Zimbabwe: Tobacco is Not the Economy!

Source from:  Financial Gazette (Harare) Posted to the web May 11, 2006 05/12/2006

THERE is no arguing the importance of tobacco to the country's economy. At its peak, the erstwhile premier export commodity earned close to US$700 million in 1999 from 250 million kg. Sadly though, farmers in the sector are projected to produce a leaf that does not come anywhere near yesteryear's crop in terms of both quality and quantity -- a decline wrought largely by the chaotic land reform exercise seen by critics as a miserable failure. Thus, at the risk of being accused of repeating our editorial of three weeks ago, we cannot help but state the obvious: all is not well in the tobacco industry. There is a dark cloud without the proverbial silver lining hanging over the sector. And the sense of despair, fear, doubt and negativity gripping the tobacco sub-sector is so tangible that it can literally be cut with a knife. And understandably so because it will be a long time before a measure of confidence returns to the sector. What with the prohibitively high interest rates, high inflation and crippling shortage of foreign currency, all of which have translated into high input costs and thus checking the viability not only of the tobacco sub-sector but the generality of business across Zimbabwe. According to tobacco farmers' umbrella organisations, the viability crunch is attributable to what they call unviable prices and a static exchange rate. The farmers argue that the new system put in place by the Reserve Bank of Zimbabwe (RBZ) a fortnight ago and which gives an implied exchange rate of US$1:134 000 is below their breakeven point. They would have been happier with an exchange rate of US$1: 180 000. There is nothing new in these arguments. The issue of "an acceptable exchange rate" from the farmers' point of view has over the years often generated heated but sterile debate. The problem is that the tobacco farmers have so frequently cried wolf over the issue of the exchange rate that even genuine complaints are now treated with scepticism. The story was the same in 2000 when the tobacco industry seemed to be alive, if a little unwell. This explains the angry chorus directed at the farmers: get out of the kitchen if you can't stand the heat. The government has always been reluctant to let go of the official exchange rate to the extent demanded by the farmers without imposing certain controls, citing its effects on inflation and purchasing power parity differentials. Of course the farmers have always felt that the economy is already absorbing the effects of devaluation through the parallel market. But, according to the government, which is at sea as to how to deal with rising inflation, falling industrial production and unemployment, this is not the same as formalising the issue through the economy. Whatever the arguments advanced by both parties, it is pertinent to point out that indeed many farmers can testify to the distress that they have faced and continue to face due to increasing input costs. But so too can all the businesses across the various sectors of the economy. The import of our argument being that the whole economy is not made up of tobacco farmers only. There is no denying their significance to the country. But the tobacco growers do not make up the sum total of the Zimbabwean economy. There are also other exporters who yearn for the best translation value for their products. It is as simple as that. Thus the government needs to ensure that appropriate schemes are put in place to incentivise all those in exporting sectors such as tobacco, cotton, horticulture, mining, tourism just to mention a few. This will not only take into account the expectations of the vociferous tobacco farmers but also realities on the ground as well as the concerns of all the other key exporters. This is why we couldn't agree more with the Governor of the central bank, Dr Gideon Gono who, when addressing the Zimbabwe Tobacco Association's 40th annual congress on June 21 2000, said that no sector, however critical to the economy or how big its contribution to the national cake, should be tempted to hold or be allowed to hold back the progress of the whole nation and other sectors by pursuing a sectoral approach that can inadvertently be misconstrued as detrimental to all other sectors. In any case, as already reported but not yet denied, the tobacco farmers were given support through subsidised loans at 20 percent when market rates were as high as more than 600 percent due to runaway inflation. Not to mention the subsidised fuel and electricity. Better still, some of these cry-babies even got the pieces of land for free under the fast-track land reform exercise! Which other exporting sector has enjoyed such privileges? When are they going to grow out of this dependence syndrome and evolve into serious and passionate business people? Enditem