Command economics won’t work, experts say

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THE government has issued a staggering 320 statutory instruments (SIs) over the past 15 months alone — illustrating both the authorities’ growing desperation and their chaotic policy making. Experts who spoke to The Financial Gazette this week said the sad reality was that none of these ill-conceived decrees would help to rescue the country’s battered economy.

Chris Mugaga, the Zimbabwe National Chamber of Commerce (ZNCC) chief executive, has even described the government’s over-reliance on SIs as having reached “tragicomic levels”. Among the government’s latest edicts is a ban on the fungibility of Old Mutual, PPC and SeedCo’s shares, as well as new exchange stabilisation measures, which have only served to add more confusion and anxiety in the market. Francis Mukora, an analyst, said what was happening in the country manifested the “chaotic nature of Zimbabwe’s policy-making regime”. “If you notice that some policies are put in place and reversed within a few days, then it means that they would not have been well thought-out,” he said. “They (the government) are using the garbage can model (an irrational decision-making model which assumes that problems, solutions and participants are disconnected) which is reactive, and basically means that if there is a problem, then a solution in the form of a policy is enacted,” Mukora said.

“This isn’t effective given the volatile nature of our economic situation, whereby inflation and conditions change by the day, if not by the hour,” he said. “It is clear that the policies are not working … even with so many policies, the economy continues to nosedive. What we need are not many policies, but a few well thought-out policies that yield positive outcomes for the economy,” Mukora said.

“Above all, we need behaviour from our leaders that helps to inspire confidence,” he added. On the other hand, Morgan & Co research head Batanai Matsika said: “The frequency with which government is issuing SIs is alarming and breeds uncertainty, as the laws are also very weak because the process does not allow for debate or consultation.“As a result, we now have too many interventions … especially in the capital markets,” he said.

“We have a foreign currency crisis in the country primarily because the official market is inefficient because of too much control, even after the recent ‘liberalisation’,” Matsika said. “We have also seen it with the fungibility mess. These disruptions do not help the markets … government must allow market forces to rule,” he added. In an earlier opinion, Matsika also described the suspension of the fungibility of OM, PPC and SeedCo shares — on dubious claims that this was fuelling the country’s rampant forex parallel market — as a “bombshell”. “We strongly argue that this reasoning is completely misplaced given that foreign exchange … follows the forces of supply and demand in the determination of an equilibrium price,” he said.

“The movement in the OM share price was being driven by demand from foreign investors that were using it to exit the market,” Matsika said, adding that the multi-listed firm was serving as a “currency hedge” that was attractive to investors. “By suspending the fungibility of shares, it is effectively erasing Zimbabwe … from the radar of frontier market investors,” the Morgan & Co senior staffer said. “Zimbabwe should actually be doing all the things … to attract foreign and regional partners in order to … survive in the new global economy,” Matsika added. John Robertson, a veteran economist, echoed the same views that the country was getting laws which were “not necessary and only aimed at making it easy for the government to bully the populace”. “It is very unfortunate the way legislation is being processed in the country at the moment. The issuance of these SIs has downgraded (substituted) parliament,” he said.

“Parliament matters less now … and that is a dangerous thing because the laws are not debated, and the results are not very well-thought-out,” Robertson said, adding that the government should “desist from this way of doing things and parliament should be given its place”. In his hard-hitting opinion last week, Mugaga said bluntly that the country’s over-reliance on delegated pieces of legislation had reached “tragi-comic levels”. “It explains why even a currency which never was one cannot be trusted. Modern-day economics certainly cannot promote a currency which is introduced through delegated legislation,” he said. “It is my firm belief that even if we are to have control over broad money supply and reserve money, our local unit will continue to tumble in nominal terms,” Mugaga said.

“This will be driven by apparent inability to deal with our resident economic confusion … adverse expectations stemming from political noise as well as dilapidated infrastructure and populist policies,” he said. The trained economist also noted that the solution to Zimbabwe’s economic and financial crisis did not lie in setting up infinite taskforces and committees. “What is the rationale of setting up a currency stabilisation taskforce in a market, which already has too many monetary frameworks or structures which include the monetary policy committee … the board and presidential advisory council has just joined the list of such monetary structures,” the ZNCC boss said. “Zimbabwe is possibly the only nation on earth where a presidential advisory committee … is dragged into technical monetary measures (whose members have no appreciation of the issues thereof),” Mugaga said.

“The establishment of the currency stabilisation taskforce is just a loud statement by Treasury and presidency to express their lack of confidence in our central bank … (and is) an unnecessary ‘animal’ at this hour,” he said. Although Legal Affairs minister Ziyambi Ziyambi has tried to downplay the growing use of temporary laws, saying Parliament’s committees reviewed all SIs, Movement for Democratic Change chief whip Innocent Gonese has said that the august House’s oversight in this regard only related to the legality of statutes. “We are seeing an abuse of the process with these SIs … too many issues are being dealt with through these instruments,” he said. “The government also has a tendency of issuing illegal legislation, as we saw with the two percent tax law. These pieces of legislation only come to parliament’s legal committee after they have been gazetted,” Gonese said. “So, even if Parliament issues an adverse report and government withdraws the law, it would have been operational in the interim,” he said. “And now with Parliament taking leave due to the Covid-19 pandemic, we are concerned that government will issue a number of illegal laws that will not be debated or reviewed,” Gonese added. newsdesk@fingaz.co.zw