Tuesday, December 29, 2009

Average Consumer Prices were fractionally lower

Average Consumer Prices were fractionally lower in November than in October, according to the latest update of the Consumer Price Index. Increases in meat and fresh fruit prices were countered by falls in vegetables, medicines and vehicle prices, and these plus other minor adjustments carried the index down from 91,96 to 91,89 against the base of December 2008=100. - John

Sunday, December 27, 2009

Nestlé Zimbabwe has been asked to reopen its factory

Harare — Nestlé Zimbabwe has been asked to reopen its factory after assurances were given by the Government over the safety of staff and agreement was reached over how milk from Gushungo Dairies will be processed.

In a statement yesterday, Industry and Commerce Minister Professor Welshman Ncube said he had held consultations with Nestlé Zimbabwe, Gushungo Dairies and other "key stakeholders in the dairy sector".

"As a result of those consultations, the parties have collectively reached an understanding to work together in ensuring that milk produced at Gushungo Dairies is absorbed by the local dairy processors.

"For its part, Government has given its assurance on the safety of staff and management at both Nestlé Zimbabwe and Gushungo Dairies," said the statement.

While no details of the "understanding" were made public, it appears that milk from Gushungo, which is owned by the First Family, will go into the general pool of milk processed by Dairibord and others and that Nestlé will buy its requirements from that pool.

Minister Ncube said he had been asked to intervene in the dispute by both President Mugabe and Prime Minister Morgan Tsvangirai after Nestlé's Zurich head office said it was temporarily closing its Zimbabwe factory after two managers were questioned by police and the factory was forced to buy a tanker of milk from a "non-contracted" source.

On Wednesday during a Press conference by the three principals to the Global Political Agreement to review the operations of the inclusive Government since its formation early this year, PM Tsvangirai said: "Shutting down the plant is an overreaction that is totally unnecessary," he said.

Nestlé head office in Zurich had issued a statement saying that it was temporarily closing its Zimbabwe factory "since . . . normal operations and the safety of employees are no longer guaranteed".

The company said, in its statement through AFP, that on Saturday the factory was visited by Zimbabwean "officials" and police, and forced to accept a tanker of non-contracted milk. Two managers were questioned by police but were released without charge after questioning the same day.

The company said its Zimbabwe subsidiary stopped buying milk from non-contracted farmers in October when normal supplies resumed from Daribord.

It had started buying direct in February this year as a temporary measure to ensure food supplies when Dairibord could no longer pay farmers but had then returned to its normal system.

However, Nestlé had been under pressure from Western activists to stop buying milk from Gushungo Dairy Estates, a business owned by the First Family and which was supplying up to 15 percent of the factory's milk, and from at least seven other new farmers.

The reason of switching back to Dairibord was not accepted by Zimbabwean pressure groups, who saw the move as an imposition of sanctions on the eight new farmers.

Friday, December 25, 2009

Merry Christmas

Will post again shortly - in the mean time have a great festive season

Tuesday, December 22, 2009

Zimbabwe's Attorney General Threatens Foreign Owned Companies

Harare, December 21, 2009 -Zimbabwe's Attorney General Johannes Tomana has threatened to prosecute any foreign owned company that tries to resist the government's indigenisation law that requires them to give 51 percent shareholding to locals.

This comes at a time when there are reports that six workers belonging to First Lady, Grace Mugabe's Farm recently stormed Nestle Zimbabwe and demanded it to buy milk from the farm. The company stopped buying milk from the controversial farm after an international outrage, following reports that the company was buying milk from the First Family's farm, which was acquired through force.
The ZANU-PF sponsored black business lobby group Affirmative Group has since demanded the indigenisation of Nestle Private company after it terminated its milk buying tender with Gushungo Holdings farm.
Tomana, who is one of the outstanding issues threatening the country's nine month old coalition government, told delegates attending a Christmas donation at the weekend, organised by Nigerians living in Zimbabwe, that any foreign owned company which attempted to resist the indigenisation act would be prosecuted.
"We are a sovereign country that has laws which need to be respected. At the moment we have an Indigenisation Act that aims to empower our citizens economically and foreign nationals who fail to honour and respect it will be liable to prosecution. We are ready to do business with foreigners on condition they abide to the country's laws like this one which is a reality and we urge foreigners to take cognisant of this otherwise they are vulnerable,” said Tomana.

Political analysts say the Indigenisation and Empowerment Act is a political gimmick meant to gunner support for the liberation ZANU-PF party. The objective of the Act is to achieve at least 51% indigenous shareholding in all strategic businesses of the economy.

Addressing international investors in Harare recently the minister of Youth Development Indigenisation and Empowerment Saviour Kasukuwere said his ministry was identifying foreign owned companies that needed to be indigenised.

Kasukuwere also warned foreign owned companies to desist from resisting indigenisation.

ZIMBABWE: Expats oppose tax in exchange for voting

Zimbabweans abroad might have to pay voting and citizenship rightsWASHINGTON, 21 December 2009 (IRIN) - Zimbabweans living abroad may have to pay tax in exchange for voting rights and retaining their citizenship rights if the government embraces a proposal made by finance minister Tendai Biti in London on 13 December 2009. Some émigrés fiercely oppose the idea. "It's completely barmy. You cannot put a price on citizenship and voting rights - normal countries have these guaranteed by their constitutions," protested Mduduzi Mathuthu, editor of the London-based NewZimbabwe.com website. The 156-page economic blueprint, Moving Forward in Zimbabwe - Reducing Poverty and Promoting Growth, recommended various strategies to hasten social and economic recovery in the troubled southern African nation, including taxing its far-flung citizens. The report was produced by 13 distinguished Zimbabwean academics and published by the Brooks World Poverty Institute at the University of Manchester, and launched by Biti at the invitation of its authors. He also urged expatriates to support the economic recovery process by investing in the economy. Biti promised that their investments would be safe under the unity government, formed in February 2009 by President Robert Mugabe, leader of the long-ruling Zimbabwe African National Union-Patriotic Front (ZANU-PF), Prime Minister Morgan Tsvangirai, leader of the main wing of the Movement for Democratic Change (MDC), and Arthur Mutambara, head of a breakaway faction of the MDC. It has been an uneasy marriage. Biti agreed that tapping into the savings of expatriates through taxation, in exchange of voting and citizenship rights, was one way government could source much-needed funds for economic recovery. But the idea has not gone down well with all migrants. "Politicians must first focus on fixing the politics, which is broken, and investment will come in response to that ... This is a sure way to lose an election - whoever takes this up and makes it their political manifesto," Mathuthu told IRIN. Remittances Remittances from expatriate Zimbabweans is credited with softening the impact of the country's economic collapse, which caused widespread food shortages. According to estimates by the International Fund for Agricultural Development, a UN agency dedicated to eradicating rural poverty, US$361 million was remitted in 2008 - excluding hand-to-hand transfers - a number that was expected to double in 2009. Other estimates have put all remittances from expatriates in Britain to Zimbabwe at about US$1 billion annually. The report, which has not yet been officially discussed, urged government to accord dual citizenship and voting rights to the estimated three million Zimbabweans scattered across the world - at a price. "Confidence-boosting measures would include allowing dual nationality, restoring voting rights for migrants who hold Zimbabwean citizenship, and creating mechanisms for them to be heard. In exchange, migrants should be prepared to pay an annual tax for retaining Zimbabwean nationality," the report recommended. Zimbabwe's stringent immigration laws proscribe dual citizenship, and those living outside the country are not allowed to cast absentee ballots unless they are civil servants on government business, but activists have been pressing for reforms since the establishment of the unity government - a fight that has support in both MDC formations. No price on voting rights "Voting rights are inalienable - we don't have to pay government to be allowed to vote. It's just outrageous ... It will certainly be a big mistake if government buys into this idea," Dumaphi Mema, president of the US-based Association of Zimbabweans based Abroad (AZBA), told IRIN. Mema said many Zimbabweans in the US were willing to invest in the economic rebuilding of their once-prosperous country, but worried about the fragility of the unity government. They also wanted postal votes to be allowed in elections, and to maintain Zimbabwean citizenships even after acquiring permanent residence in their host countries, with no strings attached. "Many people don't have faith in this unity government; recent statements by President Mugabe have not been encouraging. People need to see palpable political and economic reforms before they can commit their resources," Mema commented. Brilliant Mhlanga, a political analyst, said it was important that Zimbabweans living in the diaspora played a major role in national rebuilding, despite the current political uncertainty. "We have a responsibility to play in Zimbabwe. If we are really worried about creating a good future for our posterity, it is imperative that we support government's revival efforts, despite the politics of the day," Mhlanga told IRIN from London. "If it means paying tax, so be it." nn/tdm/he/go

Thursday, December 17, 2009

The Zimbabwe Budget

Although the Minister of Finance has presented a cautiously optimistic Budget, the level of dependence on the Vote of Credit, or donor funding, places some of the intended expenditures in doubt, specially if the donors show the same level of reluctance that they have sown in 2009. The degree to which Zimbabwe is deserving of help appears to be the deciding question. If Zimbabwe’s political developments remain as slow and cumbersome as they have been in 2009, the Budget is unlikely to achieve any of its already limited targets.I hope the attached paper on the subject will be helpful
Zimbabwe’s 2010 Budget
Assumptions that significant improvements will be achieved in the rates of economic growth in Zimbabwe’s principal productive sectors in 2010 underpin the Budget figures. While some of these might be readily achieved, given the low base from which the growth will be measured, they appear to be out of line with the projected Budget revenue and expenditure figures.
Other figures suggest that exaggerated claims have been accepted and that the authorities have been persuaded that the levels of investment funding needed to support this growth will be found.
In the adjacent table, the projected increase in revenue, at 38,5%, is very high compared to the 10% increases expected from agriculture, manufacturing and tourism. Hopes that tax revenues from mining will close the gap do not allow for the very long lead times between starting a mining project and receiving a taxable income flow from the new mining operations.
More seriously, higher royalties and proposed taxation increases are likely to considerably dampen the enthusiasm of those who might have brought investment funds to support new ventures, while expansion plans at the existing mines can expect to remain affected by the limited supply and high cost of local bank finance as well as the higher taxes.
The 38,5% tax revenue increase is also out of line with the projected increase in export revenues of 11,3%, but the tables in the Estimates of Expenditure show that the projected revenue increases are expected to arise almost entirely from P.A.Y.E., Value Added Tax and Excise Duties.
The P.A.Y.E. projected increase of 80,75% appears to be based on hopes that more employees, including those working for the Public Sector, will be paid amounts above the tax-free threshold of US$160 per month, but claims that increased manufacturing capacity utilisation will be achieved also imply increased numbers of employees.
Excise tax payments are expected to rise by a significant 264%, mainly because of an increase in the rate on spirits from 20% to 40%. However, customs duties are expected to fall by 4,4% and the Minister of Finance confirmed his earlier decision to suspend the collection of duties on basic consumer goods. He argued that benefits enjoyed because of the availability of goods at competitive prices far outweighed the facts that cheap imports have flooded the market and that we are now effectively exporting labour.
Company tax revenue is expected to decline as many companies will be carrying forward tax losses and those incurring capital costs to restore production volumes will take advantage of capital allowances. Company tax payments are expected to fall almost 33% to US$78,6 million.
The table shows evidence of a significant recalculation of Zimbabwe’s nominal Gross Domestic Product, the original estimate of US$3 462 million, dated March 2009, having been increased to US$5 179 million by October 2009. This is an increase of almost 50%, but undisclosed adjustments appear to have permitted the annual change to the October 2009 figure to be recorded as a 4,7% increase.
Measurements of GDP are difficult at the best of times, but when official production records are not maintained, when about half the economy goes “underground” and when the officials themselves authorise the use of multiple exchange rates, the effective confiscation of foreign currency balances as well as savings, GDP figures become the result of much more guesswork than calculation.
The reason why our Ministry of Finance is guessing at a bigger GDP number would appear to be an effort to get the Budget expenditure as a percentage of GDP down to around 40%. On the basis of the earlier GDP estimate, expenditure would have come close to 65%, at which level any argument that the country had reasonable recovery and growth prospects would have been easily dismissed.
However, the more hopeful GDP estimate does not amount to a firm enough basis from which to claim that growth will be forthcoming. Neither the working capital, nor the investment funding needed to restore competitive efficiency to most of Zimbabwe’s manufacturing, mining and agricultural capacity is available. This is because the banking sector remains one of the more severe casualties of a process that destroyed the collateral value of vitally important fixed assets, a process that was brought to a head by hyperinflation and the destruction of the country’s currency.
Bank deposits in Botswana today total more than five times the amount in all of Zimbabwe’s banks, even though Zimbabwe has more than five times Botswana’s population.
At this level, business activity in Zimbabwe is severely constrained and unless bank liquidity can be dramatically improved, many of the projected improvements will not take place.
Some businesses that were hoping for capital injections from abroad have been dismayed by repeated affirmations that indigenisation plans are to go ahead, despite all advice to the contrary. Those investors who are eager to make investment capital available have held back on finalising arrangements unless the opportunity offers prospects of very quick returns, but in such cases the activities are mostly commercial, rather than industrial, and mostly involve the importation and distribution of imported goods.
Most of these businesses employ very few Zimbabweans and most are likely to externalise their profits. This they will continue to do until genuine respect is shown towards the investors whose confidence is essential to each and every facet of the hoped-for recovery outlined in the Minister’s speech. He bases this recovery on the following assumptions:
· GDP growth rate will be 7%, supported by –
· Higher investment inflows
· Access to grant finance
· Growth in tax revenue as a percentage of GDP
· Capital inflows that will compensate for the loss of savings
· A fast recovery in export earnings
· A rapid recovery of local capacity to reduce need for imports
· Improving political stability, and
· The measures agreed by the Government of National Unity will be achieved.
Unless Government actions and policy choices are seen to be demonstrating its determination to improve the prospects of medium to long-term investors, none of these assumptions will come within reach quickly enough to make a useful difference in 2010.
However, the Minister does recognise that many hazards lie in the path to success. He identifies the following:
Zimbabwe’s failure to meet repayment obligations has lowered the country’s credit worthiness
Corruption, arbitrage, rent-seeking activities have taken Zimbabwe down to number 122 of 128 countries measured on the corruption index
Four million Zimbabweans are now earning a living in the Diaspora
Regional economies have failed to integrate their markets
Too small a percentage of women have acquired influence in economic and political affairs
At less than 10%, Zimbabwe’s Savings Ratio is far too low to sustain economic growth. A ratio of at least 25% is needed
Zimbabwe has become unable to compete for direct foreign investment

He might also have mentioned many more, a few examples of which are:
Zimbabwe has insufficient money to fund normal economic activity
Zimbabwe hopes things will come right even if it does not attend to the mistakes that made things go wrong
Zimbabwe’s growth forecasts are based on figures that mostly illustrate increasing usage of decreased capacity
Zimbabwe’s economic problems will not be overcome before the country has adopted much more suitable political policies, backed by a sound Constitution that reinstates and guarantees property rights.

While reading through the Budget speech and studying the Estimates of Expenditure, it is difficult to find evidence that Government is taking fully into account the extent of the damage suffered by the economy in the past decade, or the degree to which this has undermined the capacities of its productive sectors and population.
For all but a few people, promises of economic empowerment have led to deeper levels of poverty and increased dependency on patronage, a package that might be described as the very antithesis of empowerment.
The Minister’s cautious attempts to apportion extremely limited revenue resources clearly had no chance of satisfying the levels of demand, but as a indicator of the depth of dishonesty that has been virtually institutionalised by those still wielding authority, the Minister’s efforts were the subject of viciously disparaging attacks during the just completed Zanu PF party congress.
Unfortunately, this carefully orchestrated conflict between members of the Government of National Unity will impact severely on the Budget’s prospects of realising even its limited objectives. The so-called Vote of Credit, which is the sum needed to close the gap between revenue and expenditure, has to be obtained from external donors because Zimbabwe’s capital market has yet to be revived. However, the donors will show themselves – again – to be extremely unwilling to release funding to a Government that consistently fails to deliver on its most basic promises.
For 2010, the Vote of Credit amounts to US$810 million, which is 36% of proposed expenditure. It has yet to be secured. For 2009, the Vote of Credit was US$391 million, or 27,3% of expenditure. In his Budget speech, the Minister admits that only US$35 million of this had been made available to Government by the end of October, and says that the balance was disbursed “directly to programmes and projects outside of Government budget expenditure frameworks”. This suggests that the donors felt they would be unwise to put their trust in a conflict-riven administration.
If, for the same reason, Government again receives less than a tenth of the Vote of Credit funding being sought in 2010, its prospects of satisfying the needs of Zimbabwe’s deeply stressed population will miss their targets by an even wider margin.
When assistance is needed because of the effects of self-inflicted problems, donors have every reason to demand that beneficiaries first become deserving of their support by abandoning the policies that caused the difficulties. Zanu PF’s passionate defence of these very policies at its party congress a few days ago would appear most likely to cause every donor to again avoid contact with the authorities, if it continues trying to assist. Some might even be persuaded to simply remove Zimbabwe from their list.
The graphs below illustrate some of the Budget’s main features.
John Robertson
December 16 2009

Sunday, December 13, 2009

Budget Shows Functional Govt

Takura Zhangazha
10 December 2009
FINANCE minister Tendai Biti's National Budget statement last week is the first since Zimbabwe's Independence in 1980 to be presented by a minister who does not owe political allegiance to Zanu PF. This Budget has been presented amidst the Sadc mediation on outstanding issues in the global political agreement (GPA). The Budget also specifies a time frame for its implementation (January-December 2010).
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This signifies both an air of permanence to the inclusive government or at least a guarantee that the government will last until 2011. The Budget's contents and intended aims are linked closely to the question of whether or not Biti's Budget is the new GPA.
The latter point is made because the Budget cuts across party lines and must have been arrived at with cabinet approval as well as competitive bids by ministries to get higher resource allocations. This would mean it, too, is a negotiated document, but one that has a direct and technical bearing on the functions of government.
The first issue to be reflected upon is that this is a Budget presented by a minister with no allegiance to Zanu PF but arrived at with Zanu PF input and approval. This means that the MDC is now an integral part of the inclusive government.
That is to say, for all the outstanding issues that Sadc is addressing, there is a functional government that has the MDC contributing as important a policy instrument as the national Budget; and this for a period of 12 months.
Therefore the MDC can no longer easily seek to wash its hands of the policies that are undertaken by the inclusive government, as long as the Budget is followed under the tutelage of Biti. As a result, the inclusive government can no longer be viewed either as "shaky" or "fragile" primarily because the Budget represents its permanence for the next 12 months.
It also indicates that because Biti's office is of such national importance, no one can honestly say that he presented the Budget with an intention to simply abandon it to another person, especially one who is not in his party if the MDC once again decides to disengage from the inclusive government.
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The second factor that adds weight to the first is that Biti indicated in his speech to parliament that the framework for the next fiscal year is derived from a three-year economic strategic plan etched out in August at Nyanga. If one were to read between the lines, one would see that it is more than likely there is continued tacit agreement that the inclusive government will last for the same period of time.
This particular Budget should therefore not be understood solely within the context of the next 12 months but by an intention, as hinted by Biti, to fit the three-year economic lifespan of the inclusive government.
The Sadc mediation therefore merely becomes an ongoing characteristic of the inclusive government because Biti, in presenting the Budget, has shown that it is possible to have the usual problems of the GPA while at the same time attending to serious government business together with Zanu PF.
It is necessary to reflect on the actual policy intentions of the Budget. In his preamble the minister mentioned that his Budget was essentially meant to be "pro-poor, broad based", and "inclusive". He then proceeded to give the health sector a large chunk of the Budget together with social protection while bemoaning the government wages bill as being unsustainable.
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The major undertone of all of this was what can be discerned as a sense of nostalgia in the allocations, a strong intention to return the economy to its pre-1996 years, where the Budget tended to be characterised by measures to ensure social welfare especially in education, but at the same time trying to rein in government expenditure. This is exemplified by the allocations given to the Basic Education Assistance Module (Beam) project under the social protection line items.
The discernible intention of Biti is to "normalise" the economy, and not necessarily to change its structural focus, this being a "market-driven" economy.
The latter point is strengthened by his comparative references to Sadc best practices and the prioritisation of a regionally integrated market.
These are issues that were in vogue during the late Ariston Chambati's tenure as well as that of Bernard Chidzero as the country decided, under a Zanu PF government, to embrace structural adjustment.
Where the minister tackled the land issue, while stating that it was not his intention to undermine the land reform programme, there is once again a return to the big debate of the 1990s.
The key issue being that of land tenure ostensibly in order to ensure the development of collateral for farmers but more fundamentally, to reduce the role of the state in land ownership.
The merits and demerits of such an approach may not be appropriately discussed here, suffice it to say, its emphasis is a return to normality.
The introduction of a constituency development fund for members of parliament, evidently popular in the House of Assembly more than it would be in the Senate, is interesting to say the least.
This is because politically, it is meant to protect the sitting MPs primarily due to the constituency development problems that they have been facing since election in 2008.
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Such a fund helps the current parliament meet its performance legitimacy issues with the primary aim of retaining power for MPs as well as their parties.
The constituency development fund is therefore a fund that will, politically speaking, seek to retain the balance of parliamentary presence for the three political parties and essentially complement the GPA structure.
While others may consider it progressive that there are some funds directly allocated to women and youth empowerment programmes, the difference these funds bring is that youth and women's access to resources, previously the forte of Zanu PF, is to be shared by the three parties.
Whether these funds will not be used in the manner Zanu PF has tended to use them remains to be seen, but we can only pray that they are not used to extend the patronage systems so typical of Zanu PF.
A final point to ponder about the Budget is that it perhaps is the new GPA. Even though he does not allocate particular resources to issues such as constitutional reform despite mentioning it, Biti intends to make this Budget work.
This Budget is therefore the technical template of the inclusive government and therefore of the GPA. It is the newly negotiated crosscutting document that will determine the next 12 months the country faces.
To conclude, the presentation of Zimbabwe's national Budget by the Finance minister was extremely important politically. The fact that it occurred in the midst of GPA disagreements, and yet seemed to be an agreed-to document means it is possibly the new GPA.
It has however failed to indicate a departure from the old practices around budgets and has failed to firmly put the stamp of "a new beginning" to our country's politics. Its main character is reflective of a desire to return mainly to the early 1990s' somewhat market-driven approach to economic challenges, especially where it integrates IMF Special Drawing Rights into its anticipated public service rehabilitation projects.
The inclusive government, and not just Biti, has, in presenting this Budget failed to significantly shift the state's focus from people-centred economic planning and development. It has sought the path of a return to "normalcy" which though a stabilisation factor, does not begin to challenge the problems the country encountered under structural adjustment in the 1990s.
Takura Zhangazha is the National Director of Misa Zimbabwe

Wednesday, December 9, 2009

Born-again Zimbabwe bourse hostage to politics

U.S. dollarised Zimbabwe bourse back on track

* Politics, lack of capital overshadow 2010

* Consumer stocks seen as best, but priciest, picks

By Ed Cropley, African Investment Correspondent

JOHANNESBURG, Dec 9 (Reuters) - Zimbabwe's stock market rose phoenix-like from the ashes of hyperinflation in 2009, but is unlikely to ascend further next year due to a continued chronic lack of capital to rebuild the economy, fund managers say.

With the Industrial .INDZI and Mining indexes re-zeroed to a nominal value of 100 in February after the scrapping of the worthless Zimbabwe dollar, it is hard to assess their performance against other African bourses over the year.

However, the Industrial index, Harare's main benchmark, is now at 148 points, nearly three times its level in March -- testament to the revival that has taken hold since the birth the previous month of the fractious but vaguely functional unity government of Robert Mugabe and arch-rival Morgan Tsvangirai.

After a 50 percent economic contraction during the previous decade, Tsvangirai's Finance Minister, Tendai Biti, was able this month to forecast growth of 4.7 percent for this year and 7 percent for next.

Tuesday, December 8, 2009

UN seeks US$378m for Zimbabwe

Ralph Mutema
Mon, 07 Dec 2009 13:54:00 +0000
THE United Nations Monday launched an appeal for 378 million dollars in aid to Zimbabwe, saying the country’s humanitarian crisis has eased but needed more support to abate.“This is a critical moment for the UN and partners to support both humanitarian and recovery activities in Zimbabwe,” UN assistant secretary general for humanitarian affairs Catherine Bragg said addressing a news conference in Harare.
“Although the country’s humanitarian situation has improved, it remains fragile,” she said.
The aid request covers operations by the UN as well as aid agencies.Six million people, nearly half the population, need basic water and sanitation services, the UN humanitarian agency OCHA said.
The request amounts to almost half the 719 million dollars that the UN sought last year at the height of Zimbabwe’s crisis.About 64 percent of that request was funded, OCHA said.
Bragg said that political changes in Zimbabwe have helped ease the humanitarian crisis.
Since the formation of the inclusive Government of President Robert Mugabe and Prime Minister Morgan Tsvangirai, the former opposition leader, hospitals have re-opened and basic services have improved.

Monday, December 7, 2009

inflation figures

Herewith the more comprehensive inflation figures, updated to October. The additional detail shows that the largest rise during October was the 16,1% jump in owners’ rates. This carried the rates index number to 149,67, against the base of December 2008 = 100. However, the largest increase so far this year has been to 244,41 for dental services. Other large increases were to 147,44 for fuels, to 154,29 for telephone equipment and to 136,68 for large household appliances. Of the 64 sub-groups shown in the table, 22 showed price decreases in October and the average All Items Index rose 0,8% to 92. The average price level in 2009 therefore seems likely to be about six percent lower than the average in December 2008.The Budget is due to be presented on Wednesday next week, December 2. I have to advise that I will not be able to send any comments on it until the following week as I will be attending a conference in Cape Town until December 7. However, I will do my best to keep the delay as short as possible.Kindest regards,
If anyone wants these figures please mail me at olind@yoafrica.com

Thursday, November 12, 2009

Mugabe says Zimbabwe dollar returning

November 11, 2009
By Takarinda Gomo
President Mugabe makes surprise announcement in Zhombe
Recently, they invited him to their sleepy village in order to donate 65 tones of maize and thank him for his everlasting benevolence.
After showering the villagers with accolades and their enduring patriotism, President Mugabe departed from his prepared speech and made a surprise announcement that the Zimbabwe dollar was coming back before the end of the year. Come hell or high water and damn the consequences!
The stock market panicked and shares nose dived by more than 12% compared to the previous week. Not only did investors flee, but corporates and individuals started withdrawing all their money from financial institutions. Business confidence had been eroded. Such, is the price Zimbabwe has to pay for impromptu policy announcements.
Economist Dr Eric Bloch, in his weekly column published in the Zimbabwe Independent, said President Mugabe and Zanu-PF demanded the reinstatement of the Zimbabwe dollar because usage of any other currency constituted surrender of national sovereignty.
“But the Zimbabwe dollar is so appallingly worthless that its usage at the present time represents naught, but sovereignty over nothing,” wrote Dr Bloch.
The Harare rumour mill is awash with juicy street talk that the Governor of the Reserve Bank of Zimbabwe (RBZ), Dr Gideon Gono, a taking cue from the President’s off guard remarks in Zhombe, ordered Fidelity Printers, a subsidiary of RBZ to go overdrive in printing useless Zimbabwe dollars.
Dr Gono still treasures fond memories of 2008 when he just printed worthless “bearer cheques” that he used to mop up US dollars on the parallel market. His ego was massaged as everybody depended on him because he dispensed largesse to government ministries, banks, state enterprises and even private companies. Gono became a household name and his delusion made him to actually believe he was on top of the situation, despite the pain and suffering among innocent people who slept in the queue to withdraw very little cash that was not even enough for bus fare.
Salvation came with the advent of the inclusive Government, which brought in a no-nonsense Finance Minister, Tendai Biti. He quickly dumped the Zimbabwe dollar and introduced a basket of currencies as legal tender. Hyperinflation which had exceeded 200 percent was wiped out overnight and stability in the market slowly picking up.
The bone of contention is for how long Zimbabwe will continue using a multi-currency regime? There are serious problems with either adopting a single currency, either the US dollar or the South African Rand, as the currency of preference. The other option is the rank madness of re-introducing the Zimbabwe dollar. Let us examine the arguments of adopting either the US dollar or the South African Rand as single currencies for Zimbabwe.
The US dollar dilemma
The status of the US dollar as an international currency has been damaged by the global credit crunch of 2007- 2009. However, this has not stopped the appetite for US dollars. It can be argued that countries need foreign reserves in order to intervene in the foreign exchange market, to prevent shocks on trade and financial flows that cause uncontrollable currency fluctuations.
Any system that uses the US dollar as its national currency is seriously flawed. In order to acquire large reserves of the US dollars, a country needs to run current account surpluses with the USA. But, global imbalances have created a crisis for US dollar, to such an extent, that the political logic for a US dollar based monetary and financial system is now less compelling.
Behind all the problems for the US dollar, an inconvenient truth is that the importance of the US dollar to many countries has not diminished. In foreign exchange markets, the dollar actually strengthened after the financial crisis. As the US dollar exchange fluctuated, the anticipated crash did not happen.
It follows that, the US dollar as a currency, is usable because it dominates foreign debt and trade, whilst governments use the US dollar to smoothen debt flows, and at the same time intervening on the exchange market. Despite the rise of the more appealing Euro, most countries still prefer to use the US dollar, which remains the exchange rate anchor. The problem is when the domestic inflation begins to track the US dollar inflation.
The choice of what mix of currencies, maximizes a particular combination of risks and always assume that all currencies are equally easy to use. Foreign investors conduct transactions and concentrate their holdings in US dollars because they are easy to buy and sell, whilst other currencies have to struggle to compete against the US dollar.
For all practical purposes, the US dollar is the first among equals.
Since the First World War (1914-18), use of multiple currencies has been functional. Currency units co-existed peacefully, each with its own constituency. For Zimbabwe, since the advent of the inclusive government, multiple currencies led to the avoidance of instability within markets and retching up of market discipline. The choice of full dollarised currency is no longer in Government control as money is out of government hands. Zimbabwe is effectively on a currency board footing, because the money is determined by foreign reserves.
The only money that can circulate is export earnings, capital inflows, foreign remittances and offshore lines of credit. This situation can only change when local financial institutions can accumulate foreign currency from exports and be able to dispense loans in foreign exchange at a lending rate that depends on statutory reserve ratio set by the central bank. This creates credit and expands money supply.
The monetary dilemma that bedevils Zimbabwe is that, at present, there is no lender of last resort to act as a buffer or safety net. RBZ has mortgaged its control over monetary policy. Nothing will really change in Zimbabwe if the central bank is closed today!
Banks are approaching this policy flaw with extreme caution because of low loan-to-deposit ratios. Loans are attracting at least 7 percent interest per annum against the background of liquidity problems affecting the country.
So what are the problems of using only the US dollar? At a glance these include:
Elevated price levels leading to, or caused by profiteering and unrealistic age demands by labour;
Inefficient transaction mechanisms (the no-change scenarios);
Limited dollarised plastic money;
Limited use of automated teller machines (ATMs);
Critical shortage of dollar liquidity;
Low volumes of exports as a result of uncompetitive pricing;
Low volume and high mark-up business models;
Overvalued US dollar prices; and
Exceedingly high cost of doing business.
The Rand Dilemma
According to Erick Bloch, many people living in Zimbabwe’s second city Bulawayo, and the surrounding southern areas, where the South African Rand (ZAR) is widely used, suffer a major reduction in spending power. This is a result of the strengthening of the Rand against the US Dollar during the last six months, which moved from ZAR 10: US$1 to ZAR 7.2: US$1 representing 28 percent in Rand terms.
People who live in the Southern and Western districts of Zimbabwe and earn US dollars, are very bitter because of the movement of currency cross-rates and they are demanding that the government abandons use of the multi-currency basket and use only the Rand.
For all practical purposes, the strengthening of the Rand against the US dollar should not be viewed as permanent. It emanated from the current rise in the price of gold on the world market. Demand for gold has driven the price of gold from US$900 to over US$1040 hence the windfall for South Africa, a major gold producer.
Bloch argues that should the price of gold fall, it would mean weakening of the Rand against the US dollar. If Zimbabwe had adopted the Rand as its only currency, it will be adversely affected. This is happening in the South African diamond sector, where the prices are falling.
The Rand is a volatile currency, which already complicates cross-border trading and investment decisions. Besides, there are serious perceptions about where South Africa is heading politically and economically. Bloch assets that 70 percent of South African textile industry has collapsed due to cheap imports from the East, especially China. Also, the boon enjoyed in the construction sector that came as a result of the 2010 World Cup, will soon be over as projects are completed. Future demand in that sector is highly improbable.
Sadc Regional Currency
The third option for Zimbabwe currency reform is to wait until Sadc has introduced a regional currency along the same lines as the Euro is the currency of most European countries. The down side is that the Zimbabwean economy is so volatile and, if it takes five years before the Sadc regional currency to be introduced, a lot of harm will have happened to the country.
From this analysis, it would be sheer recklessness and typical lunacy to re-introduce the Zimbabwe dollar just to boost some people’s bruised egos. It follows that adoption of any single currency now, has very negative impacts on the economy. Zimbabwe should continue using multiple currencies until it meets certain benchmarks, which include:
Attaining a GDP rate of 6 percent per annum;
Reducing the budget deficit to less than 5 percent of GDP;
Enjoying both low inflation and interest rates;An average level of domestic savings and investment levels above 23 percent of GDP;
Lured back skilled people in the Diaspora and continue training more; and
Has a well-defined business value chain.
The hapless villagers at Zhombe, who cheered President Mugabe when he punched the air declaring the return of the ghost of the Zimbabwe dollar, should be forgiven, for, as the Bible says, they do not know what they are doing!
The Zimbabwe dollar is as dead as a dodo.

Friday, November 6, 2009

Kimberly Process: Zimbabwe Escapes but must be Independently verified

Zimbabwe has escaped suspension from the Kimberly process – the certification scheme which regulates the sale of so-called blood diamonds.
Instead, the 70-member international diamond trade body has agreed to give Zimbabwe more time to reform its mining practices.
Rights groups alleged soldiers killed about 200 people at a diamond field last year, which the government denies.
The decision came as talks to save the unity government started in Mozambique.
The coalition administration – formed in February – has been in crisis since Prime Minister Morgan Tsvangirai began boycotting cabinet meetings last month.
Mr Tsvangirai is protesting at the way President Robert Mugabe is implementing the power-sharing deal.
The BBC’s southern Africa correspondent Karen Allen says the compromise diamond deal agreed in Namibia is likely to anger human rights groups.
President Mugabe says he has met his side of the unity deal
Although its own investigators found killings and forced evictions from the Marange diamond fields in the east of the country close to the border with Mozambique, the Kimberley Process panel stopped short of kicking Zimbabwe out, she says.
Instead it has adopted a plan – proposed by Zimbabwe itself – which includes calls for an independent inspector to monitor diamonds leaving the controversial fields.
Human rights groups claim the diamonds have been an important source of revenue for the military and for President Mugabe’s Zanu-PF party.
Meanwhile, Mr Mugabe and Mr Tsvangirai are both attending the talks in Mozambique organised by leaders of the Southern African Development Community (Sadc).
Former opposition leader Mr Tsvangirai has accused his long-time rival of being a “dishonest and unreliable partner” in the power-sharing deal, which was struck last year.
The opposition MDC party also accuses Mr Mugabe’s Zanu-PF party of persecuting its officials.
Zanu-PF has described the accusations as “propaganda”.
Human Rights Watch recently urged Sadc leaders to press Zanu-PF to end what it called “ongoing human rights abuses”

Reclamation, Zimbabwe Plan Gem Mine on Atrocity Site

By Carli Lourens and Brian Latham

Nov. 5 (Bloomberg) -- New Reclamation Group Ltd. plans to form a venture with Zimbabwe to mine diamonds from a deposit that human rights groups have said has been the site of military atrocities, a copy of the agreement shows.

New Reclamation, a Johannesburg scrap metal company part owned by Old Mutual Plc, will manage mining on the deposit through its at least 50 percent owned Grandwell Holdings Ltd. in partnership with Marange Resources Ltd., a unit of the state-owned Zimbabwe Mining Development Corp. Two members of the decision making body of President Robert Mugabe’s political party confirmed the terms of the agreement, declining to be identified because it is confidential.

Marange, as the deposit is known, was seized by the government from Maidstone, England-based African Consolidated Resources Plc in 2006 after gems were found. As many as 20,000 illegal miners besieged the area, also known as Chiadzwa, and were later cleared off by the army and police. New York-based Human Rights Watch says more than 200 were killed last year. Zimbabwe’s police say they have had no reports of atrocities. New Reclamation and Zimbabwe’s mines minister didn’t return calls.

“Marange wishes to strategically partner with Grandwell, which shall provide funding” to help mine and market diamonds, according to the July 21 agreement, which is signed by New Reclamation, ZMDC, Grandwell and Marange.

The Zimbabwe High Court on Sept. 24 confirmed the title of African Consolidated to claims on the field. The U.K. company has said it is seeking the return of its concession.

‘Preparing to Mine’

“Reclamation is preparing to mine in our concession area,” Andrew Cranswick, the chief executive officer of African Consolidated, said in a phone interview from Zimbabwe. “They’re preparing to start mining next week.”

The area allocated to New Reclamation overlaps with African Consolidated’s claim, he added.

The Kimberley Process, a global body created to curb trade in gems mined to fund conflict, considered whether to suspend Zimbabwe as a member after a mission visited the Southern African country in May, when it investigated claims of diamond smuggling and related violence from Marange. It decided today to keep Zimbabwe as a member and support its program to work toward compliance with the group’s rules.

“Zimbabwe has had more than enough time to put a halt to the human rights abuses and smuggling at Chiadzwa,” Tiseke Kasambala, Africa researcher with Human Rights Watch said in a phone interview from Johannesburg. “The situation there cannot be allowed to continue any longer.”

Investors Deterred

Grandwell, registered in Mauritius, will provide as much as $100 million toward mining the deposit, the agreement states, adding that the shareholders of Reclamation will need to approve the project.

New Reclamation’s Chief Executive Officer Michael Movsas, through his personal assistant, declined to speak to Bloomberg News and was said to be unavailable when subsequent calls were made. Calls to the office and mobile phones of Obert Mpofu, Zimbabwe’s mines minister, weren’t answered while four calls to ZMDC didn’t connect.

Lynn Bolin, a Cape Town-based spokeswoman for Old Mutual, which owns 5.28 percent of New Reclamation, referred questions back to the company.

New Reclamation, southern Africa’s biggest scrap metal company, sold 253 million euros ($375 million) of bonds due in 2013 in January 2006. It processes ferrous and non-ferrous metal as well as glass, plastic and paper waste and employs more than 2,000 people according to its Web site.

‘Law Must be Upheld’

Zimbabwe, which is trying to recover from a decade-long recession, is trying to attract foreign investment even as a dispute between Mugabe’s Zimbabwe African National Union- Patriotic Front and the Movement for Democratic Change threatens to dismantle a coalition government set up in February deters investors.

“We have said before that a full independent investigation is needed and that the law must be upheld,” Nelson Chamisa, an MDC spokesman, said in a phone interview from Harare today. “The mining claims, like any dispute, must be resolved and upheld by the country’s courts.”

To contact the reporters on this story: Carli Lourens in Johannesburg at clourens@bloomberg.net. Brian Latham in Durban, South Africa at blatham@bloomberg.net.

Last Updated: November 5, 2009 11:11 EST

Thursday, November 5, 2009

Report: Suspend Zimbabwe over diamond smuggling

JOHANNESBURG — Investigators for the world's diamond control body say Zimbabwe should be suspended because its security forces are raping women, killing illegal miners and smuggling gems out of a diamond field in the troubled country's east.
Human rights groups have made similar accusations, but the charges carry particular weight coming from Kimberley Process investigators who visited Zimbabwe in June and July. Their recommendations are in a confidential report obtained by The Associated Press Wednesday.
Zimbabwean authorities have repeatedly denied such charges, including in statements to Kimberley Process investigators and officials. The investigators said they found evidence contradicting the official account, and that information provided by Zimbabwean authorities "was false, and likely intentionally so."
The report was presented to Kimberley Process Certification Scheme officials, who were expected to decide this week on what to do about the southern African country. Their investigators recommended that Zimbabwe either be suspended or voluntarily suspend itself until it has met minimum standards for remaining part of the process.
The Kimberley Process was established in 2002 in an attempt to stem the flow of "blood diamonds" — gems sold to fund fighting across Africa. Participants must certify the origins of the diamonds being traded. Suspension could result in buyers shunning Zimbabwe's diamonds.
While the rough gems flowing from Zimbabwe's Marange field do not fit the strict Kimberley definition of conflict diamonds, the investigators said the lawlessness in the area would make it easy for traffickers to bring in such gems from other countries and then export them as Zimbabwean.
"Lawlessness, particularly when combined with violence and largely overseen by government entities, should not be the hallmark of any system ... deemed to be compliant" with the Kimberley process, the investigators added.
The investigators interviewed witnesses, victims and survivors of victims.
While illegal miners often fled when team members approached, seven told of working for soldiers who allowed them to keep only 10 percent of the proceeds of any diamonds recovered.
"Each one of these illegal miners reported seeing people killed and the numbers they cited ranged from one to seven," the report said. "This group also told members of the team that they observed extreme violence against illegal miners" by soldiers using rifles, dogs, batons and tear gas.
The report said women "reported that, while under the custody of the security forces, they were raped repeatedly by military officers and that they have been forced to engage in sex with illegal miners. One victim told the team that she tested HIV positive after she had been forced to have sex with two men and then raped by a military officer."
The investigators said it was "credible" that syndicates operated by police and soldiers have been smuggling rough diamonds out of Marange since at least 2008, and likely since formal production began in 2007.
"The team concludes that the government of Zimbabwe authorities are aware of these syndicates and ongoing smuggling operations and have permitted them to continue," the report said.
London-based Global Witness, a human rights groups that tracks how Africa's mineral wealth is misused, has complained that the Kimberley Process has so far failed to address smuggling, money laundering and human rights abuses in Marange.
Human Rights Watch called last week for Zimbabwe to be suspended from the Kimberley Process. The international rights watchdog has said repeatedly that Zimbabwean soldiers are smuggling diamonds and killing and beating civilians to consolidate a hold on Marange that benefits the ZANU-PF party of longtime President Robert Mugabe.
Mugabe entered into a coalition with his rival Morgan Tsvangirai in February, but Tsvangirai this month suspended his participation, accusing Mugabe of continuing human rights abuses and undermining the unity agreement. According to Kimberley process officials, Zimbabwe exported nearly 800,000 carats of diamonds from three fields, including Marange, last year. Zimbabwe has no diamond processing facilities, so exports only rough gems.

ZIMBABWE: Donors uneasy about Mugabe's threat

President Robert Mugabe HARARE, 4 November 2009 (IRIN) -
Zimbabwean President Robert Mugabe's threat to appoint interim ministers to plug the gap left by the "disengagement" of the Movement for Democratic Change (MDC) from the unity government could lead to a review of donor funding, a highly placed official from a major donor country told IRIN. "We are still monitoring developments. No decision has been made to appoint acting ministers, but that would certainly send a wrong message, and could get donors who want the situation in Zimbabwe to improve to review their financial commitments to the inclusive government," said the official, who declined to be identified. The Global Political Agreement (GPA), signed in September 2008, paved the way for the formation of the unity government in February 2009. "When the Global Political Agreement was signed ... we said at the time that we would be looking out to see if the GPA was fully implemented," the official noted. Morgan Tsvangirai, Prime Minister and MDC leader, withdrew from attending cabinet meetings on 16 October 2009 over Mugabe's procrastination in swearing in provincial governors, while alleging that MDC members and officials faced constant harassment. The MDC also believes that the continued stay in office of the attorney general and the Reserve Bank Governor - self-admitted allies of Mugabe - is in contravention of the GPA. After the MDC's disengagement, information minister Webster Shamu said "His Excellency [Mugabe] may have to consider appointing ministers in an acting capacity to key ministries, for the sake of a successful agricultural season and general economic turnaround." The passage of the unity government has been far from smooth, but the MDC's disengagement represents the most serious breakdown in relations between the partners in the fledgling unity government and its attempt to haul Zimbabwe out of the economic abyss in which nearly 7 million people relied on donor food aid in the first quarter of 2009. The Southern African Development Community (SADC) organ on politics, defence and security will meet on 5 November in Maputo, capital of Mozambique, to discuss developments in Zimbabwe.
Firstly, appointing acting ministers would be illegal and unconstitutional; doing so would be killing the GPA The organ's troika of members is comprised of Mozambican President Armando Guebuza, Zambian President Rupiah Banda, and sub-Saharan Africa's last absolute monarch, King Mswati III. SADC chairman Joseph Kabila, President of the Democratic Republic of Congo, has already visited Zimbabwe to try to resolve the impasse. Zimbabwe's finance portfolio has also been the object of an ongoing turf war between the MDC and Mugabe's ZANU-PF party. "Firstly, appointing acting ministers would be illegal and unconstitutional; doing so would be killing the GPA," Finance Minister Tendai Biti told IRIN. "It would amount to a violation of the Global Political Agreement, which created the transitional inclusive government. It has to be understood that the MDC has only disengaged from ZANU-PF, and not government work. We are all going to our offices to work," he said. Government work continues "Nothing has changed in terms of how we do business; we are coming up with frameworks of introducing good governance and accountability to avoid abuse of funds. The money is stored in a multi-donor basket fund, and there has to be consultation and agreement on how it is spent." Prof Arthur Mutambara, Deputy Prime Minister and leader of a breakaway MDC faction, told IRIN that Tsvangirai's decision to boycott cabinet could prove counterproductive. "If decisions are made in cabinet, even if others have boycotted the meeting, they will be binding," he said. "So, what we have been doing is to fight against bad decisions, while acting as the peace-builder between Prime Minister Morgan Tsvangirai and President Robert Mugabe." dd/go/he
Theme(s): (IRIN) Economy, (IRIN) Food Security, (IRIN) Governance [ENDS]

Mwana Africa gets debt funding for Zimbabwe mine

Mwana Africa gets debt funding for Zimbabwe mine
Wed Nov 4, 2009 10:16am EST

LONDON, Nov 4 (Reuters) - Mwana Africa Plc (MWA.L) has gained approval for $10 million of debt funding to accelerate the expansion of the Freda Rebecca gold mine in Zimbabwe.
The company expects to get the first tranche, up to $4 million, of the loan before the end of the year, chief executive Kalaa Mpinga told Reuters in an interview.
The loan from the Industrial Development Corp of South Africa, a state-owned finance institution, will enable Mwana to accelerate the mine's refurbishment programme.
It plans to increase production to more than 50,000 ounces of gold a year on completion of Phase II.
"As things stand we aim to complete Phase II by next September," said Mpinga, adding that if the company is able to draw down the loan early it could complete the refurbishment ahead of schedule.
Operating costs for the mine are estimated at $650-700 an ounce and are anticipated to drop to about $500 per ounce on completion of Phase II, Mpinga said, noting that these figures were conservative.
The shares rose as much as 14 percent on Wednesday, and were up 8 percent at 13.5 pence at 1502 GMT.
"We believe this news should be taken positively since a key obstacle to delivering the expanded 50,000 ounce production was availability of finance, since commercial banks were always unlikely to stump up for Zimbabwe risk," said Liberum Capital in a note.
Mwana hasn't shied away from operating in higher risk countries. It has projects in the Democratic Republic of Congo, Angola, Ghana and Botswana.
(Editing by Victoria Bryan)

Zimbabwe has no money for food production!

HARARE – Zimbabwe’s cash strapped government has managed to raise only US$5.7 million out of $48 million it had planned to use to fund agricultural production this season, the ministry of agriculture said on Tuesday. In the first official confirmation that the 2009/2010 farming season that began last week will again go to waste, agricultural permanent secretary Ngoni Masoka also said that the country had managed to acquire less than half of the amount of fertilizer required by farmers.“Only US$5.7 million out of a total provision of US$48 million having been released as at 30 September 2009,” Masoka told Parliament’s portfolio committee on agriculture.The lack of funds had crippled efforts to mobilise resources and inputs to ensure increased food output to end hunger that has stalked Zimbabwe for the past 10 years, according to Masoka.He said: “A total of 1 200 000 tonnes of fertiliser were required for the 2009/2010 season. To date only 44 percent has been mobilised through private sector partnerships and donor assistance, leaving a huge gap which will adversely impact on productivity.”President Robert Mugabe and Prime Minister Morgan Tsvangirai’s coalition government has made revival of food production to end hunger a key priority. But the administration’s failure to raise cash from donors has hampered its ability to resuscitate agriculture or other key sectors of the economy. Farm invasions that have continued despite promises by the unity government to restore law and order in the agricultural sector will also hit hard efforts to increase food production.* Zimonline

Thursday, October 22, 2009

Zimbabwe factory output doubles in H1 '09 – industry

Zimbabwe factory output doubles in H1 '09 – By: Reuters
21st October 2009

Zimbabwe's factory output doubled in the first six months of 2009, partly due to policy changes by the country's unity government, including the use of multiple foreign currencies, an industry group said on Wednesday.
President Robert Mugabe and Prime Minister Morgan Tsvangirai agreed to share power in February, following last year's disputed elections and have tried to fix an economy ravaged by years of hyperinflation and political uncertainty.
A survey carried out by the Confederation of Zimbabwe Industries (CZI) showed that factory capacity utilisation had risen from below 10 percent before the unity government was formed, to about 32,3% now.
"Consequently, signifying this improvement ... overall output grew by 110% in the first six months of the year. At the beginning of the year there was a positive policy change that saw the government introduce the use of multiple currencies," CZI chief economist Lorraine Chikanya said at the launch of the report in Harare.
"This policy framework ushered in a breath of life into what was becoming a dying sector."
The CZI said the unity government had restored confidence, with $1,5-billion being invested in the manufacturing sector, mainly for plant rehabilitation and expansion.
Zimbabwe's average working week, which had come down to two days as firms laid off staff amid hyperinflation, raw material shortages and price controls, is now at five days.
At its peak, the manufacturing sector contributed 22% to Zimbabwe's gross domestic product, 37% of export earnings and accounted for 40% of employment.
The renewed business confidence, however, is at risk now after Tsvangirai and his MDC party decided to boycott the unity government until Mugabe fully implements a power-sharing agreement.
Industry and Commerce Minister Welshman Ncube, from a splinter MDC faction, told industrialists that efforts were underway to resolve the standoff, which had unsettled investors.
Ncube said Zimbabwe's cabinet had, before the MDC boycott, approved a long-awaited bilateral investment protection agreement with South Africa. He, however, did not say if the approved draft excluded land from investments to be protected.
South African farmers have urged their government not to sign any pact that did not include a clause to protect land and related property rights.
"I'm in contact with [South African Trade and Industry] Minister Rob Davies who has received the documentation. By the end of this month, we have planned that we should sign it by then. We are now waiting a response from the south Africans," he said.
Ncube added the government had agreed to use a $500-million IMF loan given to Zimbabwe to repay debt, for infrastructural development and local industries.
"Part of the money will be used to pay off IMF arrears so that we can have access to another IMF loan. We agreed that $150-million of this money should go towards productive sectors such as mining and manufacturing," Ncube said.
Edited by: Reuters

The Zimbabwe Economy

The Zimbabwe Economy
Business conditions, October 2009

Zimbabwe’s economy remains severely affected by liquidity shortages, weak domestic demand, reduced supplies of locally supplied inputs, the losses of skilled personnel and weak commodity prices for many of its exports. All of these problems are made more serious by the low levels of efficiency among the suppliers of electricity, water, telecommunications and municipal services and by the large numbers of people who have to depend on the earnings of the very few in steady employment.
In all sectors, the shortage of liquidity, which impacts upon consumers as well as on borrowers, and therefore upon lenders as well as producers, is a major constraint on the levels of economic activity. Very few businesses can offer extended credit terms to clients, mainly because they cannot easily borrow funds to meet operating costs or to pay suppliers for materials while waiting for payments.
Tight payment conditions at every stage in the production process mean that many companies cannot make payments until they have been paid. In the many cases in which the ultimate retail customers are too few, have limited buying power and can choose between several competing suppliers, the producers face acute challenges in their efforts to remain in business. These challenges relate to efficiency, productivity, prices, access to working capital, good labour relations and accurate assessments of effective market demand, or the population’s limited disposable income.
The origins of some of these specific difficulties go back to the destruction of the Zimbabwe dollar balances that formerly constituted the bulk of the country’s liquid assets. This process left Zimbabweans with only those foreign currency balances that had not fallen victim to the Reserve Bank’s powers of expropriation, but these amounted to sums that were too small to fund a revival.
For the country as a whole, the prospects of a recovery are now tied to the pace at which export earnings can be increased and the pace at which its policy-makers can persuade investors, development agencies and donor countries that Zimbabwe is worthy of support.
For individual businesses, the targets are no different: they too need increasing incomes that have to be earned by offering acceptable goods and services to difficult markets, but they often have need of capital that has yet to be earned. Whether they seek this in the form of loans or equity, they have to present a very strong case to win the needed support.
But while the prospects for individual companies might stand or fall on whether they keep their promises of quality, price and delivery, the prospects for any country will stand or fall on more philosophical issues, such as political involvement, rule of law, respect for civil rights and property rights, and whether the government chooses to respect international treaties, laws of contract and market forces.
Zimbabwean business people today are engaged in the unequal struggle of rebuilding a sound business base even though the country’s politicians have yet to persuade the world’s investment, development and banking community that their efforts to rebuild international credibility deserve support.
Although some companies have had some success in securing toll manufacturing contracts with South African companies and others have received backing from parent companies abroad, most are having to try on their own to make the best they can of a very limiting business environment.
Since the signing of the Government of National Unity agreement, official efforts to overcome severe Balance of Payments and national budgetary constraints appear to have become an inter-party contest that neither party is winning, but from which divisive influences are the main effect. Zanu PF seems keen to discredit and disparage the achievements of MDC by maintaining sufficient instability at home to prevent any outright MDC successes. At the same time, MDC has called into question the size and even the existence of huge flows of funding said by Zanu PF to be on their way from China.
To these must be added the continuing wrangles over trivia that have stopped Parliament from making any of the changes needed to improve Zimbabwe’s tarnished image abroad. The casualty from these energy-sapping exchanges has been the whole Zimbabwe economy. Humanitarian aid is still flowing into the country, but the politicians have still to make a useful start in rebuilding the confidence needed to attract investor support and development funding.
This funding is urgently needed to begin the restoration of bank liquidity and manufacturing production and to improve access to the working capital needed to carry our basic repairs to electricity supplies, transport and other infrastructural services. The lack of progress in these areas is setting the limits to the effectiveness of the many separate efforts being made by producers in every sector and it is therefore holding GDP growth prospects to very low levels.
As the current leadership has fallen so far short of acceptable standards of conduct called for by trading partners, donor countries, banking institutions and international funding agencies, major changes are now needed to restore Zimbabwe's credibility. If the changes needed lie outside the limits the leaders are prepared to accept, the challenge has to be to persuade the leaders to stand down in the interests of the welfare of the whole population.
By concentrating his entire policies on the one question of recapturing land from non-indigenous people and allocating it to black Zimbabweans, the President has fallen foul of international opinion by:
· Abrogating human rights
· Attacking the country's independent judiciary
· Attacking the freedom of the Press
· Denying citizens the rights of freedom of association
· Withdrawing the protection of the law from minority racial groups
· Denying opposition party candidates and supporters their civic rights
· Tolerating corrupt practices in government and parastatal activities
· Repudiating international investment protection agreements
· Promoting or condoning dishonest practices in the election process
· Defaulting on international debt service commitments
· Signing into law new statutes that deprive certain citizens of their rights
Much of the foreign resentment stems from the gross injustices involved in dispossessing white farmers of properties because other, unrelated, whites first settled these areas 100 years ago. As countries that try to promote development no longer consider such conduct acceptable or excusable, the leaders who hold to such ideas are being urged to win the respect of the world's community of nations by changing their policies.
Election timetable
On MDC insistence, the Constitution of Zimbabwe is to be redrafted in time for the next election. The re-drafting process has started and the intention is to have a draft ready for public debate by the end of 2009. After responding to observations in the preparation of a final document, the proposed timetable requires that a referendum be held by July 2010. If the electorate accepts the proposed constitution, it will then be approved by Parliament and signed into law by the President by September 2010. A general election date will then be set and this event should take place within the first months of 2011.

The mining sector continues to be affected by the highly restrictive controls and direct intervention in setting exchange rates that had a major impact on mining profitability in the past ten years. At the practical level of day-to-day mining activities, they so badly affected each individual company’s ability to meet the costs of regular maintenance programmes for machinery and equipment that most mining companies are still affected now by their impacts on efficiency profitability.
For most of the years, reduced levels of the investment spending needed to improve upon, or even match former output volumes held back development and they prevented the accumulation of reserves to pay for exploration for new ore-bodies. ZimPlats is almost the only company that was able to remain committed to its development programme.
From the mining finance perspective, the controls often forced companies to borrow heavily to close the gap between recurrent expenditure and the revenue received at the controlled exchange rates. Their increasing debt damaged each company’s prospects of paying dividends or carrying out maintenance, which affected share prices and their prospects of raising equity finance from the market.
Companies were also affected by the proportions of foreign earnings that they could retain to meet the cost of essential imports, but if the retained funds were not used a matter of weeks, they had to be relinquished to the authorities. By being prevented from accumulating foreign funds, most companies were unable to finance any form of capacity expansion.

Until recently, local manufacturers supplied a high proportion of the consumer goods required by Zimbabwe’s rapidly growing population. With the growing success of commercial agriculture, increasingly dependable supplies of inputs for food processing companies led to investments in import-substitution manufacturing companies, many of which became successful enough to capture export markets.
Improving supplies of non-food agricultural products also helped bring into existence manufacturers of tobacco products, textiles, furniture, construction materials and paper. However, business confidence was badly shaken by the nationalisation of commercial farming businesses and by the consequential damage done to business volumes in every sector and to Zimbabwe's foreign earnings.
Reactions from the authorities to the falling Zimbabwe dollar exchange rate, shrinking tax revenues, job losses and rising inflation placed ever-increasing restrictions on business activity as government tried to capture the resources needed to bolster and subsidise the crippled farming sector and to sustain political popularity.
One of the reasons given for falling levels of domestic investment in these years was that the level of national savings was not adequate for sustainable investment. With deeply negative interest rates in place since 2001 and frequent raids on reserves through increases in Statutory Reserve Ratios, the savings base was effectively eroded out of existence.
Looking to the future, these factors make it clear that virtually all the needed investment funding will have to be sourced from outside the country for the foreseeable future. But with competition for foreign investment rapidly getting tougher among developing countries, and more impressive economic and political developments taking place in a number of countries in the region, Zimbabwe will needs to become much more imaginative about its efforts to attract the attention of investors.
Because government is continuing to reject all proposals for revisions to the Land Reform Policy, the many food-processing manufacturing businesses seem likely to remain at a disadvantage because very low production volumes from the farms will limit their recovery prospects. Those still in operation have become more dependent on imports, but the funding and power shortages as well as the skills shortages are also serious problems for those wishing to restore former production volumes at competitive prices.
Capacity utilisation has started to improve in some areas of manufacturing, but the evidence strongly suggests that the severe power cuts alone will continue to make significant increases in output impossible for most factories.
Although the extent of the recovery that does prove possible might look impressive because it will be off a very low base, the constraints presently affecting output are certain to continue imposing severe limitations for as long as they remain in place. These will be reinforced by the reluctance of buyers on the domestic as well as export markets to place too much reliance on Zimbabwe’s suppliers at this stage.
The Government of National Unity’s acceptance of the need to make far-reaching changes has not so far generated the practical changes needed to overcome the lingering effects of years of losses that eroded each company’s skills, physical capacity, standing with customers and suppliers and financial stamina.
A few undoubted successes have been recorded, led by companies like Delta Corporation, which is recapturing the local market from suppliers of imported beer and is about to commission a significant increase in bottling capacity. Some of the clothing factories are also making some headway, having recaptured the support of buyers from the importers of poor quality Chinese goods. However, the needed increases in buying power await the private sector investment decisions that will lead to a demand resurgence and help create employment.
Even then, the full recovery of industry will have to await the completion of the extensive repairs and maintenance required by the infrastructure in general and by Hwange and Kariba power stations in particular. Separate, but equally essential work has to be done to restore coal production and the coal deliveries by rail needed to re-commission the thermal power stations in Harare and Bulawayo. In the medium term, the completion of at least one new power station is considered necessary for the achievement of energy self-sufficiency.
While the signs of improvement in levels of output have been encouraging, investor confidence is unlikely to be fully restored before government has issued unequivocal statements assuring potential and existing investors that property rights will be fully restored and investors in all sectors will be protected against any possibility of threats to property rights in future.

Zimbabwe’s hyperinflationary experience came close to breaking all world records because the authorities had persuaded themselves that “illegal international sanctions” had caused the economic decline, not the forced closure of the country’s biggest productive sector. Therefore, they claimed, the printing of money was entirely justified, as was the adoption of widely differing exchange rates that provided the authorities with the advantage of low-cost imports. However, as they could fund these imports only by claiming the right to remove foreign currency from company and NGO bank accounts, the authorities became directly responsible for further downturns in local output and the development of worsening shortages.
As the exercise of this advantage depended upon their ability to confiscate foreign earnings, government’s policies soon began to also affect what was left of the country’s exporters. Foreign exchange scarcities became very much more serious and were soon a principal source of the inflationary pressures.
On this track, the total collapse of the Zimbabwe dollar was inevitable and it soon followed upon the hyperinflation registered in the final months of 2008.
For lack of options, Zimbabwe then adopted the use of US dollars and rand for all transactions and the inflation came to an abrupt end. Initially, goods priced in US dollars in the shops went down in price as stocks of imports improved and competition between retailers became more pronounced.
In the monthly inflation indicators for the second half of 2009, despite the use of relatively stable currencies, prices started rising again and expectations of further increases, based partly on the effects of exchange rate movements between the US dollar and the rand and partly on wage demands, seem likely to keep prices rising. However, the official September Consumer Price Index reported a month-on-month fall of half of one percent.
Although Zimbabwe is earning most of its export proceeds in US dollars and receiving a high percentage of its remittances in the same currency, it is placing its orders for most consumer goods and industrial materials with South African suppliers, so the strengthening rand and weakening US dollar have added to Zimbabwe’s procurement costs.
Demands for higher wages are also posing a threat, not just to the prices of the goods that can still be produced in Zimbabwe, but also the prospects of survival for many of these companies.
Many wage negotiation processes have broken down and the arbitration proceedings that followed have granted the trades unions most of their demands. Some employers have responded with efforts to appeal against the arbitration decisions in their efforts to avoid bankruptcy.
During 2009, agriculture attracted the most exaggerated forecasts of recovery, but as the sizes of the year’s crop deliveries were set by events and conditions during the 2008 economic melt-down, most of the forecasts have not been realised.
For the hoped-for recovery in 2010, the disappearance of government’s capacity to offer subsidies has brought harsh financial realities home to previously generously subsidised resettlement farmers. For example, even though the quantities of locally produced fertiliser are far from adequate, unsold stocks are accumulating for lack of buying power. The evidence suggests that next year’s harvests are already threatened.
All the intricately balanced linkages and business relationships that used to help deliver success and food security to Zimbabwe’s population were damaged or broken by the land reform programme. Today, Zimbabwe’s agricultural sector consists largely of small farms that have no market value and no collateral value, and most have been allocated to people who lack the resources and experience needed to cultivate the areas put in their charge.
Despite subsidies and state funding, very few farmers have been able to move away from peasant farming methods and since land reform, every harvest has been extremely disappointing. Every year since land acquisitions started in earnest, Zimbabwe has had to import food.
Now, in any efforts that are made to restore productive capacity, government and all those international bodies that wish to assist the country will have to acknowledge that the country has adopted policies that do not meet the requirements of a larger, better educated, more urbanised and much more demanding population.
Zimbabweans are fully capable of dealing with the challenges of commerce and a wide range manufacturing and service industries, but the country has need of efficient and dependable agricultural production. The population therefore has good reason to hope that large-scale capital-intensive cultivation methods will be reinstated, and that the need to rely on the small-scale subsistence methods brought back by Land Reform will fall away.

This table illustrates the extent of the decline in physical output since the Land Reform Programme was started. Maize, soybeans, beef, dairy and cut- flowers output have fallen to figures close to one quarter of their levels in 2000 and tobacco, wheat, coffee, groundnuts and paprika volumes are now at much smaller fractions of former levels. Cotton, sugar and tea production volumes have fallen by less severe percentages and barley has recovered to former levels, but most of these are now being threatened by renewed land acquisition activities that are targeted at formerly advantaged plantations.
While small-scale subsistence farming might remain an important income source for the large communities that still follow traditional life-styles, this system cannot be relied upon to meet the needs of Zimbabwe’s large urban population. The subsistence methods are far too unreliable in Zimbabwe’s uncertain tropical climate and today the overall population is far too big.
The policies introduced to initiate the Land Reform Programme, which amounted to the nationalisation of land, are also considered incapable of attracting the investment needed for development in agriculture and every other economic sector. Critics argue that important requirements for all forms of investment are secure and marketable individual property rights.
In trying to bring about the needed changes, commentators are arguing that Zimbabwe should not be looking for funding that will help to make its badly chosen policies work a little better. Donor countries and development agencies should therefore be persuaded not to offer support until the country agrees to the adoption of acceptable policies with a proven track record.
In essence, the disbursal of assistance in any form should be made conditional upon Zimbabwe showing the needed willingness to make radical changes and to adopt acceptable policies. In its 2008 election manifesto, the MDC argued that the primary conditions for these included the empowerment of ordinary citizens through the acceptance and promotion of individual property rights, and it argued that these rights should be given absolute protection in the proposed new Constitution.
Unfortunately, this position appears to have been eroded since the formation of the Government of National Unity. By way of explanation, commentators have explained that because property rights empower individuals and improve their prospects of economic success, they are opposed by the ruling elites because this success can dilute the powers of the people who are trying to retain absolute authority. Many African governments seeking aid therefore also demand the right to decide who will benefit.
This unacceptable approach is thought to be best countered by requiring the acceptance of ownership rights for the assets essential to effective investment. The concept of property rights has to be accepted so that the very specific needs of local as well as foreign investors will not be frustrated by issues of no relevance to their being able to meet business challenges.
As these challenges are already more than sufficiently exacting, demanding and unforgiving, and as the people who can meet them have to be highly experienced in many aspects of business, the authorities should accept the need to encourage them by offering a supportive policy environment.
After very few years of the levels of development that would be made possible by accepting these basic requirements, very nearly all the countries that are now claiming dependence on aid would become self-sufficient and their people would become considerably more prosperous.
In describing what they have done, the architects of Zimbabwe’s current chaos have chosen to focus only on the relatively small number of farmers they have displaced. They dismiss as irrelevant the wider social issues, but the destruction of about four thousand large-scale farming businesses has impacted directly upon employees, suppliers and customers and indirectly upon every other member of Zimbabwe’s population.
In essence:
o In the process of reclaiming land, about 4 500 farming companies have been closed, causing the direct loss of 350 000 full time farm jobs and sharply cutting production of crops for local consumption and for export.
o The loss of property also meant the loss of accommodation, many elementary schools, many clinics and high schools, as well as incomes that supported the workers’ families, a total of several million people.
o Almost all of these people are now destitute and assessments suggest that up to 30% of them have died since 2002.
o Inexperienced small-scale farmers or peasant farmers now make up almost the entire farming sector
o Because Zimbabwe's agricultural land now has no collateral value, the new farmers cannot use their holdings as security for bank loans
o Government has been forced to support the new small-scale farms with massive subsidies that were not needed by the former large-scale farms.
o As the subsidies are beyond Zimbabwe’s financial means, the payments contributed to the very high rates of inflation that reached world record levels before making the Zimbabwe currency valueless. Having now adopted the use of the US dollar,
o The loss of foreign earnings from the export of crops and other products drastically reduced the country's ability to import essential goods.
o The need to import food that Zimbabwe used to export has further reduced the foreign currency available for other industrial and commercial imports
o The closure of large-scale farms has severely damaged the viability of thousands of other companies that depended on large-scale farms
o In the hands of less experienced farmers, the land and farm assets captured have only a fraction of the value and earning capacity that they had in the hands of the highly skilled, but now dispossessed farmers
o The rapidly deteriorating services infrastructure and frequent fuel shortages have generated severely critical Press reports that have accelerated the decline of Zimbabwe's tourist industry
o The state-sponsored attack on property rights has arrested productive investment, job creation and export growth and now prevents access to international credit lines and project finance, and
o Far from being a success, the land reform programme has been an unmitigated disaster.

The on-going consequences of the policy measures responsible for these effects have been so profound that any claims that Zimbabwe’s economic recovery is possible before they are appropriately dealt with have to be challenged.
Although few donor countries have spelled out such reservations in any detail, they have indicated in various ways that funding to help Zimbabwe’s reconstruction will not be made available while the authorities continue defending the policy decisions that led to the collapse of the country’s economic capacity and social services. Many have continued to offer humanitarian aid, but most have done so on condition that they do not have to work through any division of government.

Business recovery is being held back by, among other things, the inability of the banks to offer the overdraft facilities or the longer-term loans needed to rebuild stocks of materials, carry out long overdue maintenance and repairs or attract back skilled personnel to run factories or staff production lines.
Zimbabwe’s use of foreign currency since the collapse of the Zimbabwe dollar has marginalized the Reserve Bank of Zimbabwe and nullified its ability to regulate the country’s use of the available foreign exchange.
With no foreign reserves of its own, but foreign currency debts to local creditors amounting to about US$1 billion, the Reserve Bank has not been able to function as Lender of Last Resort. In turn, this has made the country’s commercial and merchant banks very unwilling to lend to each other.
A change of some significance is possible now that the IMF has chosen to allocate funds to all member countries in an effort to ease the worldwide liquidity crisis. Zimbabwe’s share is US$517 million, of which a little more than US$400 million will be released to the authorities. The balance is to be held in an escrow account until arrears of US$139 million have been settled. As the amount being sent is supposed to be used to support the country’s foreign reserves position, technically it should come under the control of the Reserve Bank, but details are being withheld until the publication of the national Budget towards the end of November.
How the funds will be put to use is therefore still unclear, but the settlement of the outstanding debts to the IMF would seem to deserve high priority. Funds are needed also by Zesa, NRZ, Air Zimbabwe and most municipalities, among others, but if some could be retained by the Reserve Bank to permit it to function as lender of last resort, that too would be extremely helpful.
A solution to Zimbabwe’s liquidity problem awaits the return of balance in the unbalanced banking sector, which currently has 29 banking institutions. Many have struggled to meet capital adequacy requirements and some of these are expected to seek mergers with other banks in due course.
Prospects for an improvement in the financial strength of the banks that survive will improve when their numbers have been cut by about half. Direct intervention by the Reserve Bank is less likely under current conditions, but the pace of developments might be forced up if the more seriously undercapitalised banks are put at further risk by company closures, such as the tentative decision by David Whitehead Textiles to wind up their Zimbabwe operations if the unions cannot reconsider their wage demands.

International developments
Hesitant, but mainly improving share and commodity prices are supporting beliefs that the recessions in Europe, North America and the Far East have bottomed out. However, the strengthening gold price and the continued weakness in the recovery of retail spending suggest that the recovery is fragile and useful export volume and employment growth figures might take some time to materialise.
An area of particular uncertainty is the oil market, on which price increases to around $80 a barrel ahead of the northern hemisphere winter is suggesting the possibility of further increases and consequential impacts on production and transport costs. While consumer demand remains weak and suppliers are forced to compete aggressively for market share, their efforts to hold prices to the lowest they can afford are impacting directly on profit levels.
Low and uncertain returns are already affecting investor confidence as well as the ability of producers to fund research, development or expansion plans, but if production cost inflation further erodes profit margins and employment recovery, this could slow the already sluggish recovery period.
Unfortunately for the governments of most western countries, these pressures will impose limits to tax collections and make more difficult the effects of their having had to incur heavy domestic debt in their efforts to assist their banking sectors through the financial crisis.
Budget deficits as percentages of Gross Domestic Product have reached extraordinarily high figures for Western countries. These are forcing governments to call for expenditure cuts that are coinciding with increasing demands for unemployment benefits and other welfare payments.
Low interest rates under these circumstances appear to be the most appropriate response from the various central bank authorities, but they threaten to seriously erode the value of the already depleted savings as producer price inflation rates rise above the rates of interest.
Retired people and others who were previously able to live on interest earnings are now having to withdraw capital to meet ongoing living expenses, or move capital to countries that are still offering acceptable rates of interest.
South Africa is currently offering interest rates of seven to ten percent and attracting enough of the affected funds to cause a strengthening of the rand, but Zimbabwe, with equally attractive interest rates, has been almost completely unsuccessful due to continuing concerns about the safety of balances sent into the country’s banking system.
Assurances that past experiences of having funds appropriated by the authorities will not recur have not been enough to satisfy most fund managers. The evidence that the authorities have become increasingly desperate to get their hands on funds, particularly as the inflows expected from donor countries and development agencies have not materialised, has worsened this mistrust.
Financial difficulties abroad have sustained Zimbabwe’s concerns over the likelihood of mergers or bank closures if market conditions force an unsatisfactory resolution to the excessive number of inadequately capitalised banks.
More confidence, and perhaps even some willingness to participate in a consolidation process, might be forthcoming from external banks if Zimbabwe’s banking sector could start making more deliberate plans for a managed rationalisation towards a more appropriate structure and size.
Mounting friction has developed between employers and employees as trades union leaders have tried to force employers to more than double wages and to back-date these to April this year.
As everyone concerned, from the smallest workers’ committee to the Ministry of Labour, is aware that employers have neither the turnover nor the profit margins needed to meet such wage demands, beliefs are being expressed that the trades unions have very short-term political motives. These tie in with mounting evidence that political progress is being held down to a negligible pace by Zanu PF’s fear that MDC will benefit the most from any progress achieved.
Many employers are known to be responding to the unions with blunt statements that they would be forced out of business if they tried to meet such demands and that their employees, not the union officials, would be the losers. David Whitehead Textiles’ threat to close is the most significant response so far.
Others are arguing their case by pointing out how many of the processes carried out in their businesses can now be performed by machines, all of which call for far fewer people. As all of the people then needed would require specialised skills, current staff members’ jobs would again be put at risk.
As most employees have some knowledge of the political dimensions hidden in every argument, it is probable that, with the benefit of carefully articulated advice, most will be readily persuaded not to allow themselves to become expendable pawns in a political game.
However, even if the country moves onto a more encouraging track, many companies will have to be able to provide for higher labour costs. To cope with these while also having to contend with strong competition that might prohibit price increases, high and increasing levels of efficiency in every single department will be essential and every producer will be acutely aware of the need to match the quality standards of their competitors’ products.
Unless workers can be persuaded that their own and their employers’ interests are identical, producers will incur increasing losses through poor quality control, wastage of materials, wastage of fuel, power and water, machine down-time, failures to deliver on time, and theft, all of which add to effective production costs. These are already threatening the survival of a large number of companies.
Investment prospects:
Considerable interest has been shown in Zimbabwe’s prospects in recent months. Conferences on mining, financial services and equity investment have been well supported, and numerous visits have been recorded from property developers and companies hoping to tender for large public works and infrastructural restoration contracts as well as interest groups from various countries.
However, apart from purchases of a few reasonable blocks of shares, most of the visits have ended with expressions of “cautious optimism” and little else. Almost no invitations have been offered to tender for properly defined projects and potential investors have been able to make very few decisions beyond their decisions to await further developments. The few commitments to invest have come mainly from the external parent companies of local businesses, such as Delta Corporation and Triangle Sugar Estates.
Immediate prospects of the hoped-for domestically-driven recovery remain affected by the still limited inflows of foreign earnings and the continuing inability of the banks to offer loan finance, either for short-term working capital needs or for medium-term capital investment needs. Much lower than expected levels of financial support from donor countries, international banks and development agencies. These have held in place very severe liquidity shortages throughout the economy. Lines of credit have been offered to several of the banks that have external partners, but the conditions set for the disbursal of these funds have kept them beyond the reach of most borrowers.
The needed inflows of investment capital are being impeded by the very slow recovery of investor confidence. This appears to be mainly because of political intransigence, which reflects the fears of Zanu PF leaders that if they lose further control, they will increase the risk of their being brought to account for Human Rights charges by the International Criminal Court.
The many countries and organisations that stand ready to assist have very quickly noted each reversal of this nature, and each of them has put Zimbabwe back onto square one. Our marker on this board will make no progress before the weight of evidence clearly shows the assistance will be used to put the country onto a sound recovery path, and not used to more deeply entrench the powers of a government that is seen to be responsible for, and is still defending, policies that have caused extensive damage throughout the economy.
Given the facts that Zimbabwe’s economy has been disabled, that its production and export revenues have fallen sharply, that its infrastructure is highly inefficient, that its debt are already large and its debt arrears are more than the country’s Gross Domestic Product, Zimbabwe is seen by all to amount to an extremely serious credit risk.
This fact makes Zimbabwe of the least appetising investment destinations in the world, but these terrible handicaps could be quickly countered by a commitment to adopt policies that would restore confidence. The requirements of such policies are well known and entirely within the country’s reach. For this reason, Zimbabwe’s longer-term prospects might best be conditionally described as sound, the condition being that political change is allowed to considerably reduce the uncertainties that presently confront investors.

John Robertson
October 21 2009