ZimEye.org
By Fortune-Galangwe
24 July 2009
The Zimbabwe economy is showing signs of life commensurately with the Prime Minister’s European trip which hit a brick wall where he met with European heads of state lobbying them for aid. The dollarization of the economy put an end to hyperinflation, artificial interest rates and unrealistic exchange rates. The liberalization of the economy has created an environment where any business can thrive.So the minister of Finance Tendai Biti has presented the much awaited Mid-Term Policy Review Statement on 16 July 2009 to Parliament which sent a frigid feeling in the spines of various sectors of society.Players on the production side let out a deep a sigh of tax relief as the Import Duty on most raw materials was scrapped while the Duty Free on the importation of basic commodities was extended to December 31 this year.
BACK TO THE OLD SHIP
Prices of basic commodities has suddenly skyrocketed again amid expectations that the ailing economy is heading for better .Retailers have raised the prices the prices of most basic commodities between 10% and 60%.In March a green laundry bar costs between $0,50 and $0,60 in most retail shops but the same commodity costs between $1,10 and $1,40 as we speak in most retail shops. The Minister of Finance Tendai Biti revealed that he has extended the Duty Free on the Importation of basic commodities to December 31 this year in his fiscal pronouncement .The Finance Minister also scrapped the Import Duty on raw materials to increase local production when he presented The Mid-Term Policy to Parliament on the 15 0f July 2009.Biti’s prescription is expected to reduce the skyrocketing of basic commodities in Zimbabwe.
Retailers have attributed continual price increases in basic commodities to the firming of the Rand against the United States Dollar .Since the dollarization of the Zimbabwean economy most retail shops are purchasing their stock from South Africa as the local industry production is still below to satisfy the retail industry. The retailers complain that the South African suppliers are offering them an unfavourable low exchange rate when they purchase their orders from them.
The retailers have resorted to the continual price hikes of most imported basic commodities if their shops are to remain viable. However, the retail industry is still obsessed by the spirit of the hyperinflationary ghost of earning super profits overnight .Biti has ordered the retailers to desist from increasing the prices of basic commodities whenever the salaries of civil servants are reviewed. Banks have also increased withdrawal charges between US$1-US$4 per single transaction and monthly charges had been pegged between US$8-US$13. However, only 7 out of 18 Zimswitch banks are now active and processing US$ denominated transactions since the adoption of the multiple currency economy.
THE MYSTERY OF THE ZIMBAWEAN DOLLAR
The Zimbabwean dollar ceased to be legal tender in February this year when the economy was dollarised. In March this year Minister of Finance Tendai Biti declared that the Zimbabwean dollar was moribund and would not be revived very soon as it was detrimental to the economy. The Minister of Economic Planning and Development Elton Mangoma also added his voice in dismissing the local currency as legal tender in the dollarised economy of Zimbabwe. He told a Mining Conference in the United Kingdom that the revival of the local currency would scare away foreign investors who would want to initiate businesses in Zimbabwe.
However, since the inception of the dollarised economy ,the Zimbabwean dollar is still accepted “as legal tender†in most commuter where it plays a pivotal role of curbing the change problem among the passengers. Only the Bearer cheques of the old Z$50 billion denomination are accepted “as legal tender†by the Kombi conductors and Touts where they use “an exchange rate†of Z$3,6 Trillion to US$1.
The Finance Minister has announced the demonetization of the Zimbabwean dollar with effect from “the 15 July 2009“.He also revealed that the government had set aside US$6 million to get rid of remnants of the local currency. He assured that the local currency would be reintroduced at a later stage when the economy improves.
ADDING SALT TO THE HEALING WOUND
The scarcity of fuel and its continual price increases in Zimbabwe has ignited price hikes of most basic commodities in the retail industry and fares in the transport sector. Most service stations in Harare are selling petrol at US$1,50 per liter while diesel is being sold at US$1,06 per litre. In Chinhoyi petrol is pegged at US$2,00 at most service stations. The scarcity of diesel in Zimbabwe have forced some players in the transport sector to withdrew their services, resulting in commuters failing to get transport to and from work.
Only the effects of the new fiscal exemptions on fuel shall be felt on a wider scale much later.
Transport operators have resorted to fare increases to between 50% and 100% a development which has left commuters crying foul. A trip from Harare to Bulawayo now costs US$15from US$8 and the Harare-Masvingo trip costs US$8 from US$5. Fuel costs has created an inflationary increase which is now above the -1%recorded in May.
Minister Biti has directed fuel suppliers to reduce the price of the commodity with immediate effect.
The Minister also explained that the government has reduced excise duty on diesel to US 16 cents from US 20 cents with effect from 17 July 2009.Biti had revealed that it was rational to scrap excise duty on diesel since it is mostly used by the productive sector of the economy. Duty levied on petrol remains at US 20 cents. The reduction of excise duty is expected to reduce the prices of diesel and transport fares in Zimbabwe.
DEALING WITH THE BULL
Former Petroleum Market Association President, Mr Masimba Kambarami has attributed the fuel price hikes to the increase of prices on the world market. Some players have accused the local and international fuel suppliers of forming curtails which have led to the scarcity and price increases of fuel. However, the main root cause which triggered the fuel price is the issue of fuel price controls. In March the Minister of Energy and Power Development Elias Mudzuri announced the price controls of fuel ; a scenario which caused fuel suppliers to hold on to their commodity which resulted in the scarcity and continual price rises of the commodity.
COST OF LIVING RISES VERSUS THE FATE OF GENERAL POPULACE
The continual rise in the cost of living increases in an economy which is believed to be in a monthly deflation of -1% has stung mercilessly on the narrow pockets of the generality of the public.
Since February, civil servants have been earning a minor allowance of US$100 and a salary pegged in Zimbabwean dollars .On several occasions civil servants have demonstrated over poor remuneration and they have threatened to go on a nationwide strike if the government did not address and fulfill their promises.
On the third of July the Minister of Education, Sport, Art and Culture David Coltart told teachers’ representatives at a meeting that the government was working flat to improve their salaries and working conditions and that of other civil servants.
The finance minister has divulged that civil servants will start receiving their salaries with effect from 1 July 2009 that will see a civil servant earning an average of US$140.However, the minister revealed that the new salary structure was being finalized by the Public Service Commission and would be announced in due course. It is still not clear whether the average earning of US$140 is the Gross Income or Net Income.
VARIOUS, LACKLUSTRE AND UNREACHABLE HEAVEN DESTINATIONS
In March this year Minister of Finance Tendai Biti predicted a 6% annual economic growth rate and in June the Deputy Minister of Economic Planning and Investment Promotion Dr Samuel Undenge told journalists in Egypt that the economy would grow by 2,8% annually. Talk about a proclivity for policy inconsistency.
In June again Minister Biti reiterated that the economy had grown by 1,8% between February and April. He assured that if the economic trend continues in that direction a 4% annual growth rate will be achieved in December. Indelible See-saw logic indeed.
Economic recovery will not occur overnight in Zimbabwe. Is investing in Zimbabwe still a difficult decision to make?. In a country where more than US$20 billion reserves are found and other vast natural and human resources which the country possesses. The country should utilize its comparative and absolute advantages effectively and wisely for its benefit. Surely, with a complete economic transformation that will panel beat Zimbabwe’s Indigenous and Economic empowerment Policy ,with the utilization of substantial financial assistance from the East and meager financial assistance from the West, Zimbabwe could deliver decent returns.