We can talk about killing the golden goose, we can use the more formal economic terms of having short term preferences, we can even just use the regular vernacular- Zimbabwe is ripping off the tobacco farmers. Which, given that the export of tobacco is one of the very few things that ever earns any foreign currency at all – together with artisanal mining, that’s pretty much it – this could be described, very gently, as not being a good idea.
But the thing is if you’ve short term time preferences then you might well think, OK, so we’ll rip them off this year and we’ve got some money! Instead of cultivating the farmers and thereby in a few years’ time having lots more money. Again, in formal economics we could say this is Mancur Olson all over again. Government is just stationary bandits but that’s better than having roving ones around. The problem with Zimbabwe’s governance being that they’re not only stationary and always around they’re also acting more like those roving bandits. Extracting the maximum possible rather than providing the incentive to maximise income over time.
Sure, that’s all rather strong language and perhaps too much so. But then there’s this:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Tobacco sales floors were officially opened but farmers are frustrated and angry with the demeanour of the government. The Reserve Bank of Zimbabwe prior to the opening of the floors promised the farmers to pay them half of thier money in foreign currency. It is a sad story to poor farmers to learn that they will be paid 100% in bond note or RTGS. In the event that a farmer want half of his payment in foreign currency a farmer will laise with TIMB and a bank to get foreign currency at 2.50 rate.[/perfectpullquote]
Just for those who aren’t au fait with Zimbabwe’s monetary arrangements:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]The parallel market is trading USD 1 = 4.20 RTGS. The government on its side has its own rate which is unrealistic.[/perfectpullquote]
The RTGS and bond notes, well, they’re the local currency, technically slightly different but supposedly the same today. Back a couple of years they were issued at 1:1 with the US dollar. As you can see, even the government thinks they’ve declined in value. And the market rather more.
So what’s happening with the tobacco? Zimbabwe is one of the suppliers into the world market. It’s one of the country’s great export earners. The buyers pay in hard currency. It would seem fair enough that the farmers get that. But they don’t – the government has decided to adopt the Kwame Nkrumah technique.
At independence in Ghana the country’s main earner was cocoa exports. So, Nkrumah decided to use the extant state cocoa board – all the small farmers out there weren’t likely to be able to deal well directly with the multinationals buying to make chocolate – to screw the farmers. The price paid internally for cocoa was very much lower than was earned in hard currency. That difference being, of course, used to develop he country. Or, as it might be, fly Nkrumah around, build vast OAU buildings, that sort of thing.
Nkrumah and the like were most put out when the cocoa farmers decided to smuggle the stuff out, to gain the real price, or just stop bothering altogether.
Which is where that Olson thing about stationary and roving bandits comes in. Government is a good thing, often enough, because at least paying for the bureaucracy means you’re protected from the Mongols coming in to rape and take everything. But what if government then starts acting like those roving bandits? Taking everything, or at least too much? What if they’re not optimising the long term take- which is Olson’s assumption – but the short term rooking of the country and the people?
And what is it that’s happening here? The government’s taking in the hard currency for those tobacco sales at the market rate of 1:4.50. It’s then paying out at 1:2.50. So, yes, it’s a fair complaint, Zimbabwe’s government is ripping off the tobacco farmers. The problem with which is that it’s just not unfair but one year not too far away it’ll be as with Nkrumah – there wont be the tobacco grown to rip off and then where will the country be?