Pre-Election Sweeteners for Zimbabwe Voters

As Zimbabweans continue flocking to the banks to offload foreign currency in the wake of a major monetary reform, traders thronged border crossings this week to import scarce commodities after the government scrapped duties on some food imports.



Analysts are agreed that President Robert Mugabe has introduced these economic measures with a view to securing victory for him in the forthcoming second round of the presidential election.



In the first round, held on March 29, Mugabe lost to Morgan Tsvangirai, leader of the Movement for Democratic Change, MDC, but election officials ruled that neither candidate had won the 50 per cent majority needed for outright victory.



On May 15, the government’s Herald newspaper announced that the second round would be held not within the normal 21 days from the date the first-round result was announced, but instead within 90 days, with a deadline of July 31. The following day, the Zimbabwe Electoral Commission announced that the vote would be held on June 27.



ZIMBABWEAN DOLLAR PLUMMETS



For the past two weeks, the banks and other financial institutions have been busy as people rush to exchange foreign currency, especially United States dollars, for Zimbabwean money.



Since the Zimbabwean dollar has become increasingly worthless in recent years, this was a major turnaround.



It followed an announcement by Gideon Gono, governor of the Reserve Bank of Zimbabwe, RBZ, on May 2 that the currency would no longer be traded at a fixed rate.



Gono acknowledged that the current exchange-rate mechanism was not working. Until that point, the official rate had been held at 30,000 to the US dollar since September 2007. Before Gono’s announcement, the Zimbabwean currency was trading at upwards of 100 million to one American dollar on the illegal black market.



He said the foreign exchange market had to work properly if the country was to achieve economic stability and cut inflation. Year-on-year inflation was somewhere over 150,000 per cent at the last count.



The central bank chief noted that over 80 per cent of Zimbabwe’s imports were items of crucial importance like machinery and spare parts, electricity, fuel, chemicals and “other essentials” – in which he presumably included the major food purchases that have been necessitated by the collapse of the country’s agriculture.



The immediate result of freeing up the exchange rate was a massive loss of value for the Zimbabwean dollar as it hurtled towards its true market value.



Gono made his announcement on a Friday, when the rate was still posted as 30,000 to the US dollar. When trading resumed on Monday, May 5, the official rate leapt to nearly 169 million, not thousand, to one.



That meant that all of a sudden, the authorities had access to significant amounts of hard currency that would previously have passed them by. Illegal currency trading was all but wiped out as black marketeers struggled to keep pace with the banks. People who would previously have sold foreign currency on the black market because the banks offered such a ridiculously low rate were now opting for safer and legal transactions on advantageous terms.



By May 16, one American dollar was worth 255 million or so of the Zimbabwean currency.



HIGH IMPORT DUTIES SWEPT AWAY



On May 13, government spokesman Sikhanyiso Ndlovu announced a second major policy reversal. Import duty charges on basic commodities including cooking oil, rice, salt and margarine were scrapped with immediate effect until August 12.



The 90-day suspension was needed in order to ensure there was a “constant supply of imported basic commodities that have been augmenting local supplies”, said Ndlovu.



He explained that high tariffs, which in some cases reached 100 per cent of an item’s value, was reducing the amount of goods imported into Zimbabwe. Until then, that had seemed to be precisely the point of punitive duties – to stop scarce foreign currency going abroad to buy imports, and to attempt to reduce a trade deficit caused by the depressed export capacity of this unproductive economy.



Basic items like foodstuffs, soap, toothpaste and washing powder have been in short supply on the official market since last July, when Mugabe ordered all businesses and industries to cut the prices of goods and services almost in half. This crude anti-inflationary measure proved counterproductive as goods disappeared from the shelves in panic-buying and shops could not afford to restock.



Since the restrictions on acquiring foreign currency curbed the ability of commercial firms to buy from abroad, much of what was available in Zimbabwe was supplied to markets and street vendors by informal cross-border traders.



The suspension of customs duties immediately sparked a stampede to the borders with neighbouring South Africa, Mozambique, Botswana and Zambia, as people used their new freedom to buy goods abroad either to stock up at home or to resell as a way of making some extra income.



POLITICAL CALCULATION



The liberalised economic environment created by the currency flotation and this week’s lifting of customs duties clearly has a political backdrop.



The increased impoverishment of much of the Zimbabwean population is perhaps the main driver of wide-scale public discontent with Mugabe, and the reason why he performed so poorly in the March 29 polls. Despite its apparently iron grip on the country, his ZANU-PF party was defeated by the MDC in the parliamentary election, even losing seats regarded as safe.



Now the security forces and ZANU-PF militias have been deployed in a campaign of violence in a bid to break support for the opposition ahead of the second round.



The currency and duty measures add a carrot to the stick now being wielded by the authorities.



“How do you explain that the waiver on duty was for three months with effect from May 12 until [the election deadline of] August 12?” said a ZANU-PF insider, speaking on condition of anomymity. “This date allows the president to polish his election machinery.”



Ernest Mudzengi, a political analyst with the National Constitutional Assembly, a non-government pressure group, agreed.



“He has his eyes on the presidential run-off,” he said, referring to Mugabe. “It is also an admission by the government of Mugabe that the command-economy policies have failed dismally and that the country has not been able to feed itself for the past eight years. It is all an election gimmick to hoodwink voters as the country braces for a run-off.”



An increased supply of foreign currency in the banking system will allow the government to import food and pay Zimbabwe’s neighbours for electricity supplies, assuaging hunger and avoiding embarrassing blackouts in the midst of a crucial election. Many regional states have grown impatient with the government’s late payment of electricity bills.



Mudzengi suggested that access to foreign currency would help the authorities bankroll their election campaign.



According to John Robertson, an independent economic and political analyst, “The government needs foreign currency for a lot of things, among them to repay the FCA [foreign currency accounts] of embassies and international organisations that were raided by the RBZ before the March 29 elections.”



In his May 2 statement on monetary policy, bank governor Gono admitted that for several months, corporate firms, foreign embassies, non-governmental organisations and some international organisations had experienced “delays” in accessing their foreign currency accounts at the central bank.



Robertson added, “While the main reason might be to replace FCA accounts taken from embassies, gold producers and others, the element of the elections cannot be ruled out. The ZEC [Zimbabwe Electoral Commission] has already said it is broke. Gono needs to find hard currency for a lot of things, including running the election and importing food.”



EXTRA GIFT FOR FARMERS



In his statement, Gono also gave notice that the fourth phase of the “mechanisation programme” – which provides farm machinery in rural areas – would be unveiled in July. Ahead of the March 29 elections, Gono used RBZ funds to hand out tractors, ox-drawn ploughs and other farming equipment.



ZANU-PF has traditionally drawn its support from rural voters, while the MDC was seen as more urban-based – at least until the recent elections, when it out-performed the ruling party even on its home ground.



Nelson Chamisa, spokesman for Tsvangirai’s faction of the MDC, said the pledge to unroll the next phase of farm mechanisation programme “can’t be a coincidence”.



“It is part of ZANU-PF vote-buying. We have maintained that Gono has, and is still, funding ZANU-PF’s violent campaign. The state security agents beating up opposition supporters in the rural areas are paid from RBZ coffers,” he said, as the MDC announced that the number of its supporters killed in election violence had reached 32 by May 13.



The authorities are clearly calculating that a combination of intimidation, well-funded electioneering and sweeteners for the population will secure a landslide for Mugabe.



Happyness Chikudo is the pseudonym of a reporter in Zimbabwe.