Obviously there are similarities, but in 2008 we did not even bother to ask if there was fuel. The underlying reasons are the same – poor macro-economic management of the economy and our local currency and the collapse of the formal sector and the near total unavailability of foreign exchange to buy fuel on the global market.
He started by tackling the root of the problem – massive and embedded corruption at the State Oil Company, Noczim. He dissolved the organisation and created two new companies – the National Oil Infrastructure Company (NOIC) and a retail trading arm he called Petrotrade. He then totally liberalised the procurement of fuel – leaving this function to the private sector and gave them open access to the oil pipeline from Beira to Harare. This had adequate capacity to meet the needs of the country as well as some of the needs of the region.
NOIC managed the system and Petrotrade provided competition with the private retailers. He then insisted that all retailers display their pump prices on the forecourt and the fuel sector slipped easily into a mode characterised by full supply at market prices. Prices were high because the State took a substantial chunk of the pump price in levies to settle old Noczim debt and to assist the fiscus. To demonstrate that it was competitive, regional States began to use the pipeline to bring their own needs to Harare for onwards transport to destinations north. Global prices hit a record high with crude oil at nearly US$140 a barrel.
Foreign exchange was not a problem – with a fiscal surplus (we eat what we kill) and a rapidly recovering economy there was no shortage of US dollars and the import requirements of the country were easily satisfied by the local Banks.
Then came 2013, the GNU was dissolved and Elton was sent into retirement. No sooner had the State appointed a new (old) Minister than he took a bribe from the fuel industry. This small beginning rapidly expanded and within the year, a local cartel of traders assisted by a major international oil trader secured a monopoly over the pipeline. They raised the tariff and began manipulating local wholesale prices. The international oil trader expanded its activities in the retail market until he held a dominant position. The first sign of trouble was when the regional States stopped using the system because it was no longer competitive with road and rail.
This cartel managed monopoly over the pipeline has remained until today. Then there was a real bonanza – the global oil market collapsed in early 2014 to a low of as little as US$27 a barrel of crude oil. Retail prices around the world collapsed, but not in Zimbabwe. Politically connected interests took the new margin and began banking large sums of hard currency abroad – mainly in the Far East. At the same time the fiscal discipline that had been imposed by the GNU was abandoned and the old bad habits returned. The fiscal deficit grew, slowly at first but accelerating from $500 million in 2013 to $3 200 million in 2018. Instead of printing cash they borrowed on the local market and doubled the national debt in 5 years. In addition, they ran up an illegal overdraft at the Reserve Bank that was 5 times the legal limit.
The consequences were not slow in coming – inflation began to accelerate (we were again printing money – only in different forms) and the regime resorted to the imposition of controls to try and keep things under management. They had learned nothing from the earlier period. Exchange controls and import restrictions were reintroduced after being abandoned during the GNU. As the deficit expanded so the pressure on monet markets increased until it was no longer possible to maintain the fiction that the various forms of currency in circulation were all pari pasu with the US dollar.
Bad money (the Bond and the RTGS dollar) will always drive out good money (Hard currencies in circulation) because people will hoard the latter and use the former to buy hard currency – driving up its value. So today we have an open market (albeit informalised) which is fixing the local RTGS at 3 to 1 against the USD. Informal systems at work are importing goods at very high prices in local currencies and this is accelerating inflation back to levels we last saw in 2005/6.
Then a new Sheriff hits town, fresh from more sophisticated realms and says this simply has to stop. He takes action to fix the fiscal deficit and this is accompanied by a statement from the Reserve Bank which continues to insist that the rate is 1:1, notwithstanding the very obvious fact that if I took the thousands of local currency in my bank account today to the Reserve Bank and asked for US dollars please, I doubt I could even find someone to talk to. All hell breaks loose as ordinary Citizens took action designed to protect what little they have from the depravations of the system. Zimbabweans know what to do when the money in your bank accounts and in your hands is literally shrinking on a daily (hourly) basis. Suddenly we have empty shelves and long queues, Zimbabweans can be forgiven if they think its 2008 back again.
But the reality is that 2018 bears little resemblance to 2008, however its going in that direction. The economic fundamentals are still OK – the economy is growing, exports are strong and we are nowhere near as far gone as we were in 2008/9. Nevertheless, we must, all of us, recognise that the status quo is not working and we cannot allow our little ship of State to drift any further onto the rocks that lie ahead of us.
The solutions are not more controls, but less and more market based influence. Back on the forecourts of the fuel industry, we are buying fuel with hard currency earned, not by the State, but by exporters taken over by the Reserve Bank at the false rate of 1:1. In reality this means that our fuel has quickly gone from being the most expensive in the region to being the cheapest. Demand responds to this, so we try to slap controls on foreign trucks and cars and forbid people filling containers. There is no shortage of fuel – everyone wants to sell us the stuff and we can land it here under free market conditions at about 75 US cents a litre, but we have to find the hard currency.
We need to remind everyone, that in February 2009 when the GNU Government was sworn in, the Minister of Finance (Chinamassa) simply stated in Parliament that he was lifting all controls – no exchange control, no price control, no control on gold trading and the adoption of several currencies to augment our own.
In 10 days every Filling Station in the country was serving fuel without restriction, how did that happen? It was a simple thing called the market at work. When Elton Mangoma used these forces instead of fighting them in 2009, he transformed the industry and in the process gave us stability of energy supplies at market driven prices.
But such solutions only worked because we respected the basic economic fundamentals. Right now the fundamentals are way out of kilter and deteriorating daily. We need to back sanity and the new Minister of Finance. He knows what needs to be done – let’s let him get on with it, it is the only way to resolve the fuel crisis.Post published in: Business