Members of the Zimbabwe National Chamber of Commerce blasted the government for policy inconsistencies and reversals and accused the Reserve Bank of Zimbabwe of usurping the functions of the Ministry of Finance.
Speaking at their congress held just a month after the presidential elections run off the delegates bemoaned the lack of policy synchronisation between the Ministry of Finance and the Reserve Bank of Zimbabwe accusing the RBZ of assuming the main functions of the Ministry of Finance.
The delegates accused central bank governor Gideon Gono of injecting money, not backed by production, into the economy and thus funding government profligacy by printing money.
They said the RBZ was undermining its mandate to stabilise prices. On top of that, the central bank was applying ineffective instruments in an attempt to control problems of its own creation.
They called on the central bank to concentrate on its core business of ensuring growth, price and exchange rate stability, a sustainable balance of payments position, and full employment.
Full cable:
Viewing cable 08HARARE646, BUSINESS CONGRESS BLASTS GOVERNMENT OVER POLICIES
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Reference ID |
Created |
Released |
Classification |
Origin |
VZCZCXRO0542
RR RUEHWEB
DE RUEHSB #0646/01 2131409
ZNR UUUUU ZZH
R 311409Z JUL 08 ZDS PER SVC RUEHZC #2880
FM AMEMBASSY HARARE
TO RUEHC/SECSTATE WASHDC 3235
INFO RUCNSAD/SOUTHERN AF DEVELOPMENT COMMUNITY COLLECTIVE
RUEHUJA/AMEMBASSY ABUJA 2029
RUEHAR/AMEMBASSY ACCRA 2186
RUEHDS/AMEMBASSY ADDIS ABABA 2305
RUEHRL/AMEMBASSY BERLIN 0837
RUEHBY/AMEMBASSY CANBERRA 1582
RUEHDK/AMEMBASSY DAKAR 1940
RUEHKM/AMEMBASSY KAMPALA 2361
RUEHNR/AMEMBASSY NAIROBI 4792
RHEHAAA/NSC WASHDC
RHMFISS/EUCOM POLAD VAIHINGEN GE
RUEHGV/USMISSION GENEVA 1451
RUZEJAA/JAC MOLESWORTH RAF MOLESWORTH UK
RHEFDIA/DIA WASHDC
RUEAIIA/CIA WASHDC
UNCLAS SECTION 01 OF 03 HARARE 000646
SENSITIVE
SIPDIS
AF/S FOR G. GARLAND
ADDIS ABABA FOR USAU
ADDIS ABABA FOR ACSS
NSC FOR SENIOR AFRICA DIRECTOR B.PITTMAN
TREASURY FOR D.PETERS AND T.RAND
STATE PASS TO USAID FOR L.DOBBINS AND E.LOKEN
COMMERCE FOR BECKY ERKUL
E.O.12958: N/A
TAGS: PGOV PREL ASEC PHUM ECON EAGR EFIN EMIN ZI
SUBJECT: BUSINESS CONGRESS BLASTS GOVERNMENT OVER POLICIES
Ref: Harare 627
HARARE 00000646 001.2 OF 003
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Summary
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¶1. (U) Members of the Zimbabwe National Chamber of Commerce blasted
the government’s anti-growth economic policies in the public forum
of their annual congress. They bemoaned policy inconsistencies and
reversals, the usurpation by the Reserve Bank of Zimbabwe (RBZ) of
fiscal policy, price controls, the indigenization policy, and the
cash crisis. Striking, and encouraging, was the bluntness of
business owners’ public criticism of policy. END SUMMARY.
——————————————— ———
Business Blames Shifting Policies for Poor Performance
——————————————— ———
¶2. (U) At the Annual Congress of the Zimbabwe National Chamber of
Commerce (ZNCC), held in Kadoma July 23-25, 2008 and attended by
econ specialist, speakers and delegates bemoaned the government’s
misguided macroeconomic policies. In business’ view, they were
inimical to economic growth. In particular, participants in the
Congress complained about policy inconsistencies and reversals,
price controls, indigenization, and the cash crisis. The
approximately 200 ZNCC members at the Congress also discussed the
ways in which business was trying to cope.
¶3. (U) Most delegates maintained that policy inconsistency had
rendered planning impossible and contributed to the prevailing
hyperinflationary environment. Monetary policy had been highly
accommodating of fiscal policy for much of Gideon Gono’s tenure as
Governor of the RBZ. Delegates also bemoaned the lack of policy
synchronization between the Ministry of Finance and the RBZ. In
particular, they accused the latter of assuming the main functions
of the Finance Ministry.
¶4. (U) In the delegates’ view, the RBZ was injecting money, not
backed by production, into the economy and thus funding government
profligacy by printing money. In this regard the RBZ was
undermining its mandate to stabilize prices. On top of that, the
central bank was applying ineffective instruments in an attempt to
control problems of its own creation. Delegates and speakers alike
called on the RBZ to concentrate on its core business of ensuring
growth, price and exchange rate stability, a sustainable balance of
payments position, and full employment.
—————————————
Subsidized Funds Fuel Bull Stock Market
—————————————
¶5. (U) In discussing subsidized RBZ lending, ZNCC members felt that
business faced more pressing constraints than the lack of credit.
In fact, they said most firms redirected concessionary funds into
the Zimbabwe Stock Exchange (ZSE) where they could earn real
positive returns, rather than using them to undertake the risky
business of production. Addressing the congress, Emmanuel Munyukwi,
CEO of the ZSE, said the bourse grew by 15,034 percent on a
month-on-month basis in June 2008, which exceeded the 6,900 percent
depreciation of the Zimbabwe dollar against the U.S. dollar on the
parallel market in the same period. In the same vein, most
delegates believed that the recently launched BACOSSI 2 “supply
enhancement” program would cause the economy more harm than good.
The program used scarce foreign exchange to import goods at the
expense of local producers who could manufacture the same
commodities if they only had foreign exchange. Commodity imports
equated to job exports and higher unemployment, in the members’
view.
HARARE 00000646 002.2 OF 003
————————-
Cash Crisis Blamed on RBZ
————————-
¶6. (U) Congress participants noted with concern the prevailing cash
crisis (reftel), and attributed it to the low daily cash withdrawal
limit of Z$100 billion (about 65 U.S. cents on the parallel cash
market) imposed by the RBZ. (NOTE: The RBZ raised the limit to Z$2
trillion effective August 1. END NOTE.) They blamed the wide
divergence between the parallel market rate for cash and the
bank-transfer (RTGS) rate on the cash crisis, and appealed for the
elimination of daily cash withdrawal limits and for a single foreign
exchange rate. Simukai Mutamangira, the Managing Director of the
POSB (People’s Own Savings Bank, formerly Post Office Savings Bank)
maintained that the informal sector held the bulk of cash in
circulation. He criticized RBZ policies as well as the practice by
some commercial banks of purchasing foreign exchange on the parallel
market; it had the double negative effect of creating cash shortages
as well as fuelling depreciation of the currency. He called on the
RBZ to end its denial, recognize that businesses were quoting prices
in U.S. dollar terms to preserve value, even though it was illegal,
and adjust policies accordingly. At the individual level, many
delegates admitted that they regularly converted their own local
currency earnings into U.S. dollars on the parallel market to
preserve value.
——————————————— ——–
Price Controls – Another Blow to a Struggling Economy
——————————————— ——–
¶7. (U) Delegates concurred that rather than reduce inflation, price
controls had fuelled it and spawned the current commodity shortages.
The controls had forced manufacturers either to cut production or
close down completely. They had also distorted the incentive
structure within the economy by implicitly encouraging manufacturers
to sell their output through informal markets to remain viable
rather than through price-controlled formal channels. In the end,
the average Zimbabwean paid far higher prices for goods than if the
government had never imposed price controls.
———————————-
Wrong-Headed Indigenization Policy
———————————-
¶8. (U) Delegates in general were critical of the government’s track
record in indigenization of the economy. It had benefited only a
few politically connected people at the expense of the majority.
ZSE’s Munyukwi disagreed with the government’s assertion that the
economy was dominated by foreigners, and said the government should
have consulted more closely with the business community before
enacting the indigenization bill. He said 90 percent of investors
in the ZSE were institutional investors, 8 percent were retail
investors, and only 2 percent were foreign investors. Furthermore,
foreign ownership on the ZSE had declined from 30 percent in 1997 to
the current 2 percent. Delegates then asked whether the government
was “barking up the right tree,” as the economy appeared to be
already largely in the hands of indigenous Zimbabweans.
——————–
Re-Capitalizing SMEs
——————–
¶9. (U) Unsurprisingly, as most ZNCC members are small to
medium-sized enterprises (SMEs), the delegates welcomed a proposal
by Munyukwi to establish a secondary bourse to cater for SMEs that
otherwise had limited sources of funds. Lamenting the deplorable
state of their factories, most delegates saw the stock exchange as
HARARE 00000646 003.11 OF 003
an attractive funding source for their re-capitalization.
——-
COMMENT
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¶10. (SBU) Striking, and encouraging, was the bluntness of business
owners’ public criticism of Zimbabwe’s economic policy. In private
discussions they recommended drastic political and economic reforms.
There is clearly no lack of understanding in the Zimbabwe business
community as to where the GOZ has gone wrong in policies – what it
comes down to now is mustering the political will to reform. In
that regard, the business community has set its hopes on the current
inter-party negotiations. In the meantime, more of the same
policies will only accelerate the economy’s free fall. END
COMMENT.
MCGEE
(67 VIEWS)
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