guest column Eddie Cross
I THOUGHT we had seen everything that this country of ours could throw at us, but the situation right now looks like nothing we have seen before.
Prices have quadrupled and continue to rise inexorably. Incomes remain fixed or at least only 15% to 30% higher for people in paid employment. Fuel is still short or expensive and now, the massive electricity cuts. At my place in Harare, we are out of electricity for 15 to 18 hours a day, every day.
Personally, I started to pay for my long term security with a major pension company when I was 17 years old, my father having told me I had to have an insurance policy. Eventually, my portfolio was five policies — all with the same company, the biggest in the region, and I had contributed in one way or another well over a million United States dollars to this company for my personal security once I retired.
Today, this company proudly sends me an e-mail each month saying we have paid your pension into your account in the amount of RTGS$94 (that is about US$10). A cup of coffee costs RTGS$8 to RTGS$12 in local coffee shops.
I met with a small group of student leaders on Saturday and they asked me all sorts of questions – one thing I told them was never to pay into a pension fund. But really, what kind of a future can we offer our brightest and best young people if we cannot maintain the most basic economic ingredients for growth? What sort of future faces them and how do they prepare for that future? For most of them, the future is a passport.
At church on Sunday, one of the aid agencies told me they were
gearing up to provide basic food to five million people in the rural
areas, but were now thinking they might have to
start a programme in urban areas where absolute poverty and hunger were becoming a major issue. If you cannot provide food and fuel to your people, you are, as far as many people are
concerned, a ‘failed State’. How else do you describe what is happening?
But the reality is that we are far from a failed State. Our fiscal
surplus in the first quarter was $500 million, and we are accumulating
hard currency in our banks for the first time
ever, the balance of payments is strong, so why the crisis? Let’s look at each problem one by one.
Firstly food: 20 years after the government launched the fast track land reform programme and three years after command agriculture, we are still importing the bulk of our food.
Food prices are high by regional standards and our poorest people (who are 70% of the entire population) cannot afford to buy their essentials for daily life. Why? We have plenty of land, water to irrigate a million hectares of crops, including expertise and most of the equipment needed. So, what’s amiss? Two words — real farmers.
In the United States, 3% of the population lives on farms. In Europe, perhaps 5% and in South Africa 70% of all food is produced by 100 companies.
In Zambia, a small community of less than 1 000 farmers make that country a net exporter on a large scale. What they all have in common is the respect of their countries for the contribution they make as well as its security. Personal security and security over assets, which enable them to borrow massively from the banks to cover short-term costs and capital equipment, are also a factor. Here, none of that applies and it’s just a matter of changing our policies.
Secondly, Fuel: In 2009, in a 15-minute statement, we liberalised ,
floated our currency, removed all import restrictions, removed all
controls on gold production and sales and
dismantled price controls. In 10 days, fuel supplies were freely available at world market prices, no allocations of foreign exchange from the Reserve Bank of Zimbabwe (RBZ), no
subsidies, no State-controlled imports. Just private sector and free markets — ‘publish your prices on the forecourts’ was all we had to do and leave customers to decide where to buy
their fuel from.
In 2013, we reversed those decisions, restored controls and State
intervention, made the RBZ the main trader in foreign exchange and
allowed monopoly interests to take control of the
fuel industry. Instantly, we were back in 2008; fuel shortages and high prices, well above regional and international levels, including constant disruptions and shortages of foreign
What do we have to do? Simple; unscramble the egg and go back to the
basics. Do not tell me we do not know what the solutions are? We do,
it’s just the will to do the things
that are necessary that lacks.
What mechanism was behind the 2009 announcement by then Finance minister Patrick Chinamasa? A simple resolution in Cabinet, the day before.
Thirdly, electrical energy: We have made a start, we fired the top management and the board, but that is just the start. This sector is an unholy mess. We have just spent, between Zambia and ourselves, nearly a billion dollars on doubling the capacity of Kariba — with no increase in water supply. We have then allowed the dam to operate well above capacity because the power coming out was cheap and available, and as a country with full supply at low prices, we went to sleep. Now — disaster strikes as the inevitable happened — we ran out of water.
Then at Hwange, where we built a huge thermal power station nearly 60 years ago, we have been paying little attention to coal supplies. Hwange Colliery, with millions of tonnes of coal reserves, is running out of coal? They have perhaps six months left in the open cast mine and Hwange Power Station must rely on private sector operations. The conveyor system, the drag line, tens of millions of dollars of plant and equipment is broken down and crude and out of date methods of mining are being employed at a much higher cost.
Our currency collapses and we do not increase coal prices. Are we then surprised that the coal stops coming? Are we crazy? We have spent tens of millions of dollars on the three small thermal stations with less capacity than one turbine at Hwange. Hwange uses thermal coal at half the cost of other forms of coal which are used in these old stations. Who in the world spends money on coal-fired stations that were built in the 1920’s and 30’s?
We need new power sources — every home should have solar panels on the roof. Solar can supply our needs during the day — without storage, at very low costs. Let’s get an emergency programme under way. We need a new major thermal power station that uses coal — let’s make it happen, it’s private sector driven, keep it that way, but support them financially, it’s only money. And for heaven’s sake, raise the price of power to reflect current costs. The only short-term solution is to import power and for that to happen, we have to pay for the stuff.
Finally, prices: I say prices because what we have right now is not inflation in the normal sense — it’s price rises driven by speculation in our currencies. This is fuelled by the RBZ with its mismanagement and manipulation of the interbank market and the foreign exchange system as a whole.
The ability of the private sector (or speculators) to make a margin,
sometimes a massive margin, on simple currency deals every day, is just
too great at the moment and the only way to stop the practice is to
enlist the market.
We know how to do this — do we think we are the only country in the world that has had this problem? If we do, we are stupid and I do not think that is the case. We must make it expensive to secure supplies of local currency by raising short-term interest rates to a punitive level.
We must make the official, interbank market for foreign exchange work so that the exchange rate in the banks has credibility and when we want foreign currencies, we can buy them and remit them to clients and suppliers outside the country. We cannot do that if the RBZ is allowed to unilaterally take foreign currency out of our bank accounts for their own use and replace it with local electronic currency at a false exchange rate.
Make all banks sell the foreign exchange that is available on the interbank market every day and allow people to buy from the market through their banks what they need. The exchange rate will strengthen and prices will go down, automatically. Is that so difficult to understand and do?