How not to run an economy
The academic, Prof. Mthuli Ncube’s foray into national politics as the Finance Minister has had a disastrous beginning, virtually sending the economy into a tailspin. From Harare, Baffour Ankomah writes that now, President ‘Economic Dialogue’ Mnangagwa is having to deal with economics as well as politics.
Initials are a big deal in Zimbabwe, a country where you apparently cannot become a proper public official unless you have a string of patriotic-sounding middle names, preferably acquired from the liberation war that gave birth to independence in April 1980.
For a long time, RG (standing for Robert Gabriel), the initials of former President Mugabe, dominated the scene. Today it is ED (standing for Emmerson Dambudzo), the first two names of the current president, Mnangagwa.
Dambudzo is Shona for ‘Trouble’ but fortunately for Zimbabweans, this ‘Trouble’ says he is instead ‘as soft as wool’. Even better, according to sources close to him, his initials ED are morphing into ‘Economic Dialogue’, reflecting the President’s penchant for tackling economic issues.
Just as well. Because the economy under Emmerson the Trouble has been in deep trouble ever since he appointed Prof. Mthuli Ncube as Finance Minister on 10 September 2018. Now serious-minded people are asking if the learned professor has any positive value to add to ED’s government, as everything Ncube touches appears to turn to ashes.
On paper, though, Prof. Ncube has all the credentials to make a successful finance minister. In practice, however, he has been the very opposite since he took office.
Remarkably, until his entry, the economy was coasting along fine. Though things were not rosy, Zimbabweans had become used to their quasi local currency, the bond note, which the government introduced at the end of November 2016, insisting that it was at par with the US dollar, the country’s main medium of exchange since February 2009.
Though cash had miraculously disappeared from the banks in late 2017 and people could no longer withdraw money from ATMs and had to queue in banks to be given $50 per week by overworked tellers, the citizenry had somehow come to terms with the economic difficulties and were comfortably soldering on with their unpalatable circumstances.
Then arose Prof. Ncube (born 1963), a man who had seen the Barbican Bank he founded in December 2002 collapse in March 2004, after which he left the country for greener pastures abroad, working in academia in the UK and South Africa and also at the African Development Bank, before returning home in 2018 to be appointed Finance Minister.
Man of theory
Essentially, therefore, Ncube is a man of theory, not practice. Which is why, as Finance Minister, he is struggling to translate economic theory into sound economic/ political practice.
In mid-September, the former Cabinet Minister now in self-exile in Kenya, Jonathan Moyo, advised Mthuli through Twitter: “First, don’t announce any major initiative, like phasing out bond notes, before it’s been approved by the president, politburo and cabinet in that order… You are a minister of finance in charge of fiscal, and not monetary, policy. Stick to your job and let others do theirs.”
Moyo went on: “A minister of finance is not a technocrat but a politician. You will need political clout that comes from being a ZanuPF member, an MP and, crucially, a central committee and politburo member. If you are not these things, it’s a disaster …”
Behold, the disaster was not long in coming as Ncube did not listen to Moyo’s sound advice. In fact, even before he was sworn in as Finance Minister, Ncube had publicly declared his intention to kill the bond note as legal tender.
But with the other ‘quasi local currency’, the US dollar, in short supply, there was no viable alternative beyond the bond note. So it was sheer foolhardiness for an incoming Finance Minister to talk about killing the bond note, without consulting the President.
As it was, two weeks into office, Ncube appeared to be fulfilling his promise of dispensing with the bond note when, in his first set of fiscal policies, he announced an unpopular 2 cents per dollar tax on all electronic money transfers over $10. Zimbabweans reacted violently to safeguard their hard-earned savings, in banks and under their beds, by dumping the bond note in a spree never seen before in the country.
In the process, inflation rose sharply from 5% to 20.85% in one week, as retailers of goods and services increased their prices by as much as 500 to 600% to match the black market rate of the bond note, in the hope that if they needed to re-stock, they would have forex at hand to do so.
When the madness subsided after three weeks of panic buying, the retailers, who had removed price tags from their goods while the commotion lasted, just brought back the price tags but now reflecting the new black market rate of between 4 and 5 bond notes to one US dollar.
Thus, Zimbabwe has become a country ruled by the black market rate, even though the government insists that the bond note is still at par with the US dollar – a statement nobody respects.
In effect, overnight, everybody’s wages and salaries have been devalued by between 400 and 500% as there have been no wage increases to account for the black market rate now being charged by retailers of goods and services.
But Ncube’s sin was not complete: On 22 November, he presented his first budget as Finance Minister (totalling US$8.16bn for 2019), and announced a 7-cent increase in fuel prices, to take effect from 1 December.
The 8-day grace period between his announcement and the effective date, allowed fuel dealers enough time to hoard petrol and diesel and thus create another fuel shortage crisis. At the time of writing, there were long and winding queues of cars at petrol stations all over the country, with the capital Harare being the worst affected.
Ncube’s critics say he should not have allowed a grace period for the new price to kick in. They claim he did so out of political inexperience. “He himself says he now knows that economic policies come with strictures,” a government source told New African.
It is these economic problems that lie at the bottom of the metamorphosis of ED into Economic Dialogue, making Zimbabwe’s new president more interested in economic affairs than political ones. “Zimbabwe as a state is politically developed but economically underdeveloped”, is how one government source explains it.
The source says former President Mugabe, who ruled for 17 years under Western economic and political sanctions, spent much of his time developing the state politically, but left the economic job largely undone. Therefore, several essential laws to buttress the economy were not enacted, which is what ED is morphing into Economic Dialogue to do.
For example, when Ncube rocked the boat with his 2% tax and prices went through the roof overnight, ED had to call all captains of industry to state house for dialogue and urge them (especially those dealing with agricultural inputs) to “strike a proper balance between their business and national interests”. It worked. A day after the state house meeting, dealers in agricultural inputs slashed their prices by 50%.
In the coming months, ED’s dialogue skills will be needed even more, as public sector workers are threatening to strike for more pay to match the 400-500% increase in prices in the shops and clinics.
These are not happy days in Zimbabwe. Millions of people expected a “miserable Christmas” as they did not have the money to meet retailers’ asking prices. NA