Sunday, June 24, 2007

Doomsday predictions premature?

New report suggests runaway inflation will drive Zimbabwe out of business by year end, but experts say this ignores the underlying resilience of grassroots economic activity.

By Florence Ushe in Harare (AR No. 118, 21-June-07)
International aid agencies based in Zimbabwe are predicting that the country’s economy will implode within the next six months, potentially leading to major social unrest.

But economists interviewed by IWPR disagree, saying total meltdown is not imminent, and crediting Zimbabwe’s informal sector with keeping disaster at bay when under normal circumstances everything should have ground to a halt a long time ago...

Many people think the economy has pretty much fallen apart already. Most members of this once relatively prosperous nation are close to destitution. Power and water utilities are slowing to a halt, with long daily cuts experienced across the country. Telecommunications are poor and the already faltering education system has deteriorated further.

The health sector, according to the Zimbabwe Association of Doctors for Human Rights, has already ground to a halt following a recent strike by staff at the country’s major health institutions. Public hospitals have closed their doors to the public and have been emptying their wards.

Yet some local economists argue that while the economy is “deeply stressed”, it is unlikely to collapse in the next six months – because it is being saved by the relatively vibrant “informal sector”. This term means small businesses, traders, and craftsmen and women, and service providers who operate outside the reach of the taxman and whose activities are not captured in national statistics....

“However, if you look at Zimbabwe’s economy, what is carrying it is the informal sector. The informal sector is driving Zimbabwe’s economy as it tends to cushion people [from their hardships]. If the economy was totally formal, it would have totally collapsed a long time ago.”

He concluded, “Zimbabwe’s economy has defied all conventional logic.”

Another local economist, John Robertson, said it was not easy to define exactly when a country could be said to have collapsed.

“Total collapse does not actually happen. People are making comparisons of countries like they are talking about companies. A country never ceases to exist. A collapse happens when the current system of governance breaks down completely.

“What I can say about Zimbabwe is that there is a state of collapse of certain systems like traffic lights, water, telephones, power and health. There can be total collapse when people lose confidence in the use of their own currency – when workers say they want to be paid in foreign currency and shops demand foreign exchange for purchases.”

Another prerequisite for this would, he said, be that the large public sector - civil servants and the military - said would have to say they could no longer subsist on payments in Zimbabwean dollars. This would trigger a loss of confidence and the breakdown of financial systems like banks.

Another factor, not mentioned by these economists, is the safety net provided by the substantial remittances that Zimbabweans receive from relatives abroad.

Comprehensive data are difficult to come by, but a study by the Global Poverty Research Group last year showed that of 300 households surveyed in Harare and Bulawayo, half had received cash, goods or food from abroad, almost all within the last year.

This represented “an extraordinarily high density of receipt”, the report said, concluding that it reflected the reality that migratory flows had become “key coping strategies” in recent years.

The two main locations for relatives were Britain and South Africa, with Botswana and other countries some way behind.

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