Economist says new fuel deal not a solution to overall problem

By tererai Karimakwenda
01 May 2006

Reserve Bank governor Gideon Gono announced on state-run television that he had secured a new one-year deal that will allow NOCZIM (the National Oil Company of Zimbabwe) to import fuel for at least one year. The US$50-million revolving fund was made available by European bank BNP Paribas and a South African financial company called Loita Capital Partners. A financial expert welcomed the news as a “useful development” but said this does not address the overall fuel problems. Economist Erich Bloch said Gono’s deal will marginally improve the fuel situation but since it involves a revolving fund, after 2 months we will be back in the same situation. Bloch added that despite the deal the country will continue to have forex constraints until the government makes some radical changes.

The US$50-million loan was secured using the mineral exports from Zimbabwe's Bindura Nickel Corporation, Zimbabwe’s largest nickel producer. Bloch said Zimbabwe’s monthly consumption requires about US$25- $30 million. He explained that Bindura Nickel is obligated to sell 30% of its foreign currency earnings to the Reserve Bank and has 90 days to use the other 70%. It is a portion of this 70% balance that the Reserve Bank negotiated to reassure the French bank and South African financial company that it would be able to pay back the loan. Zimbabwe’s credit lines were cut off by several other countries after failing to meet repayment conditions and deadlines. The IMF and World Bank have also suspended financial assistance to the Zimbabwe government.

Bloch explained that the economy is gravely stressed right now by the foreign currency shortages, massive unemployment, a decline in productivity in most sectors and a severe brain drain. He said the government needs to have the will to make radical changes that involve productive use of the fertile land that has been abused the last few years, and to also provide security for foreign investors who now see Zimbabwe as a major risk.