New Zimbabwe.com

Let’s stop the madness!

By Chiichiri Muzita


There is no honour in becoming a billionaire through overcharging an impoverished customer base for mobile and internet services. Why does Econet’s 2.5 GB data bundle cost US$50 in Zimbabwe yet broadband in India costs US$4 per 5 GB?”

RECENT events in Zimbabwe have brought to the surface everything that is wrong with our economy after 38 years of kleptocracy under Robert Mugabe’s rule. The crazy cost increases showed that, as a country, we are corrupt to the core.

Our overrated, skewed and disproportionally overpriced economy is an elaborate get-rich-quick scheme, based on thumb-suck pricing to profiteer and defraud through outright corruption.

It has come to light that the RBZ was directly responsible for currency manipulation over the past few weeks. Heads should roll, with mass retrenchments to uproot the tree of corruption. I would recommend a new governor from outside the country with the relevant expertise to bring sanity to the central bank.

Reality Check

The lunacy in our economy is highlighted by our so-called Poverty Datum Line of US$450 to US$500, which everyone uses as the bar for wage demands. Any idiot should know that the problem of our economy is not of low wages, but of the disproportionate cost of living.

In an economy with a GDP of less than US$20 billion, over 90% unemployment and with over 70% of the population living on less than US$1 per day, how is our poverty data line so high? A simple example is the price of a new scotch cart which can cost about US$500; it has no engine, is animal drawn, yet you can buy a brand-new Tata car in India for about US$1000. This is madness.

A house in the low-density suburbs costs anywhere between US$200,000 and US$500,000 – how ridiculous is that? What is the pricing based on? Do you know what you can buy anywhere in Europe, or anywhere else for the matter, for that amount. Not forgetting that your standard house comes without consistent electricity and no running water. We need a reality check.

What most people don’t seem to grasp is that the cost of labour plays a significant role in industrialisation. China and India’s low cost of labour (US$150 to US$200 per month for semi-skilled) has been the key enabler for phenomenal growth averaging between 7 to 11% consistently for close to 2 decades now.

How does insignificant Zimbabwe intend to industrialise and compete in a global village when India and China have low cost vast human capital resources pooled from populations of 1.38 billion and 1.32 billion? What do we have to offer besides cheap natural resources that are exported to China for processing?

We do not have cheap and consistent electricity supplies, reliable and continuous water supplies required for most manufacturing processes, nor sea ports for easy exports. Our rail transport infrastructure is still in a mess, so how can we expect anyone to set up new industries in Zimbabwe?

To put our current wage demands in perspective, Bangalore is the IT hub of India. With a population of just 8.5 million, it generates up to US$60 billion per year in IT services alone. Microsoft, Google, Apple and Amazon have set up bases in Bangalore and employ thousands of coders, programmers, software engineers and computer scientists who are paid on average between US$200 and US$300 per month.

These are some of the best minds in India, yet back in Zimbabwe we have some sweepers in Zesa earning US$1,000 per month, grounds-men and secretaries at the Harare local council earning US$1,000 per month, and now we have teachers demanding a minimum US$600 per month. We need a reality check to bring things back in perspective in a country with an artificially undervalued US dollar.

Some are silly enough to compare our wages with neighbouring South Africa. We conveniently forget that South Africa is, in essence, an industrialised country with a population of 56 million and a GDP of US$208 billion. Wages in South Africa are higher than some European countries with higher GDPs. Take KZN as an example with an average wage of R17,000 (US$1,200) per month in the mining sector, which is higher than a similar job in Spain. The skewed and overinflated wage system in South Africa is a carryover from Apartheid, whereby a small clique enjoyed wages higher than in most European countries.

Zimbabwe also passed through similar circumstances. We took over the colonial perks and benefits such as housing allowance, travel allowance, allowances for maids and gardeners, school fees for kids and so on. Most developed countries with trillion-dollar economies don’t have such nonsense, a company car (if your job involves travelling) is the most you’re likely to get. The rest are extra perks you get in special circumstances, like when you are expatriated to another country. For emphasis, I will reiterate here, our problem is not about low wages but the disproportionate cost of living. So, what can we do?

Current minister of finance is the right man for the job

Finance and economic development minister Mthuli Ncube

I must give credit where it is due. The appointment of Mthuli Ncube as finance minister was the best decision made in decades. Whilst everyone tried to point the finger at the recent announcement of the 2% tax as the cause of the sudden price increases and shortages, it is now coming to light that some RBZ officials were responsible for the recent currency manipulations.

In a country where US$110 billion is electronically transacted per year, the 2% tax will bring in about US$2 billion. The transitional programme he has put together, at some 344 pages, is practical and implementable. Let’s see if politics gets in the way.

Rumour has it that the recent currency manipulation came from the RBZ which printed loads of bond notes and then flooded the black market to buy US dollars. This is the same modus operandi from 2008. This madness was then fuelled by cost increases caused by pure speculation, deeply entrenched corruption, profiteering and greed.

The GoZ has, quite rightly, taken the decision to analyse the supply chains and see where the price distortions come in. Whilst so-called economists yap on about “you can’t control the prices, let the market forces decide”, the so-called market forces can be manipulated.

There is no such thing as a perfect market and even less so in Zimbabwe. India has price controls, whereby on every single good sold in shops, even in the most remote villages, all have a price tag with a MRP (Maximum Retail Price), and below it the actual price of the product as sold in the shop. If it works in India it can work in Zimbabwe.

The GoZ needs to focus on the main problems that are causing cost distortions, before introducing price controls. I have identified the main cost drivers and proffered possible solutions:

Corruption

With corruption we just need to copy, paste and fervently implement Singapore’s policies. It’s that simple.

Using US$ and the bond note

We need major currency reforms – for now we can keep the multi-currency system in place, temporarily make the South African Rand the major currency for transaction, then work towards introducing a new gold, silver and PGM backed local currency based on exports of gold, silver and PGM.

Instead of charging a 10% levy on minerals mined, the RBZ can collect 7% of gold, silver and PGM metals as bars, or coins, store them in a vault in the RBZ, print money (or introduce a digital gold currency) which will be the equivalent of the gold, silver and PGM metals in the vault. Regular audits by independent agencies are a must in our case, due to the corruption at the RBZ.

If gold and silver exports are expected to pull in US$1.6 billion this year, with PGM exports also projected to rake in just over US$600 the 7% I’ve proposed would translate to US$154 million. No need for Afrexim backing. The money printed against the value of metals in the vault will be introduced in the money system as loans to highly productive sectors as part of the reindustrialisation drive. With increased exports of the gold, silver & PGM’s each year, the money supply in our system can be gradually increased until we wean ourselves off the US$. It’s just an idea.

Cost of Fuel imports, Cost of Electricity, Cost of ammonia nitrate imports

Fuel imports are costing us US$1.6 billion a year in scarce forex; electricity is ridiculously high at US9.83c to US12.6c per kWh, and ammonia nitrate imports from Sasol are also costing us about US$90 to US$100 million.

The magic bullet that can address all three problems and transform our economy is right under our feet. The coal bed methane CBM gas we have in abundance can solve all these issues, cutting fuel imports by at least half, providing ammonia nitrate and urea for local consumption and export, and generating electricity for as little as US2c per kWh.

Zimbabwe is currently importing up to 30 million kg of LPG and paying, on average, anywhere between US$1.50 to US$2.00 per kg. Compressed natural gas (CNG) can be produced from CBM, and will cost as little as 25c per kg. Same thing with the ammonia nitrate, whereby ammonium nitrate fertilizer costs about US$32 for a 50kg bag. This can be brought down to US$11 for a 50kg bag.

These are not numbers I’m grasping from out of the air. Zimbabwe can produce enough ammonium nitrate and urea for the local market and regional exports. Unfortunately, the CBM gas claims are currently held by individuals that have no expertise or technical ability in extracting and monetizing it. And, on the other side of the spectrum, there is a small group of Zimbabweans that have the expertise to implement these projects at a low cost.

Any foreign company that comes in to develop the CBM gas project will inevitably charge over inflated prices, and a premium for the gas once it is being produced, which again will prejudice the local economy. Those with claims need to engage those Zimbabweans with the expertise and develop these projects together.

Cost of Lending

A study revealed that the cost of lending was high due to salaries, perks and benefits of management at banks. Major reforms in the banking sector are needed to provide low lending rates of between 4 to 7%.

Property Rights and the Rule of Law

Redrafting the legislature to coincide with the 2006 Uncitral Model Law, which will establish Zimbabwe as the leading arbitration centre in SADC and Africa. The new dispensation should engage the International Commercial Arbitration (ICCA) to boost these ambitions and reflect Zimbabwe’s international interest in developing an arbitration centre in Africa.

Cost of internet services 

Econet group founder and executive chairman Strive Masiyiwa

If we want to revolutionize our economy in the same way India has done through IT, then the cost of internet needs to fall dramatically, and access needs to be nationwide. Whilst many Zimbabweans are great admirers of Strive Masiyiwa, I’m not one of them. There is no honour in becoming a billionaire through overcharging an impoverished customer base for mobile and internet services. To prove my point, why does Econet’s 2.5 GB data bundle cost US$50 in Zimbabwe yet broadband in India costs US$4 per 5 GB? Why is there such a price disparity?

The only reason why the GoZ endorsed these overinflated prices is because they are also making a killing through government owned NetOne and Telecel. Its’ a cartel of Econet, NetOne and Telecel in an unholy alliance of price fixing. The solution is to adopt the A2AI – access to affordable ICT – and open the market especially to Indian telecom companies who will bring those prices tumbling.

Obstacles to the above solutions being implemented

There are many obstacles to implementing the above; the main one being the politically connected people who are benefitting immensely from the current system, as an example fuel imports of US$1.6 billion, which they are buying at a low price, marking up considerably and making millions. They will resist such changes.

The New Dispensation

If the new dispensation really wants to turn the economy around, they need to address the above. We need homegrown solutions first and foremost and, as I mentioned earlier, there is a group of young Zimbabweans who are based in the diaspora with some simple yet brilliant ideas. Not the spaghetti roads type. I have seen some of their proposal ranging from gas, ammonia nitrate, power generation, lithium carbonate production, ferroalloy processing and stainless steel production, solar mirrors and bioplastics.

All the things for which the GoZ is trying to get foreign technical expertise are actually available from our own. You invested in their education, now reap the rewards. They have even proposed to put solar panels on top of water canals planned in Zimbabwe, which has a dual purpose of preventing water evaporation, and providing electricity for pumping water and irrigation. This was successfully implemented in Gujarat, India and produces up to 200MW.

What’s extraordinary about their project proposals is they are using local resources and can manufacture all of these products at costs lower than in China. All the projects link with each other, and some are exponential growth businesses. Engage them, listen to their ideas, evaluate their project proposals, and compare them with what you have on the table.

Foreign investors on mega projects such as Tsingshan for stainless steel, RCM for steel and so on appear to be quick win in the short term, but home grown solutions will ensure that money earned through exports stays and circulates in the local economy and can be lent to other businesses. We need homegrown solutions to our problems.