November 15, 2002

ZIMBABWE: New finance minister admits economic crisis

imbabwe's Minister of Finance Herbert Murerwa admitted that Zimbabwe's economy required urgent corrective action to avert further deterioration when he tabled his budget for 2003 on Thursday, November 14. In his budget speech Murerwa said output had declined by 19 percent over the last three years and inflation accelerated to 144 percent by the end of October.

The severe drought and food shortages, a drop in the country's food supply, the scarcity of foreign exchange and negative international perceptions following the implementation of the land reform programme, were factors compounding the current economic difficulties.

In response, he raised tax-free threshholds for certain sectors of the population including the elderly and the retrenched, pumped more money into the agrarian sector and introduced a tough set of measures to keep a tighter grip on valuable foreign exchange. For the land reform programme, which has seen thousands of commercial farmers forced off their land, he boosted the coffers of the Ministry of Agriculture, Lands and Rural Resettlement, and set aside several billion Zimbabwe dollars for a crop-input scheme, field trials and training and the development of irrigation infrastructure. He hoped a tax break would stimulate interest in the new Agribond which aims to raise Zim 60 billion (about US $1 billion at the official exchange rate) for resettled farmers. However, the Financial Gazette newspaper warned that the low interest of 24 percent on the bonds would discourage investors and added that the Agribonds had come too late for the current season.

In an attempt to control government foreign exchange reserves, Murerwa announced the abolishment of all bureaux de change and would also raise the amount of foreign currency exporters had to surrender to the Reserve Bank, up by 10 percent to 50 percent. "The above exchange control measures have been necessitated by the gravity of the foreign currency leakages. These measures will, therefore, be reviewed in due course as and when the situation improves," he said. He also predicted that inflation would fall from its October level of 144 percent to about 96 percent next year in spite of reports that the International Monetary Fund expected it to rise to 500 percent.

The opposition Movement for Democratic Change (MDC) said the budget "did little or nothing to resolve the economic crisis that has gripped Zimbabwe in the past three years". In a statement the MDC said the budget deficit was unacceptably high at 11.5 percent of GDP and interest rates were too low in the current hyper-inflationary environment. It also slammed the large defence allocation in the face of the withdrawal of Zimbabwean troops from the Democratic Republic of the Congo. Murerwa set aside Zim $76 billion (US $1.4 billion) for defence, while the Ministry of Health and Child Welfare received only Zim $73.4 billion (US $1.3 million). He also allocated Zim $2.5 billion (US $46 million) for procurement of anti-retroviral drugs.

In a separate development, it became clear this week, that the impact of Zimbabwe's controversial fast-track land reform programme has rippled through the economy, but it has been the country's once robust agro-industries that have been the hardest hit. "Most of these companies have either downsized or ceased operations because there was no longer a sustainable demand base ... Most of the new settlers are small-scale and communal farmers who do not use much equipment or inputs. Large-scale farming requires extensive equipment and inputs and this is what the new farmers cannot afford," economist John Robertson told IRIN.

"There was no policy foresight on the part of the present government. No planning was done because [the ruling] ZANU-PF was concerned mostly with how to survive the challenge of MDC [opposition Movement for Democratic Change]. The result of that tendency is what we see today - ruins of industry," said Tapiwa Mashakada, an economist and MDC legislator.

Even farmers who have been settled on intact commercial farms, the so-called A2 scheme, have run into difficulties in financing the purchase of necessary equipment in the short to medium term. Recently, there was an outcry when some of the desperately needed winter wheat crop was left to rot in the fields when the first rains fell because new farmers could not afford to hire combine harvesters. Commercial farmers were traditionally an important market for engineering firms, who supplied tractors, combine harvesters and irrigation equipment.

According to the latest Confederation of Zimbabwe Industries (CZI) report, local markets are shrinking due to the collapsing agriculture sector. As a result, 450 engineering companies have gone on short working hours and are hiring contract workers rather than permanent staff. About 12 small to medium firms folded between 2000 and 2001. Companies whose businesses depend on raw materials from the farming sector have also been hard hit. They include millers, bakeries, leather dealers, timber manufacturers and clothing and textile concerns.

The CZI report said large-scale millers had retrenched more than 50 percent of their staff and had closed some of their branches. It cited a lack of inputs - mostly maize, wheat, and cotton seed - as one of the major constraints faced by the industry. The national maize demand is about two million mt per annum, but current production has been estimated at 500,000 mt. The country has only managed to produce 200,000 mt of wheat, against the domestic requirement of 400,000 mt.

The leather industry, the CZI report pointed out, has been affected by the lack of raw hide. White commercial farmers whose land was occupied had complained that some new settlers had killed their cattle for food. According to media reports, the affected farmers also slaughtered their herds when it became clear the government was bent on evicting them. (IRIN)

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