-Term Economic Stabilisation Programme, MTP, and Zim-Asset, among others,” said Prof Ncube.
“Regrettably, Government under the old dispensation lacked the ultimate discipline to see through implementation of most of the above blueprints. There was never a concerted Vision of implementing more long-term strategies that entailed pain and sacrifice, extending beyond short-term populist consumptive interventions.”
Faced with the incessant, incredible pressures facing the market last week, it would be reasonable to expect Government to blink and back-track.
But doing so will cast the new political administration in the mould of the old.
Encouragingly, Government seems to be well-prepared for the headwinds likely to be faced in restoring macro-economic stability.
President Emmerson Mnangagwa told Bloomberg’s Caroline Hyde on September 21 that there was need for Government “to apply fundamentals that may be harsh to our people, but are necessary for us to cross the bridge”.
Similarly, at Chatham House last Monday, Prof Ncube compared the mission to a steeplechase in which one encounters obstacles on the way to the finishing line.
Perhaps Vice-President Dr Constantino Chiwenga provided the clearest indication of the new political administration’s strategy.
In an interview after he was sworn-in as VP, on August 30, Dr Chiwenga made reference to Pheidippides, a mythological Greek long-distance runner.
“The elections are behind us and what remains is now for us to implement with speed what we went around telling the electorate we intended to do within this term, which started with the inauguration of the President,” he said.
“Those areas are in terms of our economy and in terms of the social aspects to improve the living standards of our people. That is what we will be doing. The last time we hit the ground running, here it will be Pheidippides.”
Pheidippides lived at a time when Persia/Imperial Iran had spread across Asia, Egypt and modern-day Turkey, and was nursing plans to conquer Europe, which necessarily involved crashing Athens, one of the most populous and prosperous of Greece’s city-states.
Legend has it that when the much superior Persian army landed at Marathon in preparation for an attack on Athens, the Athenians sent one of their own, a long-distance runner by the name Pheidippides, to deliver a distress message to Sparta, another strong city-state.
Pheidippides is said to have ran through mountainous and rugged terrain in the 240km journey to Sparta in 36 hours.
After the Spartans indicated that they could only help them later, the courier ran back to Athens to deliver the bad news.
He did not have time to rest. He joined the army to the battlefield at Marathon.
Launching a surprise attack on their enemies — who were not only consummate fighters but outnumbered them 4:1 —the Athenians won the battle.
But the Persians regrouped and launch a surprise attack on Athens, and the task fell again to Pheiddipedies who, after having been fatigued by battle, including the effects of his previous gruelling 240km run to Sparta, had to deliver the message to Athens.
He made the 42km journey from Marathon to Athens, pushing himself past normal limits of human endurance.
Legend has it that this is how the marathon race was born.
Likewise, the journey to macro-economic stability will be long and painful. As in a steeplechase, it involves obstacles. There are no quick fixes.
Fiscal and monetary authorities have said restoring macro-economic stability involves containing runaway Government spending and exponentially increasing local production.
As Operation Restore Legacy was about restoring normalcy to politics, the new thrust is about restoring proper economic management.
The disproportionate debt that has been accumulated by Government through spending on civil servants wages and maintaining Government operations has to be contained to a level that can be able to be sustained by current and future revenue generation.
So there is need for a scientifically determined formula where Government only borrows that which it has capacity to pay.
This is why it was reasonable for the RBZ to mop up excess liquidity on the market by introducing the statutory reserve requirement of five percent of weekly RTGS FCAs balances.
Also, this is why the Finance Ministry introduced the two percent tax on electronic transactions in order to boost Government revenues and ring-fence the resources for capital projects, which normally stimulates the economy.
Old Mutual indicated in a recent research note that the new tax might help Treasury to generate $2,6 billion annually, but this was before a review on the collectable thresholds of the tax was later made.
“Review of the transfer tax significantly widens the tax collection base, particularly in the informal sector. The efficacy of the measure is enhanced by limited transaction media in the absence of cash. At current transaction values, the measure has potential to generate an additional $2,6 billion annually…
“Overall (though full implementation modalities are still outstanding), the motive to fund government expenditure through tax enhancement measures is welcome,” it said.
However, it was becoming increasingly apparent last week that some quarters wanted to arm-twist Government into scrapping the new policies.
But this can only be a source of future problems.
Zimbabwe has been kicking the can down the road for quite a long time.
Inclusive Government lie
There is a clearly false narrative that Zimbabwe’s economy recovered during the inclusive Government era between 2009 and 2013 when the economy was liberalised — nay, over-liberalised.
Yes, it restored stability, but the economy did not grow meaningfully in real terms.
For example, wheat production only recovered from a 43-year low of 12 000 tonnes in 2009 to 33 700 tonnes in 2012. However, in 2013, it fell to 24 700 tonnes.
Last year, Zimbabwe managed to increase production to 186 243 MT.
It is a similar pattern to maize production, which rose to one million tonnes in 2010 from 650 000 tonnes a year earlier. Production declined thereafter to 857 000 tonnes in 2013.
Last year, production rose to 2,2 million tonnes.
Put simply, Zimbabwe was food insecure between 2009 to 2013 and it only became food secure last year.
Furthermore, gold production actually slumped during the GNU era.
Initially, deliveries rose to 19 tonnes in 2010 before dropping to 11 tonnes in 2011. In 2013, deliveries reached 14 tonnes.
Conversely, from 2015 output has been rising and is expected to reach 30 tonnes this year, which is the highest ever deliveries in the history of gold mining.
It can be argued, therefore, that economic fundamentals are now stronger than they were during the inclusive Government era.
But there is more room for growth.
It is embarrassing that for a country that wants to boost agricultural activities, we have a deficit of more than 30 000 tractors that are needed to boost tillage.
It is also embarrassing that the country only has 95 combine harvesters of the 500 it needs.
We should be ashamed of producing 1,1 tonnes of maize per hectare instead of the ideal 7 to 8 tonnes per hectare.
Equally, having a dairy herd of 28 000 cows from the 122 000 cows we had in the 1990s is not something to be proud of.
It is not surprising, therefore, that we are importing 60 percent of our milk requirements.
These are our real demons, and we need to confront them through investing in increasing production and yields per unit area.
This is the challenge of our times.
And as authorities have rightfully pointed out, we need a combination of austerity measures that hive off recurrent expenditure and increase spending on capital projects that are likely to have a multiplier effect on the economy.
The promise by Treasury to allocate more than 25 percent of the budget to capital expenditure is a good starting point.
In sum, the new political administration should not be swayed into opting for short-term relief measures that are detrimental to long-term sustainable growth.
We are on the right path.