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Eric Bloch Column

Another cloud cuckoo-land budget

LAST week the Minister of Finance, Senator Samuel Mumbengegwi made his maiden budgetary presentation to parliament, preceded by a mid-term Fiscal Policy Review.

Both t

hat budget and that review were so detached from recognition, or acknowledgement of realities, that one must hope that the presentation was the minister’s first and last one, unless he undergoes a remarkable transformation before the 2008 budget is to be presented in less than three months’ time.

In fairness, however, one should not unduly castigate that minister, for the inability to recognise facts, admit to them, and react effectively, whenever those facts are anathema, it is a characteristic of the Zanu PF government as a whole, and not only of the minister.

At the outset of the Fiscal Policy Review, the minister focused upon the hyperinflation that has been endemic in Zimbabwe in 2007.

Very correctly, he observed that there had been “incessant price increases by most of the business community during the first half of this year”, and contended that these price adjustments had been unwarranted.

Not very surprisingly, he repeated the canard which so very spuriously has been stated ad nauseum, as being the motivation behind the price increases, being a contention that the price increases are “attempts to effect regime change by the former colonial powers through the use of prices’ instability”.

He reinforced this endlessly repeated, specious allegation by attacking those who have resorted to major and frequent price increases, describing them as “unscrupulous businesses engaged in such unethical behaviour”.

If there were any substance whatsoever to these recurrent, ludicrous contentions, which have been made repeatedly by President Mugabe, the Minister of Industry and International Trade, Minister Without Portfolio Elliot Manyika as head of the government task force, and many other ministers, one must ponder why amongst those who have resorted to substantial price increases are government itself (as demonstrated by the magnitude of increases in tuition fees of several universities, draconian increases in Zimra clearance charges, and the like), many parastatals, such as Zimpost, enterprises controlled by the state, such as Zimbabwe Newspapers Ltd, companies owned by the ruling party, and innumerable business owned by senior members of Zanu PF.

Does government really believe that it, its parastatals, the enterprises it controls, and the senior members of Zanu PF are all anxious to achieve a regime change, and in order to achieve that change connive and conspire with the former colonial power and others in the international community to bring about regime change?

Surely not! The mind boggles at the thought that government and the party are vigorously and voluntarily engaged in self-emasculation.

It is time that government gives unreserved recognition to the undeniable facts which have been the underlying drivers of immense price increases. Those facts are very many, including:

lAn insufficiency of foreign exchange within official markets, compounded by an inability for most exporters to retain enough of export proceeds to service their import needs, forces businesses to source essential inputs by accessing “free funds”, at considerable premiums, or to purchase the inputs from those with access to foreign exchange, at substantial premiums, or to resort unlawfully to alternative foreign exchange markets, all of those methods of accessing essential inputs involving very considerable costs which must, if the businesses are to survive, be recovered in selling prices.

Moreover, as demand for foreign currency far exceeds supply not only in the official market, but also in the unofficial ones, the costs thereof surge continuously upwards.

A ridiculously unrealistic exchange rate accorded to exporters rendered most exports non-viable.

This not only compounded foreign exchange scarcity, but also very markedly reduced capacity utilisation within the manufacturing and tourism sectors.

A consequence is that lesser utilisation has to bear the fixed costs of the enterprises, necessitating higher per unit of production or utilisation allocation of those costs in effecting price determinations;

lProductivity has also been very severely constrained by declining domestic market demand, in consequence of falling “real” incomes, and of diminishing production levels, yet further increasing per unit costs of actual production, necessitating yet further price increases.

The productivity decline is also highly attributable to inordinately frequent, often unscheduled, interruptions in energy supplies, inadequate supply to industry of coal, and — in Bulawayo — very pronounced suspensions of water supplies;

Inevitably, salaries and wages have been subjected to repeated upward reviews, in view of the devastating impacts of hyperinflation upon all employees of commerce, industry, and other economic sectors.

In addition, the gargantuan brain drain to which Zimbabwe has been, and is, subjected, has resulted partially in enterprises having to incur significantly greater than normal training costs, as repeatedly new personnel have to be engaged and trained, and the massive scarcities of skilled persons has enabled the few that remain to demand higher than inflation salary escalations.

All these employee costs must unavoidably be incorporated in price determinations;

As unemployment and poverty has intensified, so too has corruption and crime, with more and more reluctantly turning to such activities to ensure the survival of themselves and their families.

These activities have vastly escalated the costs of most businesses, yet again creating impacts upon prices.

There are but a few of the innumerable causes of the so-called “incessant price increases” in 2007, and the never-ending claims of conspiracy to achieve regime change are devoid of any credibility whatsoever, and therefore also erode any limited credibility that government may have.

Still in the course of the introduction to his Fiscal Policy Review, the minister intensified his attack on the private sector by saying that price increases were “taking place soon after the signing of the three protocols under the social contract obligating labour, government and business to work together towards stabilising prices, promoting increased productivity and foreign exchange generation”.

The minister seems to have conveniently overlooked, or ignored, the old saying that “it takes two to tango!” and that on the one had there had only been partial signature of the protocols by labour, secondly that the protocols were effectively only declarations of intent to reach agreement on a social contract, and not an actual such contract, which has yet to be agreed and, on the other hand, government has unhesitatingly breached the spirit of the protocols repeatedly with increases in prices and charges.

Space constraints have limited this assessment of the Fiscal Policy Review to the minister’s focus upon the escalations in prices. Assessment of other aspects of the review and of the supplementary budget will be addressed in next week’s column.

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