Eric Bloch: Govt Fuelling Inflation Recurrence

SINCE the start of the new millennium, Zimbabwean inflation has soared upwards at a horrific pace.

 

From one of the world’s then highest rates of annual inflation of 55,9% in January 2000, inflation crossed the 100% barrier in November 2001, with annual inflation having risen to 103,8%.

A little more than four years later, in April 2006, Zimbabwe’s annual inflation had surged to what was then an astronomic level of 1 193,5%, but only 18 months later reached the mind-boggling degree of 14 840%.

Even this almost incomprehensible extent of inflation appeared to be insignificant four months later, when in January 2008 annualised inflation reached 100 580,2%, whilst five months later, in June 2008, it exceeded the million mark, being 11 200 000%. In the very next month it hit an unbelievable 231 million percent.

For the following six months, no official inflation data was available, the Central Statistical Office finding it impossible for it to source sufficient price details to issue authoritative inflation and Consumer Price Index statistics.

However, Professor Steve Hanke of Johns Hopkins University in the US, using a “real” exchange rate matrix, computed that in November 2008, Zimbabwe’s annual inflation amounted to 65 novemseptilllion percent (being 65 followed by 105 zeros!).

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Even if inflation was only a quarter of that calculated by him, it was nevertheless countless zillions percent. Never anywhere in the world has such monolithic inflation been sustained.

It was, therefore, verging upon the miraculous that only two months later, after more than nine abominably inflationary years, in January 2009 Zimbabwe actually experienced a deflation for that month of 2,3%, and followed that with a further monthly deflation, in February 2009, of 3,1%.

Although various factors contributed to this remarkable inflation metamorphosis, the most pronounced was that as the internationally relatively stable currencies of the United States dollar, the British pound, the South African rand and the Botswana pula became the prominent medium of commerce in Zimbabwe, product availability progressively increased.

This not only virtually reduced the black market to the verge of extinction, thereby eliminating the profiteering driven by exploitation of consumer desperation to access essentials in short supply, but also stimulated price competition within the formal sector.  

Examples of price reductions are many, including that over a 10-week period the average price of mealie meal declined from R10 per kg to less than R5 per kg, eggs reduced in price by approximately 50%, as did bread, flour and cooking oil, whilst poultry and meat prices fell by at least 40%.

Concurrently, because rentals became foreign currency denominated, they stabilised, instead of cascading.

Regrettably, however, the message has not fully penetrated the corridors of government, of many parastatals and of some local authorities.

How on earth can government justify almost US$700 for a passport, which is more than twice the charge of most countries the world over?

Similarly, it is economically criminal for government to impose a charge for registration of a company of at least US$700, and particularly so when, as amongst the key platforms for economic recovery are investment stimulation and also transition of informal sector operations into the formal sector.

These are but two of innumerable examples of highly inflationary escalations in governmental charges.

Equally, many of Zimbabwe’s parastatals have become price berserk.

In February 2009 the Zimbabwe Electricity Supply Authority (Zesa) announced an intended, retrospective to January, increase in electricity tariffs to an average of US9 cents per kilowatt-hour, provoking justifiable fury nationwide amongst residents, commerce and industry.

Reacting to that fury, on March 20, 2009 the Minister of Energy and Power Development Engineer Elias Mudzuri announced a reduction, effective from February, to an average of US7, 53 cents per kilowatt hour, with domestic consumers therefore paying, on average, US$23,22 per month, as against the previously intended US$37,20, although charges to institutions, industrial and commercial consumers would be subject to greater charges.

Although there was some substance to the reduction, the intended charges continued to be irrationally and unrealistically high, provoking further negative consumer reaction, and hence a few days later Zesa’s spokesman, Fullard Gwasira, announced that for January and February the charge would be US4, 1 cents per kilowatt, with the new tariffs thereafter becoming effective from March.

The question that must be asked is: how a government that is supposedly highly focused upon a greatly needed, overdue economic recovery can allow a parastatal to charge such excessive tariffs?

That they are too high is indisputable, when the rate in South Africa is an average of US$2,6 cents, or 34,5% of that chargeable by Zesa, and when rates throughout the region are very similar, albeit not identical, to the South African tariff.

Not only are the new tariffs an exceptionally harsh burden upon a populace already heavily afflicted by years of hyperinflation, but they are an immense constraint upon the viability of operations of commerce, the manufacturing, mining, tourism and agricultural sectors.

Moreover, they severely minimise the prospects of industrial price competitiveness in export markets. All of those consequences are yet further deterrents to much needed investment.

Zesa is not the only parastatal that is operating its pricing policies as if in cloud cuckooland. TelOne and Zimpost are other prime examples.

Not only are Zimbabwe’s telecommunications untenably poor, with recurrent service breakdowns affecting the making and receiving of telephone calls, the receipt and transmission of e-mails, access to the Internet and an almost continuous inability to effect international calls, but for such appallingly poor services Zimbabweans are expected to pay rates far above those generally prevailing internationally, and massively in excess of the charges in neighbouring territories. Zimpost is equally now charging gargantuan postal and service charges.

How on earth does it justify a rental for a post office box of US$105?

Most local authorities are also going madly overboard in charges municipal rates for water supplies and refuse removal (although it is very commendable that last week the City of Bulawayo, in presenting its 2009 Budget, proposed charges which have been increased to a markedly lesser extent than it had envisaged during the preceding few months, albeit that further downward revision is needed).

Whilst it is incontrovertible that the local authorities have been victimised by inflation to as great an extent as has the populace, and that they are faced with very considerable operational costs, exacerbated by the extent that spending is now very necessary on infrastructural rehabilitation, nevertheless the imposition of charges which equate to seeking to squeeze blood out of a stone is unacceptable.

The admirable progress that has spectacularly been achieved in reducing inflation will be wholly undermined and reversed if government, parastatals and local authorities do not apply realism and rationality to the determination of their charges.

BY ERIC BLOCH