Project Sunrise or Sunset?

AT 26, Zimbabwe finds itself mired in an economic and political crisis of unprecedented proportions. The root causes of such a crisis are as elusive as solutions offered and yet the symptoms of a dying patient are obvious to all.
The past two weeks have seen the three major actors in the Zimbabwean drama giving their perspectives and prescriptions to the economy. The President opened the salvo with his address to Parliament setting out the legislative agenda notwithstanding the fact that the Reserve Bank of Zimbabwe is now the only centre of power and the legislature’s relevance has been systematically undermined by an executive that has craftily used a self generated crisis to convert a seemingly democratic state into an outsourced dictatorship.
The President’s ritual address to Parliament was then followed by the Minister of Finance’s fiscal policy package introducing a historic supplementary budget while acknowledging that he was a curtain raiser to the Governor, Gideon Gono.
In the Shona language, “Gono” signifies masculinity and no wonder the centre of power has shifted to the man with the balls to cure the country’s problems. It is important that we understand the context and content of the so-called monetary measures announced by the Governor if we are to better assess the competence or otherwise of the man the President has decided to outsource the macro-economic, security, and law enforcement functions of the state.
It is evident that the President is of the view that the economy is under siege and, therefore, requiring unorthodox solutions. Accordingly, the use of emergency powers is justified and hence the delegation of the powers of the state to the man who is not afraid to use power. A friend of mine recently observed that power must be used by those who have it so that those who do not have it can be intimidated into submission. If there is a state of emergency and the organs of the state i.e. the executive, legislature and the judiciary are not capable of responding to the crisis of the day, then it is argued that the country has no choice but to allow a bull to take control and shepherd the people to the Promised Land.
The construction of the President’s logic is clear that Zimbabwe is a victim of a conspiracy of domestic and international forces determined to ensure that the liberation project is reversed and undermined. Some of the detractors are in the legislature in the form of the opposition MDC who are seen as agents of the British and their collaborators. Accordingly, it would not make sense to engage Parliament on the nationally sensitive issues like monetary policies or to expect the government to account to a legislature contaminated by the British.
It is no wonder that both the President and the Minister’s addresses to Parliament were short on specifics deferring to the unelected and unaccountable Gono to do the hatchet job. Although the opposition is acutely aware that they are not part of the deal, they have continued to remain in parliament for what has been described as economic and financial reasons. Both the MDC factions are at one on the need to continue to be part of an institution which the ruling party considers irrelevant in solving the problems of the country.
While some may argue that the economic and political crisis in Zimbabwe is self generated, it is important that the Project Sunrise announced by Gono be understood. If one accepts that out of light comes darkness and in turn out of darkness comes light, the coining of the monetary measures under the banner “project sunrise” means that the Governor and his backers firmly believe that they have a sustainable and viable solution to the problems and they can see the light when other people see darkness and gloom. It is also evident that the construction of the new measures is based on a mistaken analysis that criminality is a contributor to the crisis and that such conduct is driven by unpatriotic motives.
Given the analytical and conceptual framework that informs the so-called project sunrise, it is not surprising that daylight brings intimidation, arrests and a public relations exercise that seeks to subordinate citizens’ constitutional and legal rights in preference for a social compact underpinned by an assumption that the behavior of economic agents must be based on state defined rationality and not on enlightened self interest. Under this framework, people are expected to blindly have confidence in a banking system against a backdrop of a failed state that is largely responsible for eroding the value of money through irresponsible and criminal fiscal and monetary measures.
In a hyper inflationary environment, citizens are expected to place their limited and diminishing financial assets in banks while prices of goods and services are changing every minute with no visible light at the end of the tunnel. One can argue that Zimbabweans by stashing their cash outside the state-discredited financial and banking system, were behaving rationally and if Gono was rational, his attention would be focused on rooting out the real causes of the crisis. To what extent is the government responsible for condemning people to use non-banking instruments as a means to protect their interests is a question that seems to have escaped the attention of the possessed Gono.
The kind of naivety that informs the project sunrise and Gono’s policy prescriptions can best be exposed in the context of the foreign exchange market. In Gono’s world, Zimbabweans are expected to be irrational by buying and selling their foreign currency at an arbitrarily determined exchange rate when the market suggests otherwise. Even under the new measures, citizens will be expected to surrender their foreign currency to the market at Z$250,000 to US$1 and yet the real market exchange rate is around Z$600,000 to US$1. If you decide to act rationally and seek the maximum value for your US$, you risk being arrested and Zimbabweans are then expected to accept that this is the kind of day they should expect after sunrise.
One would have expected the project sunrise to bring daylight and restore the rights of citizens to exercise their own choices in their own self interest. Any policy instrument based on a mistaken belief that the state knows better than the individual to him it should look to for economic salvation is bound to fail. Instead of describing the project as sunrise, I believe that when one carefully analysis the context and content of the measures, it is more appropriate to describe the project as a sunset initiative designed to throw the country into darkness before the great awakening. Only a blind economist would characterize a policy framework that places the Governor of a Reserve Bank at the centre of a series of public relations stunts which undermine the rule of law and human rights as a sign of progress.
The Governor should have asked himself some fundamental questions before behaving like the infantry whose brains are in their shoes and who only respond to commands. He has chosen not to behave like a general who should fight a battle before the battle by properly analyzing the situation and planning the battle. The questions are quite obvious and simple. Why would citizens decide to shun banks if banks promoted their interests? Is inflation caused by so-called criminals? What is the link between the black market and obsolete exchange controls? Why would a governor need the youth brigade, security agents, and the whole state machinery to enforce good and well meaning policies? Are targeted sanctions the root cause of the crisis? What is the link between quasi-fiscal policies being implemented by the RBZ and inflation? Can business operate in an environment characterized by fear? What is the difference between confisticating someone’s cash and expropriating private property? What are the constitutional implications of the actions of the RBZ? Is cash in my possession my property or the property of the state? With respect to foreign currency, whose property is it? Does the state have the right to force citizens to make suboptimal choices by exchanging their rights to foreign currency at prices determined by the state? Are his policies that can only be effective under a police state sustainable and in the interests of nation building?
I set out below some of the salient features of the monetary statement announced by Gono.
* Announced "Project Sunrise", focused on SME development and the removal of 3 zeroes on the currency from August 1 through the introduction of a "new family of bearers cheques". 21 days to change to new family of bearers cheques. Launched "zero to hero" marketing campaign, which involves the replacement of currency. Cents reintroduced, but in note form. The removal of three zeros has no material bearing in changing the fundamentals of the economy. It is a convenience gimmick located in the misplaced strategy to root out inflation when the only remedy to inflation is a sustained supply response on the back of policy measures that are grounded on reality. A climate that promotes investment and development cannot exist in a vacuum and through currency changes. The architecture of the economy requires a radical change. Inflation has been simply described as too much money chasing few goods. To be a real hero requires more than removing zeros. Even the late Idi Amin could do better.
* Holders must produce source of bearers cheques funds if in excess of $100 million for individuals or $5 billion corporates. If you cannot produce evidence of source of funds, cash will be deposited into "anti-laundering bond" for 2 years at 0%. If this is not an overt expropriation of private rights then we need to redefine nationalisation. A total of 1 116 individuals and companies have been arrested and more billions in old bearer cheques have been deposited into banks as part of the unprecedented joint operation by police, State security agents and officials from the Reserve Bank of Zimbabwe (RBZ) in which the Governor is playing the role of not only an evangelical and moral regeneration leader but also the super cop. The media is already polluted with the supporting propaganda targeting rational economic actors as criminals. Under what legal construction does the state have a right to confisticate citizens’ cash and deposit it into bonds without the consent of the property owner? How does this form of intimidation resolve the economic crisis?
* Daily cash withdrawal limits have been restricted to: Individuals $100 000 ($100 million in old bearers cheques), Corporates - $750 000 ($750 million in old bearers cheques). RBZ outside its mandate will now be carrying out "measures" to make sure asset prices will be properly rescaled. Under what construction does the RBZ have the right to determine asset prices in a market economy? Going forward, all payments of more than $1 mln will be monitored by RBZ anti-monitoring laundering. It is not clear what monitoring means but those who chose to oppose the Governor and his measures will discover that this is a new weapon in undermining democracy. Imagine those who are interested in politics what havoc these measures will inflict on those who choose to think differently. Who is really laundering money – the RBZ or the citizens? When are the books of the RBZ going to be exposed to the public to determine whether the bank under Gono is operating transparently and in accordance with its mandate?
* Gono said that new bearers cheques are not the "panacea for inflation, but will "improve convenience". He also said that this was not a "currency replacement" programme but Phase 1 of a process. "Phase 2" has already "been planned" and will result in the replacement of the new currency within 7 days.
* Border posts will be manned by Zimra, ZRP and "youths" to investigate the "illegal" export and import of local currency. This was justified on the basis that the authorities could only account for $10 trillion of the $43 trillion in circulation. Why would you need the youths, Zimra and ZRP when in a democracy? Who are the youths accountable to? Could this be a prelude for a presidential election by an unnamed candidate? Anyone caught with currency in excess of $5 million risks being harassed and not only being prosecuted but losing his/her money.
* Interbank exchange rate moved to $250:US$1 ($250 000 in the old bearers cheques) in the interim. Announced the introduction of Exchange Rate Impact Assessment Board made up of broad-based group of unnamed individuals (Friends of Gono or FOG). He did not provide any indication of how the rate will be set, but as usual made reference to "patriotism" as the key aspect and not a rationally determined process taking into account market fundamentals. Advisory boards are being abused when in truth and fact it is only one man who makes the call.
* Secured accommodation rate dropped to 300% from 850%. Unsecured accommodation decreased to 350% from 900%. Statutory reserves were decreased further as a mechanism for stimulating banks to lend. Demand and call deposits dropped to 40% from 45%, building societies to 30% from 35% and finance houses to 15% from 20%. Banks were required to "reciprocate" by lending to the productive sectors. Incentives are considered as a bribe to induce economic agents to behave irrationally by directing credit instead of setting the right policy framework that will allow actors to make rational choices in their own self interest. As usual RBZ will "dictate measures" if banks do not conform to the economic blackmail by the Governor that is to be selectively applied. Banks were ordered to roll over Aspef funds for the next 12 months.
* Gold companies to retain 75% in gold proceeds in FCA from 40%. Gold support price was abandoned, and will receive international price at "the ruling market exchange rate". However, the same companies will need local resources and they will have to convert their foreign currency at the artificially determined exchange rate. Against a backdrop of hype inflation, the so-called accommodation will be eroded by inflation. This policy encourages externalisation as a way of getting foreign currency and recycling it back into the economy through the black market. Gold companies who do not have import requirements will not benefit.
* Exporters to retain 75% of earnings in FCA from 70% previously. Only a 5% adjustment but there is no indication of where the additional foreign currency will come from to meet the obvious demand.
* Announced Tobacco Performance Research and Development Facility which will award 65% of sale value delivery price at the old exchange rate at the end of August. This is over and above the 35% already given. Farmers given 15% FCA retention facility with no liquidation or expiry limits.
* Conceded that there has been quasi-fiscal expenditure due to the usual reasons, corruption, etc, and "extraordinary intervention" is required to address the "further deterioration of infrastructures and parastatals". NRZ is "leading the revival of parastatals". Some were described as still "hopeless cases" and it is not clear whether in truth and fact the RBZ is also not a hopeless case.
* Announced creation of $16 trillion ($16 billion at old bearer cheque rate) SME Development Fund to loan money at 70% to construction projects, mining, and others. Fund split on provincial lines and demographic areas and will "benefit 2 mln people". Is this a prelude to an election campaign? Harare gets $2.5 trillion facility. Bulawayo and other provinces $1.5 trillion. Corporates need to have "quotas" to procure from SMEs, but will get higher forex retention if they cooperate. When the state rewards economic actors with incentives in a politically charged atmosphere there is reason to be concerned. How will the so-called cooperation be measured? Who is going to measure the co-operation? What is the risk that only supporters of the ruling party will be rewarded with higher retention rates? How is the politicisation of the RBZ going to assist or retard the democratisation project?
* Blamed high inflation on "growth in money supply", but also the "benchmarking of prices on foreign exchange parallel rate". M3 apparently running at 609% by end of May from 528% at end of 2005. To what extent if Gono responsible for the high inflation? Who will apply sanctions to a RBZ that steals the future of its citizens through irresponsible printing of cash while taking the high moral ground to blame other people? Why is the opposition silent? Why is it that even Professor Moyo would dare not criticise Gono choosing to target the sunset man-Mugabe and Murerwa? Could it be that Moyo is also a beneficiary of Gono’s incentives as other leaders of the opposition? What makes Gono immune from criticism when the facts show that the cause of inflation can be squarely located at him?
* A2 farmers will no longer be allowed to have fuel at subsidised rates.
* Forex inflows in half year to June 30 were reported to be up by 15.2% at US$961 million (US$834 million). US$340 million was reported to have come through the RBZ and the balance into company's FCA from exports. Foreign debtors as of July 25 amounted to US$223 mln, which the Governor said would be realised over the next 90 days.
* Gold deliveries declined 31% in half year to June prompting the policy shift. 2005 deliveries amounted to 13.4 tonnes from 21.3 tonnes in 2004.* Platinum was reported as a "success story" and hence the special deals cut with the foreign companies and the centralisation of policies to the RBZ.
* Gono conceded that there will be need to import maize "but deficit is not as large".
* Gono detailed the "3 vices" – indiscipline, corruption and speculation – and added a 4th: "bureacratic sloth and inertia" that keep throwing up "unnecessary road blocks" place an "intolerable burden on the economy". He admitted that there have not been enough resources devoted to fight "corruption". To what extent is the RBZ a custodian of corruption and the other vices is not discussed. There is evidence that corruption is being led from the front by none other than the RBZ who has chosen to appropriate incentives while classifying the same incentives as evidence of corruption to targeted individuals. There is no independent body that can track and monitor corruption. Why would the RBZ Governor also be subject to the same scrutiny that he subjects the rest of the country? Would it not make sense for parliament to ask for an independent commission of inquiry to investigate Gono’s own actions before he can assume the role of a moral crusader while at the same time being a villain?
* He said that NEDPP inward investment programmes to shortly come to fruition, but says will be pre-empting agreements. The whole program is being conducted in the cover of darkness when one would have expected the sunrise to bring transparency. What is being traded to bring new investment is not disclosed? It may not be surprising to find that one individual has mortgaged the whole country in the name of a national initiative.
* Gono had announced an ambitious program under which he expects that by December 2008 with the implementation of the aggressive "National SME programme", Zimbabwe will achieve: – single digit inflation – secure and stable financial sector – a strong currency, "market driven" exchange rates – single digit unemployement – will have food, fuel and power self-sufficiency, and "export surpluses" – paying off arrears.
* It is not new for Gono to make promises that he will not fulfil. However, we are sure to see that new enemies will be created to explain failure for the Governor will never fail. He proposed that Zimbabwe will be the "most attractive investment destination" by December 2007 without explaining how this was to be achieved. Equally he was vague as usual on how inward investment programme was to be achieved.
Although there may be debate about the place of Gono in Zimbabwe’s history, one cannot dispute the fact that he has balls and single-handedly he may switch off the flicker of light that remains in Zimbabwe supporting the cynics who believe that he may have been God sent to complete the Rhodesia Ruins project where all the surviving and functioning systems and institutions inherited and established after independence will form the foundation of the ruins.
If Gono’s policies are premised on defying economic principles and replacing them with a pedestrian logic, then one cannot accept the proposition that project sunrise has something to do with an economic re-start but rather a determined attempt to ensure that the legacy of misplaced policies and programs that Zimbabwe has unfortunately been subjected to for 26 years will be perpetuated under a dictatorship similar to what the Germans and Italians experienced under Hitler and Mussolini. It would be foolhardy if those in opposition do not critically analyse the Gono phenomenon and the methods used and implications on democracy and governance. If ever there was a time for the opposition to review their position on remaining in the legislature this may be the time. Gono’s actions may just be another wake up call.