Next month, the Minister of Finance, Tendai Biti will announce his mid-year economic statement. Prime Minister Morgan Tsvangirai’s Newsletter spoke to the Minister to find out which issues are likely to influence the review.
Q: Minister, kindly update us on the first half economic performance?
Tendai Biti: The first quarter of the year was very challenging. The economy went through a period of sickness and there were a number of key things that were the architects of that sickness. First, was the issue of lack of capital. Lack of capital in the form of foreign direct investment which was affected in particular by the publication of the indigenisation regulations.
The regulations had a major effect on the capacity of the economy to attract investment and an immediate multiplier of capital flight. We had huge capital flight in the first quarter of the year and that manifested itself sharply and acutely on movement of share prices on the stock market. The prices were depressed and continue to be depressed.
The second deficit of capital was in respect of lack of lines of credit. There were no lines of credit in the economy in the first half of the year impacting on the cost of money, interest rates shot up to as high as 70 percent. This money was short term, 90 day facilities. This affected the capacity of industries to recover. We aimed at 60 percent capacity utilization by December 2010, but this does not look likely.
The third aspect of lack of capital was the Vote of Credit, that is, budgetary assistance from donors and partners. As I indicated in my statement at the end of April, we had only received US$2.9 million out of a target allocation of US$810 million.
The fourth challenge was inflationary pressure from a target regime of under one percent to the current 6.1 percent. Inflation offsets economic reward. The fifth challenge was the lack of fiscal space. We had a situation where 70 percent of Government revenues went towards salaries, which salaries were in fact challenged because the average salary for civil servants is US$150.
So we had a situation where civil servants went on strike but we had no capacity at all to improve their salaries. The other challenge had to do with bank supervision while the capacity to attract cheap credit to Zimbabwe was also a challenge in the first half. I made a trip to China and I came back empty handed and part of the problem is Zimbabwe’s US$6 billion debt. We have to deal with this as a matter of urgency.
The bottom line is that the first quarter of 2010 was a very challenged one. There were spikes that were put in the path of economic recovery, challenges that threatened to derail even the little stabilization matrix that we had put in place this year. What it means is that the mid-term statement which I will be delivering in July is going to be very critical.
The good thing is that in the second quarter of the year, there are clear indications that we have reversed a number of the distortions that occurred in the first quarter of the year.
Q: What is really affecting this economy?
Biti: We have structural and non-structural issues that are affecting this economy. The biggest structural issue that is affecting this economy is a false accumulation model that is based on economic activity that doesn’t generate sufficient rent, which is profit or surplus. When an economy cannot develop sufficient surplus then it cannot develop. The false accumulation in Zimbabwe is premised on agriculture and mining. We are producing goods in raw value, there is no value addition and the same applies to mining.
We have to move to an accumulation model that creates surplus. So technology must come into it, value addiction and increased manufacturing too. Unless and until this economy fundamentally graduates from these non-rent accumulation models, we have got a problem. The second accumulation model is a capital deficit, a capital kwashiorkor, a marginal disinvestment that has taken place in this economy since 1965, since the Unilateral Declaration of Independence (UDI).
There has been marginal disinvestment and we are paying the price for that in the form of a collapsed infrastructure and enablers. For instance, if you look at the electricity sector, Kariba was built in the 1950s, after that there was no major investment in electricity. And yet there has been marginal disinvestment from this economy and that is a problem. So we have got a 45 year deficit of marginal capital disinvestment in the country.
What it means is that the current infrastructure is hardly different from the infrastructure that was there in 1965, whether we talk of roads, railway any other sectors.
The third major challenge is technology. We are 23 years behind in technological development. There are some companies in Zimbabwe that are using outdated software. There’s technological kwashiorkor in this country. The other major structural issue is to do with our politics. We have got a cyclical political base. We go through cycles of crises, every short-term period we encounter a political bomb.
When politics is too cyclical it affects the economy. We have not delinked our politics from the economy so much so that when politics sneezes, the economy does not just catch a cold but goes straight into intensive care. Part of the solution to these structural issues is to have a common vision. This country does not have a common vision. That is why at any given time the decision making in Government is dialectic, that is reflective of an absence of a common vision.
This makes our task here at the Ministry of Finance difficult. But we are not despondent and there will be critical answers that we will provide in the mid-term statement.
Q: How are we performing in terms of revenue collection?
Biti: We have met our target of US$120 million revenue collection per month but this economy for it to be normal we must collect about US$300 million per month. The reason why we are not able to collect the kind of revenue we need is because of the marginal disinvestment and the net effect of the disinvestment is that this economy has been terminal. It has slowly been dying.
Q: But Minister, how can we fail to raise only US$300 million per month when ZMDC and the Mines Ministry have confirmed selling diamonds?
Biti: The Government of Zimbabwe has not received a single cent from diamond sales. It’s important that we get a certificate from the KP. Our diamonds cannot be categorized as blood diamonds. Blood diamonds are conflict diamonds and used to fuel conflict as in Liberia and Sierra Leone. That is not the case in Zimbabwe.
However, this is not to say that there are no issues of non-compliance around the KP process, alleged issues around forced labour, human rights abuses, smuggling and inconsistent records between what has been exported and what is alleged to have been mined. There is a legal dispute with ACR. All these issues must be resolved in the context of the KP process.
The KP must allow us to sell our diamonds, but must then come to Zimbabwe to help resolve these issues. It will be very unfortunate if the KP does not allow us to sell the diamonds because they will be punishing the people of Zimbabwe. We can’t pay for electricity, we can’t pay our civil servants and yet we are sitting on one of the finest find of alluvial diamonds in the history of mankind.
You cannot punish ordinary citizens because of the omissions and commissions of the elite political leadership. If you have issues with an elite political leadership allow diamonds to be sold but reign in on the political elite because they will still sell diamonds outside the KP at the expense of the poor. Myself, sitting in this cold office will feel the heat because I have to pay civil servants and pay for electricity and other Government expenses.
Whatever mistakes that have been committed in the past must provide lessons for the KP and Zimbabwean authorities to come up with a new matrix that avoids the omissions and commissions of the past. The KP must help us to stop smuggling, and to ensure that whatever is sold, Government will receive a chunk and how to come up with an investment model that benefits the communities around the diamond fields.
Q: As a lawyer, how does the ACR legal issue affect the sale of diamonds from Chiadzwa?
Biti: As a disciple of the rule of law, I believe court orders must be respected. We are in this struggle for the rule of law, democracy and justice, so there should be no excuse for breach of the rule of law.
Q: Have the ghost workers been removed from civil service payroll?
Biti: The audit is being conducted by the Minister of Public Service and we want this to be completed so that we rationalize the numbers on the payroll.
Q: Minister Biti, in the past you have complained about parastatals milking the fiscus, what is the position now?
Biti: The majority of parastatals are ill-run. They are being treated like little kingdoms. The disaster at Noczim proves beyond reasonable doubt that these entities are little fiefdoms of inefficiency and arbitrage.
Q: Let us talk about corruption, Minister. Is there anything that the Government is doing to contain corruption?
Biti: There is fundamental institutional corruption in this economy. I’m afraid that we have legitimised corruption and the culture of impunity. People get away with murder. The solution goes beyond the legal solution because you can have 20 anti-corruption commissions in Zimbabwe but you cannot stop corruption. You need to deal with the structural issues that are at the epicentre of corruption. We need to deal with the corruption drivers. Some of the problems are shortages in this non-performing economy.
This creates distortions and shortages and that is when middlemen arise. We have to deliver and match demand. We are now used to shortcuts. There are so many people who now have false role models, where you find a crook driving a Hummer, and you think that’s a role model. Our value system has been debased and this must be corrected.
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