The last six months have been a stormy ride economically for Zimbabwe and operationally for Zimbabwean businesses, starting with the September Monetary Policy Statement and moving through what amounted to an economic revolution.
But suddenly we are in calmer waters and as business managers and their teams, who generally had to work exceptionally hard in very difficult circumstances, straighten up and look around, they all find we now have a stronger economy, one built on fundamentals and reality rather than convenient fictions, and an economy ready to grow.
The cost of living rose just 1,67 percent in February, confounding the expectations of those who extrapolated without thinking from past inflationary surges, and confirming the views of those, like ourselves, who realised that this time economic liberalisation was being done differently, with the most critical difference being that we liberalised without increasing money supply.
The bald figure of close on 60 percent annual inflation needs to be interpreted correctly. Almost all of that jump in the cost of living did not occur over the past year: it took place in the four months from October last year to January this year. Plotting the monthly inflation figures gives a far truer reflection of what happened. The graph shows a gentle rise with a sudden and dramatic four-month bulge before a return to the gentle rise.
And the March figures are not going to show any big changes. Everyone who goes shopping has already noticed that price fluctuations are seriously diminished and that there are as many modest price drops as there are modest price rises, at least for goods made or packed in Zimbabwe. In fact monthly inflation figures are likely to be so low that there could even be soon the odd month when there is a slight drop in the cost of living as businesses refine their costing models and stop hedging, or at least reduce their hedging, for inflation and exchange rate fluctuations and start worrying more about cash flows and market share.
So the annual inflation rate is going to become less and less useful as a measure until the end of January next year, when that four-month bulge disappears and the true annual inflation rate shines forth. And it will be in single figures or very close to single figures when that happens. Annual inflation will drop dramatically each month from October this year to the end of January.
Minister of Finance and Economic Development Prof Mthuli Ncube, who admirably kept his nerve through the last few months, was probably correct when he described in the middle of the four months that what was happening to the cost of living and the exchange rate was a “correction”.
Zimbabwe lived through an economic fiction when the previous administration recklessly increased money supply but inflation remained very low. Normally when money supply grows far faster than growth in gross national product there is inflation so that purchasing power remains in line with the real value of the economy and exchange rates change to reflect that reality. The fiction that it was possible to have high money supply growth and low inflation was maintained by pretending that every dollar in a local bank account was equal to US$1. Everyone knew that was not the case.
So the gentle inflation we should have seen over the past seven or so years as the Mugabe Government accelerated into deficit budgeting was concentrated into four months; and the gentle depreciation we should have seen in exchange rates if we had our own currency was again concentrated into those four months, at first informally on the parallel market and then formally with the February Monetary Policy Statement of Reserve Bank Governor Dr John Mangudya.
We are not yet out of the woods. We can still make serious mistakes. But so far the managers of our fiscal and monetary policies, the Minister and the Governor, have been making the correct moves and making them in concert, again a major and welcome change.
A decent monetary policy requires a tight fiscal policy, and a functioning fiscal policy requires a monetary policy that reflects the same economic realities. Inflation and exchange rates are now likely to be stable because there are simply not enough RTGS dollars now around to drive either into major swings and because of the determination not to create any more.
The third major factor in the creation of the new economic stability has come from President Mnangagwa. He has not only backed his economic advisors through a period of turbulence and austerity, he has made major inroads into what was a growing culture of corruption and crony capitalism that was threatening to sink Zimbabwe.
Regardless of the court cases and judicial decisions that are in progress or have been given, everyone now knows that cheating has become a high-risk activity. The biggest sign of this is, oddly enough, the national and international response to Cyclone Idai. Substantial aid has come internationally, some from our closer friends and some from countries that make no secret of their disagreements with Zimbabwe. Yet obviously all giving aid have reasonable confidence that their money will be used properly and that when they ask how their money was spent they will get a decent set of accurate accounts. The tremendous national response from individuals and businesses also shows a welcome confidence that the Government and the community organisations in the affected areas will use the aid properly.
This surge in confidence is built on the surge in transparency and efficiency. And if we are to win through we must accelerate our progress to a fully transparent and fair system.
To take one example. The South African Reserve Bank has opened a facility to help Zimbabwean manufacturers import raw materials more easily from South Africa. We would assume the South Africans would welcome positive vetting of applicants so that real manufacturers benefit, rather than well-connected but very seedy individuals sitting in a small office and trying to create a fortune as high-margin middlemen. And if the vetting is a joint exercise by the Confederation of Zimbabwe Industries and the Government then the confidence in the result will be even higher.
Being human, we are still likely to make mistakes. But if we are also open and transparent then these will be noticed before there is any serious damage and can be fixed quickly.
To move into sustained and rapid economic growth we have to advance on all fronts: political, legislative, fiscal, monetary and business. We are now appearing to work towards that joint forward move, for the first time since independence. It is incumbent on all in the Government, private and civic sectors to pull together with a reasonable degree of mutual trust and a shared vision that we all contribute to. This does involve getting to know each other better, hence the many meetings hosted by the President, but that effort as we all chip in will create a joint prosperous future.