Official Zimbabwe inflation at 2200000 percent

Official inflation soared to 2.2 million percent in Zimbabwe – by far the highest in the world – and has shot as high as 70 million percent in the past year for some basic goods sold on the black market, the state central bank said Thursday.

Worsening shortages of basic goods, and the deadly political and economic turmoil surrounding the national elections March 29 and a disputed presidential runoff vote June 27, helped spur the spike in inflation in recent months.

The last announcement of official annual inflation, in February, put the rate at 165,000 percent.

Zimbabwe Reserve Bank Gov. Gideon Gono announced the new figure of 2.2 million percent at the launch of a program to sell subsidized food through selected shops and a system of coupons issued to the needy, state radio reported Thursday.

The central bank also released a schedule showing what it called distortions in prices caused by black market trading and profiteering by businesses.

New bank notes have been issued to cope with soaring prices

It said laundry soap on the black market went up by 70 million percent, cooking oil by 60 million percent and sugar by 36 million percent – far higher than the official inflation rate of 2.2 million percent calculated by the Central Statistical Office on basic goods subject to price regulation and price increases approved by state National Prices and Incomes Commission.

It acknowledged that private consultants calculated overall real inflation closer to 12.5 million percent. The bank attributed black market inflation to shortages of hard currency that pushed the black market exchange rate to at least 90 billion Zimbabwe dollars for a single U.S. dollar, compared to the official bank exchange of 20 billion to dollar.

It said a 4-pound bag of sugar cost about 20 billion Zimbabwe dollars – $1 – at the government’s fixed price, and 90 billion on the black market $4.50 at the bank exchange rate, or $1 at the black market exchange – in a country where unskilled workers earn up to 200 billion Zimbabwean dollars, about $10, a month.

However, few have jobs: unemployment has reached 80 percent.

The price of scarce gasoline has soared, along with commuter bus fares that often exceed monthly earnings, forcing workers to walk to their jobs, or sell vegetables and other goods on the streets to make up the shortfall.

The economy was a key concern in the first round of presidential voting March 29, when opposition leader Morgan Tsvangirai beat longtime leader Robert Mugabe and two other candidates but did not win the 50 percent plus one vote necessary to avoid a runoff.

Tsvangirai later pulled out of the runoff because of a campaign of violence against his supporters. Mugabe went ahead with a June 27 vote widely denounced as a sham. Tsvangirai’s name was kept on the ballot and Mugabe was declared the overwhelming winner.

Launching the subsidized food program on Wednesday, Mugabe said basic commodities subsidized by the central bank were to be distributed across the country, enabling an average family to pay just 100 billion Zimbabwe dollars, about $5, for a basket of items – including cooking oil, the cornmeal staple, flour and soap – that would last a month.

At present, a single loaf of bread costs nearly 100 billion Zimbabwe dollars.

It was not immediately clear how the central bank would finance the subsidies, with health and other public services already facing collapse because of lack of state funding.

Mugabe said profiteers who abuse the scheme will face jail, the state-run Herald newspaper reported Thursday.

“It is our responsibility to stand in defense against threats to the welfare of our communities, particularly in the areas of food availability and accessibility to other necessities,” Mugabe said.

“We don’t want people behind bars. … We would want our prisons to be empty than full but, alas, just now they are brimful and we don’t know what to do,” Mugabe said, according to The Herald, a government mouthpiece.

The launch of the scheme at a warehouse in southern Harare where subsidized goods were stored, including many imported basics, follows several government announcements about plans to open “People’s Shops” to ease economic hardships and cushion the impact of hyperinflation.

Food shortages have left shelves bare in most established stores and supermarkets. Many factories hard-hit by the economic crisis have shut down, and remaining manufacturers operate at below 30 percent of their capacity, according to the private Confederation of Zimbabwe Industries.

Self-sufficient in cooking oil, soap, toilet tissue and other products as recently as 2006, Zimbabwe now imports such goods mostly from Egypt, Iran, Malaysia, China and neighboring South Africa.

Independent civic groups, meanwhile, report cheap goods already distributed earlier this month to designated shops in provincial towns being sold only to buyers carrying ruling party membership cards.

Courtesy :- The Associated Press

Why India might overtake China – Keystone

It has only been a few years since Asia bulls have been touting the arrival of the Chinese Century, citing that nation’s enormous potential.

Now, get ready for predictions of the India Century.

That, in fact, was the title of a recent white paper by the Chicago-based consultancy Keystone-India, founded by a group of top economists from Ernst & Young who believe that India is on track to surpass China in growth. “We believe this is India’s moment,” declares Keystone Chief Economist William T Wilson.

China has a two decade-long track record of 9.5% average annual growth, exports 10 times as much as India, and dwarfs India as a magnet for foreign investment.

By contrast, India has achieved an annual growth rate of 7% or higher only seven times in the past two decades. And largely because of its unruly politics and stifling bureaucracy, it wasn’t long ago that economists bemoaned the “Hindu growth rate,” implying the nation is simply culturally incapable of achieving high growth.

China - India

Even under Keystone’s projections, India wouldn’t match China’s current hypergrowth rates for at least another 15 years. And even by 2050, China’s economy would be bigger measured in US dollars.

But longer term, Keystone contends India will be in a stronger position. It projects that China’s average annual growth will peak at 8.8 per cent over the next five years, and then gradually trend downward to under 7 per cent in the 2020s and around 4% by the 2040s.

India’s annual growth is projected to rise to around 7.3 per cent by 2010 and stay over 7 per cent until the mid-2030s, and still be in the 6% range until 2050.

What’s more, Wilson contends that Keystone’s forecasts are conservative.

Why is Keystone so bullish? Some of the key reasons:

Demographics

The biggest reason India has more long-term growth potential is simply that its population is younger and is growing more quickly than China’s. Currently, China has 300 million more people than India.

But because of its very low birth rate, largely due to the one-child policy, China’s population is expected to peak at around 1.45 billion by 2030.

India’s population is expected to increase by 350 million by 2030, more new people than the US, Western Europe, and China combined. India will have 200 million more people than China by midcentury.

What’s more, China’s population is aging rapidly. As a result, the number of working-age Chinese is projected to peak in 2020 and start declining steadily thereafter, while India’s workforce will keep growing for at least four more decades.

However, India’s fertility rate also is declining, meaning future families will have fewer children to support and more to spend on consumption.

Development experts call this combination of a growing workforce and declining fertility a ‘demographic dividend,’ which helped power explosive economic growth in East Asia’s Tiger economies from the 1960s through the early 1990s.

Capital Efficiency

The big driver of China’s economic growth has been massive investment, equal to 40% to 45% of gross domestic product a year, an extraordinarily high rate on world standards?and twice the percentage of India’s.

In 2004, investment in China was equal to half of its $1.5 trillion in GDP. In that context, China’s 9.5% growth rate that year shouldn’t be too surprising.

“It is staggering how much investment was needed to power Chinese growth in recent years,” Wilson notes. “Any nation investing half of GDP in fixed-capital income looks a lot like pre-crisis Asia.”

India, however, gets much more bang for the rupee. It has achieved 6% average growth with an investment rate half that of China’s, around 22% to 23% a year.

Investment Growth

Many signs point to big increases in investment in India, Wilson says.

In fact, he estimates investment in India could reach 35% of GDP within a decade, which would enable it to match China’s 9% plus growth. One reason is that the savings rate in India rose from 23.5% of GDP in 2001 to 28.1% in 2004.

And because of its growing workforce and the decline in family size, India’s savings rate should continue to rise to a projected 37% in 20 years.

Since investment is highly correlated to domestic savings, that should translate into higher investment and economic growth.

Meanwhile, the rapidly aging population of China means that its savings rate also is likely to drop in the future, as it has in most other nations with graying workforces.

Second, India thus far has gotten by with minimal foreign investment. Keystone notes that in the past four years alone, China has drawn $200 billion more in foreign investment.

However, India is planning to open up many long-protected sectors that have great allure to foreign investors?and that could draw huge inflows of money.

They include telecom, where Indian demand now is growing even faster than China’s, commercial real estate, and department stores. Although some of the reforms have stalled recently due to domestic political opposition, Wilson believes the government will prevail.

“If you look at the institutional changes and the number of industries that have liberalised over the past five years, the pace has been phenomenal,? he says.

Wilson predicts India’s real estate sector will draw a huge influx of money from foreign hedge funds, and liberalisation of retail will be ‘the real big bang’ for the economy.

New Entrepreneurs

Indian industry so far has been led by many of the big business families and conglomerates that dominated when India was still a quasi-socialist, heavily regulated economy.

They generally have done a good job of taking advantage of new opportunities offered by liberalization since the early 1990s. But the more dynamic companies in India are smaller ones that are led by new generations of entrepreneurs who take greater risks or are more connected to the global economy.

These new companies also have more creative managers, argues Debashis Ghosh, another Keystone partner who worked at Ernst & Young.

Keystone focuses on researching mid-sized Indian companies with $10 million to $100 million in annual sales.

“The bigger companies are still led by oldschool types who used to depend on access to government and got huge when there was nobody else in the game.

“Because they had scale, foreigners had to deal with them,” says Ghosh.

“Now, though, the top talent from the Indian Institutes of Technology and the Indian Institutes of Management are flowing into the mid-sized sector. That is like getting a management team of all Wharton and Massachusetts Institute of Technology grads.”

As a result, he contends that the Indian companies of the future are more dynamic than those of China, where management tends to be weak.

Higher Productivity

India has averaged respectable productivity growth of 2.5% a year over the past two decades. But that can grow sharply, thanks to liberalization of many industries, a literacy rate that has risen from 18% in 1951 to 65% now, and India’s rising openness to foreign trade, which has jumped from 15% of GDP in 1991 to 26% now.

Manufacturing Surge China dwarfs India as a manufacturing power, especially for export.

And it will be a long time before India, with its inadequate infrastructure and components supply base, will be a serious export rival. But in recent years, India’s domestic manufacturing industry has been growing strongly.

What’s more, a number of Indian companies are especially strong in high-end manufacturing, such as auto parts, power generators, and medical equipment, that requires a lot of engineering.

In terms of quality and efficiency, several Indian auto parts companies are on par with the US.

“If you look at engineering work across the board, in industries from pharmaceuticals to telecom, what India is doing is an order of magnitude beyond what China is doing,” says Keystone’s Ghosh.

Anyone who visits both countries today may find it hard to imagine India overtaking China in economic performance.

But when you look at the fundamental drivers?growth in the workforce, fixed investment, and productivity — over the long run the prospect looks a lot more plausible.

Courtesy :- Rediff