the doldrums
Donna Block
The political turmoil surrounding the Zimbabwean government is on the brink of destroying the country’s economy. The second most powerful economy in Southern Africa after South Africa has been plagued by crisis after crisis, which has more recently been made worse by the invasion of white-owned farms by veterans of the country’s war of independence.
The economic mark left on the country because of the political calamity are a worthless currency, inflation of 60%, burgeoning foreign debt, petrol shortages and unemployment – which is believed to be around 50%. The inflation rate was projected at 60% in 1999, and is continuing at a similar pace in 2000. Interest rates on bank loans have skyrocketed to 60%, increasing the commercial farmers’ debt burden and making it difficult for them to service their loans and in turn borrow for next year’s crops.
The tobacco crop – which accounts for almost 30% of the country’s foreign exchange – is due to be delivered to the auction floors at the end of the month. Much of the crop has been harvested and graded but farmers say they will not deliver leaf to the floors until the exchange rate is adjusted to at least Z$45 to the United States dollar – a 20% devaluation.
They argue that their production costs have increased at least 60% since last year, while without devaluation tobacco prices are expected to be very little different from 1999.
Colin Cloete, a member of the Commercial Farmers’ Union and a tobacco grower, said: “I’m trying to get myself to the point not to sell the good stuff at the beginning [of the auction] while waiting to see what prices we get. I have to sell something to get out of debt. If I can’t get my price I’ll sell other crops and hold on to the tobacco. I really don’t want to but I will, I’ll have to.”
Tobacco growers are also concerned that buyers will take advantage of the deteriorating economic situation and offer low prices for their crops. “The government has turned us into a buyer’s market,” said one farmer.
But bankers say the farmers will have to weigh the benefits of awaiting the inevitable devaluation against the cost of their bank loans or the interest they would earn from investing in the local money market.
Foreign as well as indigenous banks are concerned about non-performing loans but the skyrocketing interest rates have increased their margins substantially and every loan they extend increases their bottom line. Many banks are also saying they are not sure if they are going to make the loans necessary for next year’s plantings.
If the farmers hold on to their leaf in the hopes of a post-election devaluation, the foreign exchange crisis will inevitably worsen – especially if the elections are delayed until July, which is a very real possibility.
The leader of the Movement for Democratic Change, Morgan Tsvangirai, said at a press conference in Johannesburg this week that the country’s economy was at present operating at only one-third of its capacity.
Both the government and the Reserve Bank – which claims the Zimbabwean dollar is 10% undervalued – know the longer they hold their present stance, the harder it will be to get the economy back on track. According to one economist in London they will “inevitably be forced to make acute structural adjustments to the exchange rate, the budget and monetary policy”.
Moreover, the economy is being further damaged by the government’s continued involvement in the war in the Democratic Republic of Congo. Presently Zimbabwe has 11 000 troops in Congo which is costing the country an estimated US$1-million a day.
But there is a bigger problem facing Robert Mugabe’s government. When his Parliament passed the land clause last week that empowers the state to take control of commercially owned farmland without compensation, he crossed that invisible line in the sand, putting the country in the untenable position of alienating foreign investors, donors and lenders. In as much as Mugabe rails against the World Bank and the International Monetary Fund and other donor agencies, they will be crucial in getting Zimbabwe’s economy back on its feet.
And the fate of the economy is not significant only for Zimbabweans, but could also have serious ramifications for the South African economy. There is already a cloud hanging over South Africa’s financial markets as foreign investors take a more cautious stance over prospects for the region, so further economic collapse in Zimbabwe could seriously undermine investment in South Africa.