Tuesday, February 3, 2009

From John Robertson.....

With last week's Budget Speech and today's Monetary Policy Statement, plus the agreement reached at last between MDC and Zanu PF, we have been inundated by an avalanche of new issues, many of which are extremely important. I have to ask for your patience as I work through the hundreds of pages of ideas, claims, excuses, policy changes, threats and puzzling arithmetic, but offer you today the full text of the Budget Speech in the hope that, in its MSWord form, you can key in search words to quickly locate the pages that address your own concerns.

In summary, I do believe that these policy documents have taken important steps forward in that they acknowledge the profound inadequacy of previous policies and they accept the need for far-reaching amendments and revisions to issues that successive authorities had previously claimed were immutable. While it is clear that Zanu PF was going ahead with making these proposals while the unity government plans were still hanging in the balance, the fact that the parties have now started to work together almost certainly means that the changes will be carried our with better prospects of success.

The wide swing away from the earlier Zanu PF dogma strongly suggests that some powerful forces were at work within the party. They might have agreed to some of the changes in the knowledge that the MDC had won support because of similar policy proposals, but it is more likely that the mounting evidence of the outright destructiveness of many of them had already won converts from among Zanu PF politicians. Accordingly, the passage of legislation that will amend or expunge objectionable Acts of Parliament seems likely to go ahead without much debate.

A failing of both the Budget and the Monetary Policy is that they apparently could not take the step of declaring the Zimbabwe dollar dead. The zero removal and the new notes will not inspire sellers of anything, labour included, to be content to be paid in Zimbabwe dollars. The hope must be that the authorities will not try to keep it on any expensive life-support system, but will simply allow the market to dump it totally as the use of foreign currency takes over. The limiting factor here will be the quantity of foreign currency moving in and out of the country and the first key challenge will be to urgently find ways to increase the flow before the country's earning capacity begins to recover. The second will be to move decisively on the measures needed to restore export volumes.

As of today, the declared exchange rate is twenty of our new dollars equals one US dollar. Zimbabwe dollar prices for goods and services will be measurable from that base in the coming weeks and might be expected to reveal the depth of the unwillingness to accept Zimbabwe dollars. So the prices of goods sold in Zimbabwe dollars are likely to continue soaring. However, goods sold for US dollars are now almost stable and the reasonably strong competition between traders is likely to result in consumer goods inflation falling to a figure that matches South Africa's modest rate, most goods being sourced from there. Given Zimbabwe's skills shortages, the pricing of specialised services might take longer to settle.

Recognising Zimbabwe's need for dramatic improvements in foreign exchange earnings, Gideon Gono today declared the whole of Zimbabwe to be an Export Processing Zone, implying that every incentive possible will be given to those capable of producing such goods, whether they are in Zimbabwe already or might be enticed to set up business in the country. Whether this drive will be supported by the removal of legislation that undermines investor confidence -- whether Zimbabwe chooses to remove the disincentives -- will determine whether investment inflows improve significantly and whether the interest will extend from the simpler commercial and service sector activities to the more complicated demands of manufacturing, mining and agriculture. As the commitments needed for the productive sectors is considerably more that that needed from people extending supermarket chains or fast food franchises, the real tests will come with the evidence of government being prepared to ease the requirements for business licenses.

Evidence that a genuine sea-change has taken place can be found in the decisions to permit market forces to take over again in areas of fairly or very intense direct government intervention. As President Mugabe set the demands for the central planning ideas that are now giving way to markets, it seems possible that the stage is being set for the president's gradual move into the background and for his functions to be fully transferred to MDC ministers without the need for a final showdown and a momentous expulsion. As President Mugabe's influence diminishes, his continued presence might become a matter of irrelevance. If he has another change of heart and decides to exercise all his authority once again, it is certain that all those countries that had been considering ways of helping Zimbabwe would put their plans on hold.

Accordingly, the pace at which things might improve in Zimbabwe could well be inversely related to the levels of President Mugabe's active involvement in directing policy. The extent of the changes evident in the statements made in these last few days suggests strongly that President Mugabe has already moved aside. If this evidence firms up in the coming weeks, some important improvements to the country's prospects could quickly take hold. Actual physical and measurable improvements will take much longer, but if a start is made on moves in promising directions, the changes in the mood and confidence of Zimbabwe's population could quickly transform the business and social climate.

I will try to assemble the main changes into a document of not too many pages and send these to you within a few days.

Kindest regards,

John Robertson

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