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Firms: More bad news for Zim
02/10/2007 16:31 - (SA)
Harare - Zimbabwe's inflation could surge further on higher state spending, deepening a crisis worsened by shortages of basic goods and thwarting the central bank's efforts to revive the country's broken economy.
Analysts blame President Robert Mugabe's policies - such as the seizures of white-owned farms for blacks and, lately, plans to nationalise foreign-owned firms - for discouraging investment and worsening the economic meltdown.
Reserve Bank of Zimbabwe Governor Gideon Gono, who is leading government efforts to reverse the collapse, said in a monetary policy review on Monday inflation would ease in the medium-term as businesses raise production on new incentives.
Gono's revival plan
He offered businesses special credit rates of 25% interest and to pay farmers in foreign currency for their produce.
Gono also hiked the main lending rate to 800% and said a new currency was imminent in a bid to douse black market trade in foreign currency, fuel and goods. He gave no details of the new currency.
"It is an expansionary policy to solve a problem which should have been avoided, but its assumption that cheap funds for producers will kick-start supplies is too optimistic," said David Mupamhadzi, chief economist at the Zimbabwe Allied Banking Group.
"There are major structural rigidities, such as the erratic electricity, fuel and water supplies...it's anyone's guess what will happen to inflation," he said during a meeting called by the Zimbabwe National Chamber of Commerce to review Gono's policy statement.
Zimbabwe is grappling with the world's highest inflation rate at around 6 600% and unemployment officially put at around 80%, with analysts predicting further job losses from company closures.
Western plot
Business leaders said government policies should not be focused merely on short-term gains.
"Elections are coming and the reality is that a lot of funds will be pumped into the rural areas, but we need policies that go beyond that," Laputa Hwamiridza, Zimbabwe National Chamber of Commerce vice president, said.
Zimbabwe holds joint parliamentary and presidential elections in 2008 and Mugabe's ruling Zanu-PF is widely expected to win, partly due to its massive rural support.
Meanwhile, industrialists warned that an empowerment bill passed by the lower house of parliament last week seeking to transfer majority control of foreign-owned firms to black Zimbabweans would compound the country's economic woes.
While Gono urged caution on implementing the proposed law, Mugabe told supporters his government would press ahead with taking foreign businesses and that those unwilling to partner locals should stay away.
'A mixture of good and bad'
Independent economic commentator Eric Bloch said of Gono's statement, "It's a mixture of good and bad. Good in that the governor's given a timely warning and provided a sober, forthright voice on the empowerment plans."
"But I do not agree with him on what he says is the impact of sanctions on the economy," Block said. "The absence of offshore lines of credit is not because of sanctions. No bank, except the Reserve Bank of Zimbabwe, of course, will lend to people who are not creditworthy."
Mugabe has accused some foreign companies of stashing profits abroad and hiking prices without justification, and on Monday reiterated threats to seize defiant companies he says are part of a Western plot to unseat his government.
"At this point in time, we do not need an indigenisation bill because there are not many companies left to indigenise," Hwamiridza said.
"What we need is to grow the cake, not to fight over the small cake that remains ... our urgent challenge is to bring back food to the table in our households."
Mugabe, 83 and in power since independence from Britain in 1980, denies charges of mismanaging one of Africa's once model economies, saying Zimbabwe is a victim of sabotage by Western powers opposed to the land seizures.
- Reuters
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