By Professor Mwiine Lubemba
A quick one- long ago at college in Chaos Theory, our engineering mathematics Professor encouraged us not to believe in data alone, that “Only Fools Believe in Data Alone”. For example the Central Statistical Office has released its quarterly data in which overall inflation has been computed to a decimal 0.3 percent drop. Overall it means prices have dropped 0.3 percent, and I am not surprised many Zambia Watchdog commentators have rubbished the data. Indeed, what does a 0.3% drop in inflation represent? In real terms, for a K50 bag of mealie meal you are supposed to pay 15 ngwee less. But that’s not the real case scenario; the CSO takes an average of all food items in season in arriving at the so called 0.3 percent drop. These same cheap food items are taken out of the equation when they become expensive. They take items such as chibwabwa, rape, wild mushrooms, fresh maize, beans etc that are abundant during the rainy season and prices are down, they average these out to a 0.3 percent decimal-by the way 0.3% means they were able to calculate the inflation to decimal 0.003. For the laughs, there are 100 ngwee in one kwacha and one ngwee is 0.01 kwacha. Yet inflation calculations are being pushed to three decimals! Let’s put a value to this number and say you write a cheque to your grandson for K0.003 and let’s see if the Bank will cash it. The mind boggles! Meanwhile, in reality, mealie meal, dry fish, kapenta, beef, the major foods, are in short supply, and the prices have gone up 30% and 11.11 percent for mealie meal from K45 to a government controlled price of K50. Dry fish and kapenta are out of season through a government regulatory ban but on the black market Mongu dry fish prices are up 45% and a quick sorry, beef prices have not eased in the past 5 years very few households have beef on the menu. The question is why should the CSO statisticians chose to manipulate data to justify their computation to show that inflation is down 0.3percent (0.003 times) due to lower food prices? Which lower food prices? Which fools are they targeting their data at?
There are dangers associated with such foolish data computations. They tend to distort the fiscal policies of our economy. In engineering mathematics the final effects of such foolish computations from the CSO could be described best in Chaos Theory. Economists like to refer to the butterfly effect, i.e., from the theory that a butterfly flapping its wings in one part of the world might ultimately cause a hurricane in another part of the world or in Physics that a very small difference in the initial state of a physical system can make a significant difference to the state at some later time or small differences in initial conditions.
It’s been less than 3 days 30th January, when another report carried on these Zambia watchdog pages hit us in the face, this time from monitory experts at Banks. The kwacha fell 0.5 percent (0.005 times) to 5.3772 a dollar as of 4:00 p.m. on Wednesday 30th January 2013, the lowest level since May 2009 and the worst performance of all currencies tracked by Bloomberg. (We’ll comment on this next time). Yet we have the CSO tell us they have done their homework and we have a low inflation number. How possible is a worsening Kwacha to dollar exchange rate in the past 4 years likely to lower inflation rates today? You have to be a Chainama case to believe these people. As a layman, I think it’s logical to believe, a bad kwacha means bad (high) prices of dollarized imported raw material, industry spare parts, medical drugs, agro chemicals, stock feed concentrates, fertilizers, tractors, trucks, petroleum, etc., all these affect overall inflation and the food value chain. Most important, material for manufacture school exercise books, chalk, school uniforms, shoes etc will go up too. Government subsidies may help lower prices that may be seen as physical lower inflation, but in real time the effects remain and when Government pockets run dry, the results will be very painful and usually politicians are the first to lose their shirts.
As a layman in economics, I called a colleague, a PhD in Development Economics and a former senior lecturer at UNZA in the 80’s, for a simpler definition of inflation and he referred me to the Wikipedia, the free encyclopedia page. It says: “In economics, inflation is a rise in the general level of prices of goods and services in an economy over a period of time. When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing of money – a loss of real value in the internal medium of exchange and unit of account within the economy. A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time”. I agree with this definition and the reason why we should demand accurate unmanipulated data from the CSO.
The CSO have been targeting a single digit inflation and they been number cranking to ridiculous levels to keep this number low despite the prevailing situation in the country. As a result, no one in the whole nation knows for sure what the real inflation is. Every number they come up with is some silly average of some cheap randomly chosen basket of goods and services. Why for example can’t they calculate inflation based on the real cost of production of goods and services removing all government subsidies? We know the price of petrol is the most expensive in the region due to high government taxes. Let the CSO give us the price of petrol without government taxes and we can make an informed decision as to who is causing petrol price inflation. The electricity prices are high due to government taxes; mealie meal prices are high because millers are paying these high petrol and electricity prices. Health care services are out of the whack because of these high government taxes on essential inputs such as petrol, electricity and water. Hotels and restaurants charge high service charges because of high government taxes. Everything starts and stops at the government door step. Lower government taxes across the board will lower inflation. It means having a small government.
For as long as Zambia maintains a large government, targeting single digit inflation is a fallacy. If we continue to spend 51 percent of our National Budget on consumptive Government remunerations, how can we ever achieve single digit inflation when 400,000 government employees consume the wealth 13 million people, 5.54 million of whom are work ready, are supposed to utilize the money in productive activities that would expand our national economic and export base.
To put this is in a simpler perspective, Zambia has a workforce of 5.54 million people yet we have 400,000 or 7.22 percent of the workforce consuming 51 percent of the budget. It means the prices in the country are set to meet the maximum costs the 7.22 percent of the workforce ready men and women can absorb. Prices can only be expected to go down if the 7.22 percent were able to produce surplus to meet the needs of all the 13 million or 5.14 million work ready population and export. But history has shown us that the 400,000 civil servants do not contribute directly to the productive sector in the economy. And because they consume 51 percent of the budget, they have to keep high taxes charged to the few producers to keep the government machinery moving. In doing so, they increase the cost of doing business.
In addition, inflation affects only the 7.22 percent with a living wage. Those unemployed and in poverty do not see or feel the effects of single digit inflation targeting. The rest of the 12.6 million Zambians, of which 5.14 million are unemployed don’t buy fuels, don’t have electricity, don’t buy mealie meal, don’t buy eggs, chickens, beef, candles, soap etc. They are excluded in the economy. Inflation is a strange phenomenon to them. It doesn’t mean anything. We agree with them especially when we look at the CSO numbers.