To close off this very difficult year I gave myself the very difficult task of reading Gideon Gono's book and writing some comments for you. My effort is attached and my only hope is that reading it will not be as painful for you as reading the book itself.
We have to hope for an early breakthrough, specially now that the Zimbabwe dollar has become virtually worthless. Immediate challenges for government are to get Parliament sitting again so that a Budget can be passed and the whole revenue and expenditure process can be put back onto a legal footing. For at least this reason, we should see some strenuous efforts being made in January, but the points in my summing up paragraphs on the last page of the attached will still need urgent attention. Whether they get the right kind of attention, from locals as well as foreigners, might well determine our future!
My most sincere thanks to you for all your support during the year and my warmest good wishes go out to you for a better 2009.
Five curious years result in a curious book
A comment on Dr Gideon Gono’s book, Zimbabwe’s Casino Economy
If you could start a sincere discourse in which you could honestly declare –
that you have received the President’s personal guidance at least twice a week for five years
that you proudly hold a conviction that every one of the President’s policy pronouncements met the highest possible moral, academic, philosophical and practical standards of excellence
that you hold a firm belief that the only reason for their failures has been the imposition of sanctions, and that Zimbabwe’s survival of the international sanctions onslaught has led directly to your having achieved major breakthroughs in economic theory –
– you too could write a book that would put an extraordinarily up-beat spin on Zimbabwe’s recent history. You might also be able to persuade yourself that, now that many banks in developed nations are having to be rescued, the brilliance of Zimbabwe’s monetary policies is no longer in doubt.
But first you would have to successfully impose a few new definitions on certain English words that would completely destroy your claims if their original meanings were to be used.
The word “sanctions” is the main one. This word has to be redefined to mean any response from abroad that is not wholly supportive of Zanu PF-policy decisions, that does not respect the sovereign rights of the party’s leadership to choose any policies they wish, or that shows an unwillingness to completely overlook Zimbabwe’s failures to fulfil contractual obligations.
This means that if any government, donor agency, international bank or development institution finds that it is not in agreement with Zanu PF policy objectives, or is agitating for long-overdue debt repayments, or is dismayed by the conduct of party officials, that body can be accused of imposing sanctions.
And if any lender expresses concern that new loans to Zimbabwe might not be repaid, and therefore sets tough conditions or refuses to lend Zimbabwe the money, it too can be accurately accused of imposing sanctions.
Points carefully overlooked – Dr Gono’s book is laced with numerous examples of carefully overlooked points – are that lenders are fully entitled to base their lending decisions on the assessed credit worthiness of borrowers, whether that assessment is based on past performance or current earnings expectations.
Zimbabwe’s score is dismal on both counts. Consequently, loan refusals are hardly surprising. In such cases, refusals are standard practice for any banker. As for the donors, NG0s and aid agencies, Zimbabwe’s government disqualified itself from receiving direct assistance by adopting and endorsing conduct that violated human rights. The conduct concerned includes violent ruling party-supported actions that hit directly at civil liberties and made direct and deliberate attacks on entirely legal political movements that tried to attract support for alternative political and economic policies. These attacks severely affected investor confidence and further damage was done when the Zanu PF policies began to sharply reduce Zimbabwe's foreign earnings by forcing the closure of most of the farming companies that produced most of the country’s exports.
Unfortunately, these were the earnings that had supported Zimbabwe’s access to credit. Continuing flows of revenue were needed to repay the banks offering continuing lines of credit for flows of imports, and export earnings were also needed to service longer-term debts. The rapid fall in earnings caused Zimbabwe to become a poor credit risk, so lines of credit were withdrawn.
But as an expression of his commitment to support every Zanu PF policy decision to the hilt, Dr Gono has passionately declared that the land reform policies that led to this decline are irreversible. This has done nothing to persuade potential lenders that Zimbabwe has improved its prospects of settling debt. They quickly decided that Dr Gono’s position on land reform meant that the lost revenues flows would not be restored, so new loans should not be offered.
Land reform has become a curious title for a process that caused Zimbabwe’s most productive land to almost stop producing. As it was highly productive, this was not the land that needed reform. The rest of it did, or more accurately, the farmers on the rest of the land needed reform. In choosing not to reform these farmers, but merely to move them to the land from which good farmers were evicted, the ruling party caused this land to become far less productive.
Whatever anyone would prefer to believe, the simple fact is that this land has stopped delivering the former volumes of crops and the former foreign revenues that helped sustain the whole country.
To be more specific, this land is no longer delivering the food, the jobs, the exports, the range of industrial inputs or the taxes that used to support or fund a large proportion of Zimbabwe’s total economic activity. And ever since this land reform programme started, Zimbabwe has had to import large quantities of food that, with its loss of export earnings, it could pay for only by cutting other imports.
To now claim that aid agencies, international banks and donor countries must happily and unconditionally accept the obligation to restore Zimbabwe’s spending power is to exhibit a special form of arrogance. Zanu PF is effectively declaring that those capable of offering assistance have obligations and those who need help should never have to account for the actions that placed them in need.
Further, if the donor countries and aid agencies don’t deliver on these obligations, Zimbabwe’s leadership will be acting reasonably when it accuses them of imposing sanctions. In his book, Dr Gono inflates that accusation into a claim that these unkind donors and institutions have engaged in “sanitised terrorism” that is being carried out to demolish the whole economy.
However, another of the points that Dr Gono fails to mention is the fact that, far from imposing sanctions, aid agencies are now actually supplying food to about half Zimbabwe’s population.
Had he raised that subject, he might have had to try to explain why Zanu PF considers aid to be a threat if it arrives in the form of food for distribution directly to communities that the aid agencies themselves have identified as vulnerable. Much as Zanu PF would prefer not to discuss this issue, the facts here have become obvious: Zanu PF wants to be in control over the distribution of all aid so that beneficiaries only of its choice will receive it.
This is because part of Dr Gono’s general thesis is that the aid workers have been complicit in conspiracies to bring about “illegal regime change”. If a careful analysis of the dozens of references to “illegal regime change” were to be made, an honest conclusion would have to be that Dr Gono believes every suggestion criticising a Zanu PF policy and observing that better alternatives should be adopted, can be described as an illegal effort to unseat the government.
Only one explanation for this belief can exist: Dr Gono is clearly convinced that Robert Mugabe is the only person with any legitimate right to claim the role of Head of State. On his apparent contention that this is an absolute truth, Dr Gono can claim that all challenges to President Mugabe’s authority are illegal, and many are bordering on being acts of treason.
Whether linked to sanctions or to regime change, the word “illegal” is another that has been given a new definition.
So great is the conviction that Zanu PF has sole rights over the country, the party wants to be able to demonstrate that its supporters’ needs will be met, even if only by ensuring that opposition party supporters’ needs will not be met. Zanu PF claims to feel insulted when the donors of food, medicine and aid of any other kind bring in the items as direct imports and carry out the distribution themselves. This sidesteps the preferred course of handing the money over to ruling party officials and trusting them to spend it in the country’s best interests. For “country”, read Zanu PF. This is another of the word definition changes.
Dr Gono is accurate in describing the land reform programme as the starting point for explanations of Zimbabwe’s current difficulties, but most references to land reform are accompanied by words such as historic, irreversible and inevitable. With considerable eloquence, Dr Gono shows that he unconditionally throws his weight behind the entire programme.
None of his references mention the fact that land reform closed down Zimbabwe’s biggest industry, or that this industry had been a highly successful contributor to the country’s economy largely because of the adoption of methods and technologies that had evolved all over the world in very recent years.
When the country was colonised, most of these farming techniques did not exist. For that reason, Zimbabwe’s high-tech, capital-intensive commercial agricultural sector is no more an expression of colonialism than General Motors or IBM are expressions of the colonial history of the United States of America.
More importantly, as the effect of land reform has been to reduce farming activity to patches of small-scale subsistence cropping, often using out-dated cultivation practices and almost always on a small fraction of the land that was “recovered” from large-scale commercial farmers, the whole programme has been a disaster. Dr Gono’s unconditional support for it, whatever the cost, is therefore misplaced. He, of all people, should be looking for ideas that work.
A more accurate description of what is needed to solve the whole land issue could be approached by starting with the fact that commercial farmers and communal farmers worked to entirely different systems, Commercial farming companies could lodge title deeds with banks in support of loan applications. With this financial backing, they could make use of rapidly advancing technologies and invest in developing their own skills.
Because the land was marketable and the market value of land was known, bank loan applications were readily approved. These loans allowed the companies to buy expensive inputs and equipment, to learn how to apply the latest scientific breakthroughs and to pay wages to their employees through the year, even when they had no current income in the months between harvests.
The system worked because the sale of successfully grown crops allowed the farming companies to settle their debts and immediately start making plans for the next season. Imaginative development works that often took many years to complete could be funded by additional loans. Dams and irrigation schemes not only helped companies remain efficient during poor seasons, they also added to the collateral value of the property being pledged in support of the loans.
The system also worked because of – not in spite of – the fact that the companies had placed the ownership of their land at risk to obtain the loans. To avoid any prospect of foreclosure, they had to be successful. So they worked as hard as they could to ensure success.
But this system was thrown out with the cancellation of property rights, the destruction of the market for agricultural land, the forced dissolution of the farming companies and the allocation of the land – free – to resettlement farmers. With no title deeds to offer the banks and the disappearance of the land’s market value, the resettlement farmers could not borrow money against it.
The inputs they needed had to be given to them as handouts , or they had to be heavily subsidised. But getting help in the form of money to pay wages proved impossible. The farmers ended up cultivating only the small areas they could manage with the help of wives and children, in much the same way as they had in the communal areas. But on their new plots, they did not have the help of a support network of their extended families and friends.
Success in the normal sense eluded them, but they measured their success by a different standard. Bank foreclosure was not a possibility, but each faced a real threat of dispossession from more senior member of the party. For some this was best avoided by making their plot look less desirable by producing mediocre crops, but others felt that demonstrations of fierce loyalty to the party would better protect them. Neither of these helped crop yields, but farmers claiming they suffered no threat of dispossession could claim to be successful.
The word “success” has therefore been redefined. Its new meaning permits the use of phrases such as “the successful land reform programme…”.
But the vast majority of farmers did not achieve real success. Even backing from the business sector became less effective as the services of agricultural suppliers, with their bulk depots, workshops and technical experts, went into a steep decline. This soon added to the difficulties faced by communal farmers too, as it impacted on their access to inputs and their costs. These directly affected their levels of output and made food shortages very much worse.
The basic fact here is that two very different systems were at work and they delivered very different results. But for some reason, Zimbabwe's politicians believed they would be praised and rewarded for choosing to destroy the agricultural system that stood out as the most successful in Africa, and for replacing it with expensive and severely disruptive extensions of the subsidy-dependent less successful system.
The rewards and praise have not been forthcoming. To the ruling party, this is clear evidence of disrespect for the sovereign rights of the country’s leaders to formulate the policies it thinks fit without risking international censure. This lack of respect amounts to sanctions that, according to Dr Gono, have been motivated by an eagerness to promote regime change. These sanctions, he claims, are a form of economic terrorism, the purpose of which is to sabotage the ruling party’s glorious efforts to overcome the evils brought to this country by colonialism.
The hidden claim that is implicit in the principal arguments put across by Dr Gono is that any decision ever taken by President Mugabe is never ever to be questioned, Whatever the decisions, Dr Gono’s position would clearly be that he – and everybody else – has an obligation to accept all of them without question and find ways to make them work.
A distillation of page after page of his basic thesis would be that President Mugabe’s decisions have always been right and that every one of them would have worked brilliantly but for the imposition of sanctions. The “illegal” sanctions, he claims, were all designed to bring about “illegal” regime change by causing the collapse of the Zimbabwe economy.
But despite the virtual collapse of the economy, it is clear that Dr Gono would argue that the sanctions have failed. Because President Mugabe is still the Head off State, he has survived them. So Zanu PF can claim to have triumphed against the “economic terrorism” attacks launched against them by the most powerful countries in the world. According to Dr Gono, this proves that Zimbabwe’s state of collapse is nothing about which Zimbabweans should be embarrassed as it is the fault of those who imposed the sanctions.
Zimbabwe’s leaders are not the first to create a mythical threat and follow this with the generation of highly intrusive and oppressive regulations and punishments, which they claim to be essential to combat the threat. Triumphant claims can then be made that the non-existent threat has been contained. Typically, the full depths of the dishonesty are achieved the reinforcement of the oppressive regulations and punishments, supported by the claim that these remain necessary because, without vigilance, the threat would certainly return.
Whether the threat was identified as the certainty that the sun would not rise tomorrow unless an unfortunate family submitted to demands that their child should be sacrificed, or is now identified as the certainty that Zimbabweans will face hunger and deprivation unless the world calls off sanctions and stops trying to depose its rightful leader, the real menace amounts to something rather different: the determination of the governing authorities to ensure absolute obedience by imposing and enforcing oppressive policies.
But just as sacrificing children had nothing to do with making sure the sun would rise and everything to do with holding the Aztec population in subjugation, calls for the removal of wrongly defined sanctions has nothing to do with enriching the Zimbabwean population. It has everything to do with controls and restoring the leadership’s access to the foreign funding needed to enforce them.
In one of the more colourfully misleading paragraphs in his book, Dr Gono claims: “…The country perspired under the gruelling yoke of colonialism for close to one full century. Before attaining political independence in 1980, the country went through a bloody armed struggle, as the impoverished indigenous population resisted, and fought and won over colonial forces.”
From this, he goes on to describe the many reasons why colonial distortions called for the adoption of unconventional measures. However, it is the carefully overlooked distortions that have emerged since independence in 1980 that are very much more in need of attention. Today, the population is more impoverished than it ever was during the colonial era, and as for the “gruelling yoke”, all the evidence suggests that the colonial authorities were never as harsh on the population as Zanu PF is today.
The colonial era created the most diversified economy and the best education and health services of any country in Africa. The result was one of the most developed of all the Third World’s countries. As for the “bloody armed struggle”, this was sponsored and funded by the USSR and Communist China for their own ends. One day, an accurate history will show that indigenous people opposed the incursions in numbers that greatly exceeded the total of the so-called “colonial whites”. It is perhaps for this reason that Zanu PF has recently passed legislation prohibiting any possibility that any other political party might obtain support from abroad, the way its supporters did.
Dr Gono’s major fear is that the sanctions claims will be proved wrong and cause his whole thesis to completely fall apart. So in efforts to prevent debate that might draw people towards such a dangerous conclusion, Dr Gono makes numerous pre-emptive strikes that are designed to demolish the courage of his critics. He does this by suggesting that any who deny the existence, or the penetrating damage of his long list of sanctions will risk being ridiculed for their stupidity, or worse still, they will risk being accused of economic sabotage.
Regrettably for Dr Gono, these ploys do not cause the caution of lenders to become definable as sanctions. Neither do they encourage aid agencies to offer assistance that can be shown likely to add to the ruling party’s capacity to tyrannize the population, or would directly compensate ruling party members for the personal inconvenience their damaging policies have caused them.
All aid organisations face requests from deserving cases, the needs of which go far beyond the donor’s resources. The donors know they would face criticisms from their own sources if they were seen to be using their limited funding to help delinquent governments escape the effects of self-inflicted problems, specially if they show not the slightest intention of changing course.
Without question, Zimbabwe needs help, but the country will not be deserving of help before its authorities have acknowledged the actual causes of the difficulties and have also made firm commitments to rectify them. And any effort to identify the actual causes will take the debate right back to land reform.
On the need for land reform, Zanu PF agues that their case is proved by the facts that the country was colonised and the land taken by the colonisers had to be taken back.
But this can be restated as a different description that also rests securely on facts: a very small population saw its land colonised; new productive methods bought in by the colonisers helped that small population to become very much bigger – twenty times as big – and now that much larger population is said to want the land back.
It is worth mentioning here that independent studies have called this politically charged claim into question. The vast majority of the population is most concerned about job security, not land, according to an extensive survey carried out by the Helen Suzman Foundation. Now that the land has been returned to the people and so few of these same people can be seen to be trying to work it, the truth of the Suzman Foundation’s findings has become starkly apparent.
But more crucial truths are that the production methods, which were so successful in building the population’s size, are still needed. This is simply because the population is now far too big to be sustained by the pre-colonial methods of production. Population growth rates have increased all over the world in the past century and they have ushered in dramatic changes everywhere, not just in Zimbabwean. Most populations know they are in a new world, and they have moved up, moved on with their lives and moved with the times.
But Zanu PF clearly has no intention of moving with the times. In particular, it insisted on a return to the pre-colonial land rights arrangements. These were feudal in nature and depended upon land being allocated by politicians. Individual ownership rights were not permitted then and they are not wanted now.
Apart from the fact that taking land off the market will permit those with influence to get large pieces of it for nothing, the only reason that can be discovered for attacking this system is that property rights are seen to confer power onto property owners. Politicians see this as a threat because they see themselves to have won power in order to wield power, not to share power with people who have property rights. The answer, therefore, is to prevent the dilution of the leadership’s powers by declaring the land to be the property of the State.
This is why land that was taken from the destroyed companies has not been sold to new owners. It has been allocated to people who will never expect to gain total control over it, but who will remain acutely conscious of the need to remain supportive of the leadership to remain in occupation. In other words, patronage figures largely in the system.
In considering more directly the actual content of Dr Gono’s book, it is this un-stated, but very real issue of patronage that underlies the many unfair, unjust and inaccurate accusations made against any and every business sector or individual that is not fully supportive of government polices.
One example is Dr Gono’s treatment of the banks. He points out that in the late 1990s the banks were lending about 95% of their loans to farmers, but by 2003 this had fallen to around 10%, “spelling a very precarious fate for agriculture as the mainstay of the economy”.
He carefully avoids mentioning that the collateral value of the land has been destroyed, so the security of title deeds to back the needed loans no longer exists. He offers no thoughts on why he believes the banks should be happy to lend to people who will not only be unlikely to pay them back, but might also seek protection from the ruling party to sidestep their repayment obligations.
In the same section, Dr Gono makes reference to claims that Zimbabwe has been isolated, condemned and demonised by the Western world, and that this has led directly to the withdrawing of development funding and loans. This justified his perceived need to move away from the conventional macroeconomic management ideas as “no thinking central banker could simply stick to the niceties of conventional wisdom and expect a better or meaningful outcome for Zimbabwe”.
The idea that the suspension or absence of external assistance in some way absolves a central banker from the need to observe the rules of basic arithmetic has to set a new absurdity record.
Several themes recur throughout the book, apart from the claimed sanctions and their claimed “devastating” effects on the economy. Shortages that forced people to seek openings that involved gambling on price, exchange rate and market movements make up one of them, and yet another is “recurring droughts”, which are also blamed for the low agricultural production figures.
Given the statistical fact that rains in the past ten years have been better than average and that most storage dams have been full enough to deal with the crops in the few disappointing years, it might seem that the normal definition of the word drought has been replaced by any description of a sequence of wet and dry spells that did not meet various farmers’ hopes that the season would be perfect.
However, while seasons can very seldom be described as perfect, the claimed frequency of droughts does not fit the facts. The country as a whole has not suffered a severe drought in the past ten years and apart from a serious lack of rains in the southern half of Zimbabwe in 2002 and a few disappointing years, the seasons had every prospect of producing reasonable crops.
But as government officials tried to track the effectiveness of their policies on those who received subsidies or input handouts, they made a practice of tracking down the beneficiaries and asking for details of yields and deliveries to the markets. For many of the farmers, this presented a problem, mainly because they had cashed in the seed, fertiliser and fuel to meet needs that were far too pressing to be dealt with by planting crops that might or might not come up.
Because they could not admit to this unpatriotic conduct, many of them claimed that they had planted their crops, but were wiped out by drought. Thousands of separate reports claiming that droughts had affected the length and breadth of the country were enough to confirm to the authorities that all their sterling efforts had been rendered ineffective by drought. The authorities have eagerly accepted the claims because having to admit that the fault might lie with their policies was a far less acceptable alternative.
Dr Gono makes strenuous efforts to justify his claimed ability to “think outside the box” and to break free of conventional thinking, which he clearly believes to be too restrictive to be useful, specially in Zimbabwe’s extraordinary circumstances. In Chapter Three, he accurately describes the workings of a market economy, but his purpose is to draw together some of its essential strands only so that he can trash them.
He expounds upon the forces of supply and demand, but suggests these can be damaging and frequently need to be countered by government interventions and subsidies. The pricing of foreign exchange, he suggests, should certainly not be left to market forces when the central bank’s authority can set its correct price, while the need to balance liquidity requirements with the value of productive assets has to be done in a way that will ensure that prices are not influenced by the levels of liquidity.
He goes further to link these concepts to western thinking and the Protestant Work Ethic, which is all solid stuff, but it turns out that even this is designed to set the ideas up for dumping. The capitalist Protestant Work Ethic is condemned because of its linkage to European or Western thinking, and the condemning point is that it was the Europeans who did all the colonising in Africa.
His second point is that the principles of the Protestant Work Ethic are not working anyway. As proved by the recent banking crises in Britain, Europe and the USA, they have been abandoned, he says, in favour of the economics of “manipulative gambling akin to the workings of a casino”.
The extraordinary choices of examples, accusations, revelations and behaviour patterns that he then – in several chapters – expounds upon to substantiate his claim that Zimbabwe has been failed by the Western capitalist system is marked by one remarkable omission: the massive Zimbabwean distortions that have been deliberately generated and imposed by the authorities in general and the Reserve Bank in particular.
According to Dr Gono, he had no option but to intervene when foreign currency scarcities caused exchange rate movements to add to costs, but he does not admit that the never plentiful supplies of foreign currency were drastically reduced because government policies caused massive shrinkages in export earnings. The cause of the problem was the loss of exports; the foreign exchange scarcities were an effect. Another the effect was rising prices.
Bringing in controls and regulations to influence effects rather than causes simply caused distortions. When one of the treatments of the symptoms was to demand that government should have access to foreign exchange at preferential rates, it opened the door to increasingly corrupt arbitrage-related deals, but when senior politicians and public servants were granted an even more attractive privileged rate of exchange, the distortions increased and the opportunities for highly profitable manipulations multiplied vigorously.
Large-scale business transactions that were dependent upon the existence of different exchange rates led to schemes and scams that involved imports of food, fuel, luxury as well as utility vehicles and farm equipment. On the export side, the access to low-cost US dollars permitted influential people to acquire fabricated gold products at the same effective discount, and these were exported along with unknown quantities of foreign currency, but the Reserve Bank’s imposition of low prices for gold from the mines allowed it to claim some sort of balance.
All of these distortions could have been overcome by adopting a single market-related exchange rate. Dr Gono’s frequently repeated remarks disparaging the workings of markets seem to place the very idea of having the market set the rate beneath contempt, but at least part of his antipathy to the idea seems more likely to come from his unwillingness to accept that government should have to compete for foreign currency against all other market participants.
Of even most importance, however was and is the fact that the people best placed to manipulate and profit from controls, regulations, preferential exchange rates and a variety of privileges, such as duty-free imports, are those closest to him in positions of authority. In launching his frequent attacks on the business sector, Dr Gono appears all the time to be directing attention away from the far greater levels of exploitation and obscene profit-making taking place within the ranks of those who make the rules and claim the right to privileges.
Part of his problem seems to be that, while such conduct is described as corruption when carried out by the business sector, the same conduct, if admitted, would be described as the legitimate exercise of the privileges of office. As sweeping legislation that would stamp it out cannot be imposed because so many would claim exemption, and as the controls and regulations are needed to sustain the privileges for the important few, Dr Gono is left with the only option of heaping accusations and more controls onto private sector activities.
A glaring omission in Dr Gono’s book is any form of analysis on the possible effects of the controls. He could have made mention of the extent to which the wholly unjust price controls imposed at the end of June 2007 forced most local manufacturers to scale down their operations and many to close altogether.
He could have described the way that interest rate controls have completely destroyed any inclination to save money, and have dramatically changed the business habits of borrowers.
He could have mentioned the sequestering of corporate Foreign Currency Account balances by the Reserve Bank and then the official siphoning of these sums to meet official spending needs. To sustain their operations, the affected businesses had to bid in the unofficial market for the hard currency they needed. He could have mentioned that the rising demand forced up the price of foreign exchange, and then the prices of everything that was bought with that money.
He could have admitted that these companies were victims of the officially-approved appropriation of their foreign currency balances, but instead he hoped to persuade the public that these were the profiteering and greedy companies that were responsible for Zimbabwe’s world record-breaking inflation rate.
He could have acknowledged that a fundamental requirement of sustainable business is that goods should be sold at prices that exceed their costs of production, but instead his belief in state intervention had him defending his extremely low cost BACCOSSI, or Basic Commodities Supply-Side Intervention loans, which allowed producers to continue selling at prices below production costs by closing the recurrent revenue / expenditure gap with borrowed money.
He could have acknowledged that, as a banker, he would not normally approve such business practice, but has recommended it in Zimbabwe’s situation because the Reserve Bank was able to fund such loans with obscenely high Statutory Reserve Ratios. These were claiming, interest free, 50% or more of all typical bank deposits. The low cost loans to agriculture, the ASPEF or Agricultural Sector Productivity Enhancement Facility, and the PSF or Productive Sector Facility were funded with money effectively confiscated from banks in the same way.
He could have admitted that these loans, at deeply negative real rates of interest, were releasing the borrowers from the need to achieve high efficiency levels because they were getting the money virtually for nothing. He invited them to make the most of the inflation that was vigorously eroding the value of the repayment commitments before they had to be met.
He could have admitted that the whole scheme depended upon inflation continuing at a very rapid pace, and on depositors being bound, by a lack of options, to continue depositing money in the banks.
He could have admitted that the whole process has rapidly destroyed the entire country’s savings stock. He could have gone on to say that his policies have demolished the normal functions of savers and lenders, whose funds used to be tapped by investors who were engaged in creating new productive capacity.
He could have admitted that, at enormous cost to Zimbabwe, his policies have brought productive investment almost to a halt. Now almost all business activity involves importing, buying and selling, not making the goods here. Zimbabwe is now far less a nation of producers of goods, and much more a nation of traders.
He could have admitted that as so much of the activity has slipped into the informal sector, its contribution cannot now be measured, its conduct cannot be monitored or regulated and its profits cannot be taxed.
He could have admitted that in carrying out his statutory functions in terms of the RBZ Act, his efforts to regulate the Zimbabwe’s monetary system has rendered the system almost unworkable, that his efforts to achieve and maintain the stability of the Zimbabwe dollar have resulted in a failure of world record proportions, and that his moves to ensure the smooth operation of the payments system have left it operating anything but smoothly.
On top of these, his policy measures to foster the proper functioning of the financial system have sidelined the banks and seem likely to soon impoverish what is left of the insurance companies and pension funds.
Dr Gono does have serious grounds for complaining about unacceptable conduct and had good reason to condemn speculative trading on the Zimbabwe Stock Exchange, specially when it was intended to generate profits of quadrillions on the strength of cheques written against insufficient bank balances. However, his attacks on the stockbrokers, the banks and the Zimbabwe Stock Exchange seem at this stage to be wholly unfair. People who wrote cheques for sums they did not have were breaking the law, but the sweeping accusations against any who were acting on their instructions would be legitimate only if collusion could be established.
But Dr Gono should also accept that the behaviour would not have been even contemplated if the distortions caused by the massive imbalances between the supply and demand for foreign currency were not so serious, if interest rate returns made the money market as suitable an investment option as the equity market, if the options facing holders of rapidly depreciating Zimbabwe dollars extended beyond the Zimbabwe Stock Exchange and if the Zimbabwe dollar was not crashing in the first place.
The fact that all of these issues have generated antisocial or unpatriotic behaviour might be reprehensible, but it should not be surprising. People will always be inclined to protect what they have, and most of what Zimbabweans have left today has never been more in need of protection.
Perhaps we should not be surprised that Dr Gono has filled his book with explanations and accusations that are intended to exonerate the President, the government and the Reserve Bank, but it is this that is most reprehensible. Attacks on incorrectly identified causes will not solve the problems.
All of the primary causes and most of the secondary ones too have been deliberately overlooked or hidden because of their political objectives or origins, but we will not solve the problems until we correctly identify them and deal with them in more constructive ways.
Sanctions are not among these causes, and neither are droughts, regime change conspiracies or attempts to sabotage the economy. The reason for the foreign exchange scarcity is not because the lending and development institutions have backed off, it is because Zimbabwe almost completely scuttled its principal foreign exchange-earning sectors. Our sharply reduced ability to earn foreign exchange certainly made the possible lenders very reluctant, but they became much more so when a large proportion of the funds we wanted to borrow had to be spent on goods for consumption.
Also, the country’s officially supported behaviour did nothing to inspire their confidence. The collateral value of agricultural land was destroyed, removing completely the security that used to back the vast majority of bank loans. The process caused the dispossession of highly motivated and productive people, but the allocation of their physical assets to people with fewer skills and almost no motivation to work hard for assets they got for free had entirely predictable results: output dropped to levels not seen since the 1950s.
As this dispossession process was accompanied by wholly unacceptable attacks on commercial farmers and their employees, and as these were carried out by militia groups who could carry out violent and disgraceful acts with impunity because of their backing from the ruling party, reactions began to surface from the international community. When opposition party efforts to bring about entirely legal regime change through the ballot box were dealt with extremely harshly, the international community took exception to the contempt the Zimbabwean authorities had for their own people as well as for the international treaties signed by Zimbabwe to uphold human rights.
Political sanctions were imposed on identifiable culprits and their supporters, but until mid-2008, not a single one of the sanctions had any bearing on Zimbabwe’s economic performance. Since then, the disappearance of bank note paper is about the only economic sanction that has affected everybody.
If you were to remove from Dr Gono’s book the paragraphs that rest on his claims about illegal sanctions, illegal regime change conspiracies, economic sabotage and droughts, and if you were to also take out the self-congratulatory explanations of all the policy measures he devised to deal with unsubstantiated claims that the country was suffering the effects of ruthless attacks by economic terrorists, I regret to say there would be not much left to read.
However, he does offer an interesting account of the sequence of events over the past five years, and provides interesting detail on the banking crises that led to curatorships, mergers and takeovers. Also, the extent to which the Reserve Bank has actually become the principal executive authority in government becomes evident. As tax revenues fell and the separate ministries became dependent on the so-called quasi-fiscal expenditures for their funding, the Reserve bank was able to apply increasing amounts of leverage to direct or regulate almost every facet of public sector activity.
Far from sticking to core functions, the Reserve Bank has become the country’s major procurement agency for just about everything – cheap handcarts, expensive agricultural machinery, vehicles, food and medicines.
Dr Gono has accepted a second five-year term as Governor, but this term is starting with what seems inevitable – the total collapse of the Zimbabwe dollar. Nobody wants to be paid for anything in Zimbabwe dollars, and Dr Gono has even had to use his executive authority to force various parastatals to accept Zimbabwe dollars in payment for things like electricity, water and telephone charges. However, public servants including employees of the Reserve Bank also don’t want to be paid in Zimbabwe dollars, and Zimbabwe’s problem is that it is earning even less foreign currency now, following upon the fall in world metal prices and the suspension of operations on many Zimbabwean mines.
US dollars are in use all over the country, but their quantity is insufficient to support salary payments across the board. All the shops that have managed to acquire reasonable stock have done so by paying foreign exchange for imports and have no option but to seek payment entirely in hard currency. Before long, those without it will be unable to meet basic needs.
But US dollars are not accumulating within the country, and they are not circulating for long as the shops receiving them must send them abroad to pay for new stocks. The amount coming is has fallen because of the increased economic uncertainties overseas and in South Africa, so funding from the Diaspora might not make the needed difference.
The only thing that will is financial assistance from abroad. However, many changes will be needed before that becomes a possibility. Even Dr Gono’s frequently repeated claim that the developed world’s governments should now take him seriously because they are employing Reserve Bank of Zimbabwe’s strategies to rescue their undercapitalised banks will impress none of them.
While Europe and North America are fearful that they will see annual inflation rise from 3% to perhaps 8%, Zimbabwe’s estimated December figure of more than one sextillion percent suggests that no useful comparisons can be made.
However, the real difference is that none of these countries deliberately closed down their biggest industries, destroyed most of their sources of tax, wiped out their biggest sources of export revenues, rendered their largest employment sector jobless or absorbed and spent their country’s total domestic savings.
These are the actions that the Zimbabwe authorities did take. And despite the price being so high, Dr Gono, eagerly supported by the rest of the government, is still defending the policy choices that caused the damage.
So far, it is clear that we have done nothing to become deserving of the needed help. I regret to have to close this comment with the thought that Dr Gono has said nothing in this book that will improve our prospects of getting that help.
Despite the difficulties, please accept my very best wishes, first for your survival and, very soon, your increasing prosperity during 2009.
Zimbabwe’s Casino Economy Page 17
Zimbabwe’s Casino Economy, Page 19
Ibid, Page 18
Ibid. Page 61