By Justice Zhou
If ever there was something too ghastly to imagine for most Zimbabweans, it would be the prospect of the local economy sliding back into hyperinflation. We all still have a terrible recollection of how people in this country have had their hands full, trying to deal with a local currency whose loss of value had literally spiralled out of control.
During the peak of the hyperinflation period, the Zimdollar had lost almost every characteristic of what could be described as money, as people laboured with bagfuls of the worthless currency in pursuit of too few goods and services which were mostly obtained on the black market.
The net result was of life eventually becoming harder for the jobless and pensioners, while creditors and those who had savings accounts at banks could only watch helplessly as their real money went up in flames.
Foreign exchange became gold—a preserve for speculators who by any chance had connections in the financial and political spheres, unless one had relatives sending it from the diaspora.
The electronic calculators were rendered useless in no time and the local currency went through different exchange rates each day, whereas consumer prices changed every now and then. Almost every hour price adjustments were made on supermarket shelves.
What central bank authorities could merely do in response to that was inexplicably print more money on a regular basis and then rebase on occasion when the currency’s zero digits re-multiplied, a measure which didn’t— and was never going to— solve the underlying problem anyway.
But if that was any lesson, what ammunition is there at our disposal to make use of in the event a problem of that sort recurs in future? Perhaps the starting point would be to weigh our options around the so-called Green Fuel. And I'm sure this isn’t mere hyperbole.
While experts have reflected on the pros and cons of blending locally-produced ethanol with imported petrol, I hardly hear any debate to do with its impact on inflation rate. But I have a very strong conviction that this could come in handy for us, to a certain extent.
Sadly, this whole Green Fuel issue is currently mired at the centre of a turbulent political storm as greedy individuals have, for some reason, done a hatchet job on the Chisumbanje ethanol project. In actual fact, they have made a travesty of a national strategic scheme that could immensely contribute in changing the economic fortunes of this country.
Notably, liquid-fuel imports have for a long time in the past been some of the major guzzlers of foreign exchange and have been a source of pressure on the Zimdollar and the balance of payments account.
But it’s self-evident that since the economy began to recover in 2009, demand for petrol has dramatically peaked again, pushed up by the booming markets for imported Japanese cars, and petrol-powered generators—owing to frequent power cuts.
Our multicurrency/US dollar regime has spared us the vagaries of high inflation, and maybe stagflation as well. Economists define stagflation as an economic condition that is characterised by slow economic growth, rapidly rising consumer prices, and relatively high unemployment.
The most unfortunate dynamic is that non-oil producing Zimbabwe can’t do without these fuels, yet when the spot price of Brent Crude oil climbs at the slightest geopolitical alarm or other OPEC factors, there’s little we can do about it.
We won’t escape the fact that the cost of petrol at the service station pump is based on the import parity principal. In a nutshell, the final pump price of fuel is made up of international and domestic price elements. These include the cost of fuel at the refinery, transportation at sea and on land, wharfage charges at seaports, insurance, and so on.
Zimbabwe— which at present imports fuel through the 287 km oil pipeline from Beira in Mozambique to the Feruka Oil Refinery at Machipanda on the Zimbabwean border near Mutare— blends10 percent ethanol with 90 percent unleaded petrol to produce Green Fuel. But its use is currently not legally binding for motorists.
To make matters worse, there hasn’t been a meeting of minds between the rival political parties in the coalition government concerning the ownership structure of the Green Fuel-producing company, which is a partnership between the government and a private company, a development which has thrown the future of the project into disarray.
However, the widespread calls by some experts for the blending ratio of ethanol-to-petrol to be increased may just be one thing worth looking into, if indeed we are to reduce the effects of imported petrol on the rate of consumer price changes in the coming years.
Let’s take a cue from Brazil, where this method has
been successfully applied. Certainly, what's sauce for the goose is sauce for
the gander.
Of course, one would as well understand that the
government is dealing with competing ends. That the much needed tax revenues
from fuel imports can’t be forfeited is a forgone conclusion.
If the likelihood of Green Fuel having the
potential to provide a home-grown petrol alternative and to act as a firewall
against inflation were to be closely explored, I am pretty convinced the
outcome wouldn’t be as unsatisfactory.
