Hawkins interview, Part 2: The price cuts and their impact

Harare - Violet Gonda: The Mugabe regime has introduced controversial laws, which force retailers to cut their prices; effectively making them sell at a loss. Professor Hawkins, last time we spoke you doubted the predictions of the outgoing US ambassador to Zimbabwe Christopher Dell who said the inflation rate would be 1.5 million percent by the end of the year. Now that the government has attacked vendors and threatens to take over businesses, do you not think he could be right?

Hawkins: Not really, No. I remain unrepentant on that. I don't think anyone can predict what the inflation rate is going to be in two, three months time let alone at the end of the year and therefore I am very cautious. I think that if we get an inflation rate for next month or rather for this month, for July, we'll see a marked reduction in the rate of inflation as a result of all these price cuts. Now, how sustainable those are is another matter but I think in reply to your first question I would certainly say I haven't altered my position on that. We don't know what the underlying inflation rate is and it's impossible to guess what it's going to be. We haven't seen the published inflation rate now since April.

Violet: And just in connection with the price cuts, are we not seeing deliberate financial self-destruction on the part of the government here?

Hawkins: Well you know I am sure the government would say it wasn't deliberate self-destruction. If you talk to the guys in government they will say the policy is working - that businesses are abiding by the rules and cutting prices, that the parallel market exchange rate has come down quite dramatically and that they are making progress. That's what they would say. I would merely say this is short term. In a week, 10 days or two weeks time the situation can be looking very different.

Gonda: How will recent events affect the black market?

Hawkins: Well the black market has been given a tremendous boost – for the black market for goods and services. As I was parking my car yesterday or the day before yesterday a guy came up to me and asked if I wanted sugar and cooking oil. That's the kind of things going on. There is a thriving black market out there. People are going into the shops, buying products before they disappear off the shelves at these lower prices and then going around the corner selling them at much higher prices on the black market.

Gonda: Do you think we are going to see businessmen leaving the country in large numbers or are they able to profit out of this situation?

Hawkins: Well I think something has to give in a relatively short time. I don't believe that the government can maintain the kind of pressure that they are putting on businesses for long. Once firms start saying “Look we have to close because we can't operate under these conditions” the government's bluff would have been called. They will either have to take over the firms as they have threatened to do or they will have to agree to back down on prices. And I think there are a lot of saner voices in government saying to those in the cabinet taskforce and elsewhere – this can't last, you going to have to think about the next stage of the operation.

Gonda: And of course the government has also threatened to take over businesses. Does the government have the power and finances to take over businesses?

Hawkins: Well I would have thought not but against that one didn't think they would go as far as they have gone in respect of imposing these price controls and forcing firms to roll-back prices. So I think if it's just taking over firms, the finances doesn't really matter to them, you just take them over and the Reserve Bank prints the money to give them working capital. That's the way they run parastatals. So they might as well run ordinary businesses like that too.

Gonda: And you talked about this being a short-term solution to the crisis in Zimbabwe. Now, people on the ground will appreciate the short-term benefits of these price cuts but in the end they would suffer as soon as goods disappear from the shelves - you know we have heard of people taking advantage of the forced reduction. You are on the ground, are people thinking long term?

Hawkins: No I don't think they are. Most people in this country are thinking survival from day-to-day, week-to-week, month-to-month and therefore I think particularly amongst the very low income groups when you see these prices being plucked and if you've got the money you go and buy and stock pile and hope that buy the time you've run out things will be back on the shelves. That of course is the crunch point – what happens next and when will it happen? Will it be next week, two weeks' time or sooner? I am afraid it is impossible to guess.

Gonda: That is what I actually wanted to ask you. Many have said the attack on the business community is the biggest crisis that Zimbabwe has ever had, shops are empty, millers have stopped producing, there is no fuel, no food, and no businesses – how long will this last?

Hawkins: I think it is impossible to say. There are very few cases and I can't think of one anyway, where we have gone as far as this, down this road and that is why I think the government will pull back. I think the government will blink first rather than business and government will realise within a relatively short time that this policy can't work and it will have to come up with a different plan, which will include allowing prices to return to more normal levels.

Gonda: And of course it seems with what's happening right now the government can force the prices of all sorts of things down, but it seems they have hit a brick wall on fuel and can't force it down. What can you say about this?

Hawkins: Well that is exactly the position. The cost of importing fuel we are told is over ZW$100 000 a litre. Well it's only because NOCZIM or the state are bringing in cheap fuel that this can be maintained. If people have to go – if importers, dealers, filling stations have to go to the parallel market and buy the dollars at ZW$100 000 to the US dollar there is no way they can import fuel and sell it for half that price. So that is why the fuel supplies are drying up. The only fuel that is available is through NOCZIM.

Gonda: And it seems Mugabe is making it look as if the government is doing everyone a favour, especially the ordinary people in Zimbabwe right now. But the local currency has virtually become worthless. Some have said the crunch can come when the security forces refuse to be paid in Zim dollars. Are we further away or closer to the point when soldiers and the police refuse to be paid in Zim dollars and start looting?

Hawkins: Well I am afraid I don't think I can answer that question. I really don't have any insight into how the mindsets of the guys in the arms forces work. All I would say is that I think that many of the very poor people, poorly paid workers including the police and the soldiers and so on, would have welcomed the initial cutting of prices. However, it is a question of how do you sustain that? In addition, as you have just mentioned with the fuel – it is impossible to sustain it. In addition, I suspect it would be impossible to sustain it with things like bread and other necessities going forward, and as I said earlier that is when the crunch will come.

Gonda: So do you think this is this the start of the beginning of the end for the regime?

Hawkins: I wouldn't go that far. I think the regime; the government can easily reverse its policies. Do another u-turn and just say, “Okay we are going to the prices that were ruling last week or whatever.” You know businesses have to keep operating and if they can operate at a profit, they will do that. And people are not going to close down, shut up shop because of a crisis like this they will try and work their way through it. If they can't then they will close down. But if they can find a way of working through it or if the government is going to do a u-turn as I suspect it would have to then we can stagger on for a while yet.

Gonda: What about this issue of the Rand. It was reported this week that it might be the key weapon to bring political change to Zimbabwe and that SADC may be considering including Zimbabwe in the Common Monetary Area (CMA). Can this strategy work?

Hawkins: I would have thought not. I mean it seems odd to me that SADC should be suggesting this. I mean in the sense that there are only four countries that are members of that area. They are South Africa, Swaziland, Namibia and Lesotho - and you know, including a country with an inflation rate of say 5000% in a monetary area were the other players have got an inflation rate of around or six percent, is hardly feasible in the short term. It also means that they would have to be backed by big loans from somewhere, presumably South Africa or perhaps Botswana or perhaps Angola or some countries that do have some foreign exchange. But you are then asking Mr. President Mbeki who has just been snubbed, we are told by the Zimbabwean government, who didn't sent their team down to the talks with the MDC - which was taking place in South Africa just a few days ago. The reports say they didn't send their team. I would say it is hard to believe that Mbeki was going to throw away what was a very strong bargaining chip. In other words if he is going to give Zimbabwe any help at all he is going to want to extract some movement from the Mugabe government on the other side. We already have the Minister of Information here saying it is all wishful thinking and the South Africans practically denying that there is any such plan on the table. But that is all I know, I only know what I read on the web.

Gonda: But would you not think – and these are some of the reports we seeing on the web also that perhaps South Africans would want to be involved in something like the CMA, with Zimbabwe and use that as an incentive for Mugabe to drag him to the negotiating table?

Hawkins: Well in theory yes, but in practice I think one has to bear in mind that the Mugabe government - I mean this is not the first time a rescue package has been on the table. You can go back to 1998 to the UN land reform rescue package that was rejected. And ever since then every time there has been suggestions that somebody might put a rescue package together - in return for some political change in Zimbabwe - the government here has said no and so it's just a question of whether the government now has got to the point were they are prepared to say yes. In addition, Mugabe as recently as Saturday or Sunday has said there is no need for a new constitution. Therefore, this is the status quo.

Gonda: And the last time we spoke you said there is no economic solution without sorting out the political crisis in Zimbabwe. Moreover, many would say - where is the opposition, as you'd think they would capitalize on this crisis right now? What would you say to that?

Hawkins: Well I would agree with you, you would think the opposition will capitalize on the crisis but the opposition appears to be unable to do so. And the opposition does seems to believe that the government of Zimbabwe is going to fall in its lap like a ripe plum without doing anything, and I think this is a sadly mistaken position to have taken.

Gonda: But on the other hand when people say the opposition could be capitalizing on the crisis, what exactly could they do? What options do they have on this matter?

Hawkins: Well you know the opposition has repeatedly talked about protests and strikes and so on and so on and basically never really delivered. Certainly not for the last five years. Furthermore, they look inert and they seem to be slow on their feet in terms of responding to challenges when they come and the fact that they a split into two factions, all these things, do certainly create the impression of an organization that is not actually a government in waiting, lets put it that way.

Gonda: And what about the business community itself? Why has there not been an outcry. You know, businesses are being forced to reduce their prices to half of what they originally bought their products for and people are being detained for overcharging. More than 1300 people have been arrested so far and some of them are financial directors of big companies. But there is still no widespread outcry from the business community. Why is that in your view?

Hawkins: Well you know business is not organized in many countries and certainly not in this one to participate in political campaigns and crisis of this kind. This is not what business is about. Business is not there to be in opposition to the government of the country it is not its job, it is not its aim or intention. It wants to just get on and make money and do its job and when this kind of crisis comes up it is not a surprising that there should not be an outcry from business because business is not organized to deal with this sort of thing. Its just not used to it does not expect this sort of thing to happen. And I think it was terribly taken aback and surprised and astonished when it happened.

Gonda: And earlier on I asked you if we are going to see business people leaving the country in large numbers. What about just the general public - is there going to be a mass exodus of people to neighbouring countries because of this new crisis?

Hawkins: Oh you know, I would need to carefully answer that one, I think you know we get all these numbers about how many people are already leaving and voting with their feet going to South Africa and Botswana and so on. We have no idea how accurate these numbers are etcetera and therefore you know it is very difficult to make any predictions along these lines I just don't have enough information to be able to say that. There are many people who do not have the choice, they cannot afford to move. They can't get the foreign currency to go set themselves in another country and so on there are a lot of practical snags in the way of just packing your bags and moving.

Gonda: And if the financial crisis continues in Zimbabwe, how would this affect neighbouring countries?

Hawkins: Well the South Africans and to some degree the Batswana have found that the main drawback is being the inflow of illegal immigrants or refugees or whatever you want to call them. At the same time there is no doubt that some of the neighbouring countries, particularly those two, have benefited from getting a lot of Zimbabwe skills particularly in the construction industry that are short-staffed and in the mining industry were their skills are short and they have been basically recruiting skills from Zimbabwe. Doctors, accountants, bankers, teachers and university lecturers and whatever are all taking positions. In that sense there has been a positive impact on some of those countries. And I would also say that Zimbabwean Industry has lost markets, lost competitiveness and these markets have been taken over by others mostly by South African companies. So there has been, if you like, some benefit going to these countries, Zambia has taken over a fair bit of Victoria Falls tourist traffic.

Gonda: Is that the reason, perhaps, that you have neighbouring countries like South Africa that haven't criticised what the regime is doing in Zimbabwe, especially with these latest price reductions?

Hawkins: I wouldn't say that. I think the South Africans have their own problems. As you know full well, there is a lot of support across the continent for President Mugabe's policy because there have been deemed pro-African, anti-European and to stand up against the donors, against the British, against the Americans and others and this strikes a chord and this resonates well in some quarters as you know.

Gonda: And finally Professor Hawkins with all that it has done, can the government reform and re-brand itself?

Hawkins: I don't think so but you know there are many people who do. The British foreign office as you know is a supporter of a re-branded Zanu PF under somebody like Simba Makoni. The South Africans would like to see a re-branded Zanu PF and I suspect there may well be others. But I don't know there are too many Zimbabwean voters that would have too much faith in Zanu PF re-branded or un-branded or whatever.

Article courtesy of New Zimbabwe