Gono fighting a losing battle

Gono fighting a losing battle

GONO

• Gono, the Zimbabwean Napoleon

• The small minds in charge of our economy

• Overcoming the 'Messiah Complex'

New Zimbabwe.com columnist Chido Makunike wrote about overcoming what he called the "Messiah Syndrome". Ex-banker, Takura Mudekunye wrote in support, but shifted the argument to the financial sector, describing Reserve Bank chief Gideon Gono as Zimbabwe's Orwellian Napoleon. Our economic commentator Patrick Mlambo says "the Napoleonic tag given him by Mudekunye fits Gono squarely"

By Patrick Mlambo

MUCH as the alleged success of Gideon Gono as the central bank’s is talked about, I will move here and now that his effectiveness will forever remain on paper unless his monetary policy is complemented by the government’s fiscal policy. I both agree and disagree with Mudekunye regarding his analysis of this man. Gono’s is a one man show. And economies don’t work that way.

A revival for an economy such as Zimbabwe’s requires everyone to pull in one direction. It is sad that Gono finds himself in such an awkward position. His predecessors suffered the same problem. They tried to be effective, but the political process could not afford them the fiscal support they required. It will be the same old story for Dr Gono. He also seems to lack a full understanding of economics which is unlike his predecessors. Without denigrating his profession (I am among others, also a Chartered Secretary), Chartered Secretaries do very rudimentary economics and that kind of economics cannot adequately be relied upon to effectively function at the central bank. No wonder why you find him looking more for scapegoats than running the central bank itself.

As with his predecessors, Gono is fighting a losing battle unless he gets the government to come up with a fiscal policy that is in harmony with his monetary policy. The present government is bent on spending. Spending isn’t bad if they have the money to do so. But it is a problem if and when they don’t have it as is the case now. It is not bad to compensate political detainees (yes they suffered and it’s only fair to have them compensated, after all World War I and II veterans were given farms in Zim), but it has to be budgeted for. The government’s budget deficit has forever been high. The last two central bank governors had always been trying to rein in government spending to no avail. I don’t see Gono succeeding especially with the big present cabinet and the expected new senate. I argued in an unpublished article in 1993 that monetary policy led by an interest rate policy without fiscal policy support was doomed. To me, nothing has changed. The fortunes of the Zimbabwean economy depend on the president’s willingness to push for a fit between his government’s fiscal policy and the central bank’s monetary policy. Whoever has been preaching the message that the economy’s success depended on Gono is likely to have been misguided.

"The real issues at stake for meaningful change are all tied to willingness by government to align fiscal policy with the central bank’s monetary policy"

PATRICK MLAMBO

You need not look further than our current customs tariffs to see what I mean. To import a car in New Zealand, you pay next to no duty. To import other electrical goods, you pay no more than 7%. In Zimbabwe, a car costs you more in customs duty than you pay for it overseas. Electricals cost you in the region of 80%. Look at it this way. People in rich countries pay USD$2000.00 for a car like a Nissan Pulsar (1996). Poor Zimbabweans over there pay the equivalent of USD$5000.00 for the same car. And look at the reason – to protect Willowvale Mazda Motor Industries so it keeps people employed. Those that Willowvale produces are not bought by the poor Zimbabweans. They are bought by companies. Willowvale Mazda Motor Industries will reduce hours and/or close down when things are tough. Even when it closes down, the tariffs on imported goods are kept high up there. Gesham Pasi will forever want higher numbers of Z$. He obviously does not understand the workings of an economy. And I don’t see Gono persuading Pasi to review the tariffs. The reduction in prices is good for the Zimbabweans and what is good for the Zimbabweans is good for the Zimbabwean economy. This is simple material. Such a drop in tariffs will lower Pasi’s reported Z$ collections and that would reflect badly on him from the government who expect more and more Z$ from his department. Gono does not control Pasi and yet Pasi’s department undermines Gono’s efforts, but Gono cannot do anything about it. What level of success do you expect from Gono under these circumstances?

In addition, I am not sure that Gono really wants input from anyone else but himself. Mudekunye’s article says it all. It is something that borders on arrogance. I understand that he told his deputies at the commencement of his term of office that whoever among them didn’t support him was free to leave. I guess that should have ushered in a reign of terror, typified by staff parroting the boss’s views, no matter how weird they are. I don’t see that as a statement expected of a person going into new ground. He was arrogant enough to tell them that he did not need them – which shows me something about his background. He achieved what he never thought possible and because of that he might be seeing enemies everywhere, even though they are not there. Nobody wants to queue for food in Zimbabwe. Everyone wants the country back to normal.

Lest people don’t know, this man is partly responsible for the Zimbabwe situation especially when he was at the CBZ. Remember the Zimbabwe-Malaysia Trade Agreement. The government wanted trade in goods coming from Malaysia. This facility was managed by the CBZ. About 90% of products brought under that agreement, which provided for preferential exchange rates to the USD did not come from Malaysia, but from other countries especially South Africa. CBZ clients used Malaysian agents and established back to back LCs to achieve that. The Malaysian agents got heaps of money for that alone. And those CBZ clients charged for their products at the prevailing black market rates and got all the profits. Government wanted these CBZ clients to get products for Zimbabweans at lower prices but in return for government goodwill, CBZ clients used Malaysian agents and got products from South Africa and in turn charged the Zimbabwean populace heavily and lined their pockets with the profit. Gono was in charge and I challenge him to a public debate on this one. He has been targeting other bankers for undermining government effort forgetting that he too is guilty (as CEO of CBZ) of undermining government effort to bring cheaper products to the people. Who is fooling who?

I also don’t see depth in the man Gono. As I alluded to earlier, his Chartered Secretary qualification is good for simple administration and accounting, but the central bank role requires more understanding of economics than is given under the Chartered Secretary programme’s sole Economics module that people usually cram for exam purposes and get by. There is a difference between a Bachelor of Economics graduate and someone with a sole Economics module to his credit. That is quite telling. He went to Bulawayo to see first hand the trade in foreign currency. What do we learn from this? He is a Thomas. He believes in seeing for himself – cannot believe those who tell him. This too reminds me of his quest to have those in diaspora send money home through Homelink and the establishment of the foreign currency auctions. The auctions make the shortage so conspicuous because as usual, there are always more bids than what’s available and the RBZ wants the auction rates to be pegged between a certain range, beyond which they won’t go – another aspect of controlled exchange rates. Exporters will forever want currencies to be devalued, but faced with a country like Zimbabwe, where the export base has shrunk so badly, one realizes continued devaluation by the regulator is not important. The Zim dollar is already so badly devalued, one does not need a magnifying glass to see that the situation is so. Those in the Diaspora don’t have sufficient foreign currency to sustain Zimbabwe. We need foreign direct investment. That does not take a governor of the central bank to bring. It requires an unequivocal stance by government and it depends on the foreigners’ perceptions of various risks inherent in investing in Zimbabwe, bearing in mind the potential of government to nationalize their investments.

The Napoleonic tag given him by Mudekunye fits him squarely. He is a fighter and I respect his courage, but he is fighting a lone battle, and I pity him because I don’t see him winning that battle without government support. His lack of depth, is not an issue if he chooses to rely on the advice of those under him who have seen and read it all. I know the Reserve Bank is pregnant with learned people. He should look at real issues and the real issues at stake for meaningful change in Zimbabwe are all tied to the willingness by government to align fiscal policy with the central bank’s monetary policy. He has the political clout to do that.

I however disagree with Mudekunye that this man was given a blank cheque. There is no blank cheque to talk about when he cannot influence government to align fiscal policy with monetary policy. Doing that would lose government political support. Yet we know government has to bite the bullet. If it is genuinely done, it would be true that there would be more hardship just at first, but hardship when people see light at the end of the tunnel is bearable. I however doubt the political heavyweights are willing to go without cabinet posts and by the same token, I doubt whether Gono will really change anything. At least his predecessors had better foreign currency inflows. This man faces a daunting task.

Zimbabwe’s economic fortunes therefore depend on God alone.
Patrick Mlambo is a regular columnist and is an economy analyst
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