HomeOpinion & AnalysisZim's inflation entrenches poverty

Zim’s inflation entrenches poverty

A TICKLISH quip about the late Ugandan leader Idi Dada Amin instructing his army commander to go and shoot inflation on sight if he ever came across him for the havoc it was causing among the civilian population should have resonance among Zimbabwe’s monetary authorities.

Runaway inflation, rated among the highest in the world, has thrown Zimbabweans into the league of paupers with more that 80% of the population living way below the poverty datum line.

The economic scourge has also eroded disposable incomes while national savings have been wiped out, killing whatever remained of the culture of saving among the populace.

Millions of Zimbabweans have been reduced to a hand-to-mouth existence, without any hope about the future 
The country’s working population can no longer afford the benchmark of US$1 a day — equivalent to about $60 000 on the official market and approximately $100 000 on the parallel market.

According to the Consumer Council of Zimbabwe, a basket of goods for a family of six last month cost $11,9 million from $9,6 million in September.

A majority of workers in Zimbabwe earn far less than that a month.

A good barometer of how bad things have gone in a country once touted as having the greatest potential for growth at Independence in 1980 is a comparison of what one could buy in relation to the value of the local currency now.

The price of bread, a basic commodity, is now about $40 000, enough to buy a house in the leafy Greendale suburb of Harare in the 1980s.

The price of bread doubled less than a month ago from $22 000 a loaf. Prices of most brands of mealie-meal have gone up tenfold over the last month and experts say the surge is likely to intensify as national food stocks shrink. 

Last week, the Central Statistical Office (CSO) announced an increase in the year-on-year inflation by 51,2 percentage points to 411%, further dampening any hope of salvation through the much-touted economic turnaround.

The CSO said the October annual inflation rate, a key economic indicator, was 411% after increasing from September’s rate of 359,8%.

“This means that on average goods and services normally purchased by households for final use in Zimbabwe were 5,11 times as expensive in October 2005 as they had been 12 months before, in October 2004,” the CSO said.

Reserve Bank of Zimbabwe governor Gideon Gono has shifted his inflation forecasts for year-end from between 20-35% earlier this year to between 35-50% and later to 50-80% before recently climbing down again to settle for 280-300%.

In his monetary policy last month, Gono all but admitted failure to rein in inflation as he appeared to be losing the war against an unrelenting economic decline.

But he put on a brave face insisting that “failure is not an option” even though all social and economic indicators seem to conspire against his public pronouncements.

Year-on-year inflation rose from 265% in August to 359% in September before climbing to 411% last month.

In a report last month, the International Monetary Fund (IMF) said inflation would rise above 400% by year-end.

Non-food inflation accounted for 414,7%, a 23,3 percentage points increase on the September figure of 391,4%, while food and non-alcoholic beverages inflation was 407,5%, a 99,3 percentage points rise on last month’s rate.

On a year-on-year basis, items that recorded the highest increases in prices were bicycles, postal services and hairdressing salons.

By comparison, on a month-on-month basis regional airfares, electricity charges and railway fares recorded the highest increases.

The continued rise in inflation appears to reflect a deepening economic crisis although government officials have been talking about an upturn since last year.

The country has been buffeted by foreign currency shortages that have in turn spawned severe fuel, power, drug and spare parts shortages.

The IMF said Zimbabwe’s economy would shrink by 7% this year, after a 4% contraction last year and 10,5% in 2003.

The central bank claims the economy will grow by 2-2,5% even though it cannot support its assertions with credible evidence.
While Gono insists that the inflation rate will be within the 280-300% range by December and decelerate in the first quarter of next year, economists forecast the rate to hit 600% by February.

They say the increase in inflation has killed the nation’s spirit of saving, will worsen labour disputes, widen the gap between rich and poor and make Zimbabwe an unattractive investment destination.

Disposable incomes have been completely eroded and the population cannot make any savings for a rainy day.

Economic analyst John Robertson said the gap between the rich and the poor would widen because interest rates offered on savings only benefited those with large amounts of money.

“People with ordinary savings are being robbed of their money as its value is eroded by inflation which cannot be compensated by interest earnings,” Robertson said. 

He said labour disputes were also going to worsen, as employees demand more frequent salary reviews against dwindling company revenues.

Civil servants, who now constitute more than 50% of the workforce in the country, were last awarded a salary increment in January when inflation was around 123%.

Robertson said it would be difficult for employers to give salary increments that match inflation as they are also exploited through a poor exchange rate, foreign currency shortages and an exporters’ tax of 20%.
“We are receiving no foreign direct investment,” Robertson said.

Foreign direct investment is one of the major economic drivers of developing nations. Zimbabwe has not received significant external investment over the past five years due to poor governance and lack of the rule of law.

Investors have shied away from Zimbabwe because of its unstable political and economic conditions.

Instead, major investors in the country like BHP and Lonrho have closed down operations and several others have relocated to neighbouring countries that offer better prospects.

Falcon Gold, once one of the largest gold producers in the country, has threatened to close down due to high operational costs.

According to a Platinum and Palladium 2005 survey by London-based GFMS, Zimbabwe’s costs of mining platinum shot up by 55% last year, making it one of the most expensive places to mine in the world.

Robertson said unlike Malaysia that is always touted as an example to emulate, the Zimbabwe government lacks discipline and cannot take difficult political decisions.

Explaining his government’s experiences in economic empowerment at the Sheraton in Harare last week, former Malaysian prime minister, Mahathir Mohamad, said his government did not randomly seize farms and companies that were in the hands of neocolonialists but managed to achieve what Zimbabwe is trying to do without upsetting the applecart.

Unlike Zimbabwe which acquired land haphazardly from white commercial farmers, Mohamad said his government initiated resettlement schemes on land that was not occupied to build local capacity.

He said the Malaysian government did not nationalise companies that were foreign-controlled but waited until a time when they had enough money, formed a company and started buying shares in the companies and ultimately became majority shareholders.   

He said his country wanted foreign companies to continue operating profitably and above all made foreign investors feel safe in Malaysia.

Local companies are operating under a heavy burden of taxes, foreign currency scarcity and high interest rates which translate into a high cost of borrowing against controlled prices of basic commodities.

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