Wednesday, June 14, 2006

Eddie Cross: "Breakdown or Breakthrough"

I walked into a business here in Bulawayo this morning to discover that the staff was basically cleaning up prior to shutting down. The owners were already in South Africa – they had left without telling many friends that they were going. This is an event taking place across the country right now – business people are deciding that they have had enough. They cannot export at ruling exchange rates, local demand has simply disappeared and they have no raw materials and no cash to continue operating.

The Zimbabwe economy is closing down – literally. We have inflation now at nearly 1200 per cent per annum (28 per cent in May and 21 per cent in April so it is still accelerating). But unlike the situation in most other countries that have experienced hyperinflation, the Zimbabwe economy is imploding at the same time. GDP is now down about 50 per cent, exports by two thirds and if it is at all possible, output in all sectors – mining, agriculture, industry is down again this year over last.

The reasons for the implosion in the economy are largely self-inflicted. They rank from open threats against owners of businesses, expropriation and theft of assets by people associated with the ruling Party. The near collapse of the legal system and massive political interference with what is left. To this you can add total confusion in terms of macro economic, monetary and fiscal policy. Totally skewed exchange rates accompanied by wholesale theft of revenues and the misuse of scarce resources allocated on a patronage basis.

In recent weeks the reports of accelerated decline have poured in – gold output down by a third on last year, winter cropping down 50 per cent, electricity supplies down to 70 per cent of demand and threatening economic activity across the board. The tobacco crop down by a third and prospects that the coming crop could be very small – perhaps less than 20 000 tonnes. Industrial activity shrinking fast and, if it was at all possible, the numbers of foreign tourists still dropping. (more...)
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