Zimbabwe is confronting its deepest crisis since 2008. At the end of June, the ZANU-PF government reintroduced the Zimbabwe dollar, 10 years after an economic crisis compelled it to use a foreign currency. In an analysis of Zimbabwe’s economic and monetary situation, Mike Chipere-Ngazimbi describes rapid economic decline amid the incompetence and brutality of the current government. Is another social explosion a possibility as the young are forced to protest against the severe hardships?
By Mike Chipere-Ngazimbi
Zimbabwe is on the brink of economic paralysis. The current crisis has been precipitated by a string of catastrophic political decisions made by the current President Mnangagwa and his ruling party ZANU-PF, the disputed 2018 general elections, ordering soldiers to fire live bullets and killing unarmed peaceful protesters in August last year and again in January 2019. These coldblooded acts have destroyed the little trust that Zimbabweans may have had. As if that was not enough, the President and his Finance Minister Professor Mthuli Ncube, and the Reserve Bank of Zimbabwe (RBZ) governor John Mangudya decided it was time to reintroduce the Zimbabwe dollar in June this year.
This decision was expected because both the President and Finance Minister had previously alluded to it, but when asked about the timing, their response has always been that it would happen only when the economic fundamentals were right. Yet with inflation currently at 97.85 % in May 2019, unemployment of 90% for the past two decades, and a rapidly declining exchange rate (between the US$ and the local currency, the Real Time Gross Settlement (RTGS) dollar, introduced in February 2019) the fundamentals are clearly out of whack. The Zimbabwe dollar and rapid economic decline are the two major triggers for the impending social explosion. It could be only a matter of weeks before workers (predominantly civil servants), and the young unemployed who constitute over 70% of the population, occupy the streets in protest against severe economic hardships. Recent use of violence by the government suggests that further repression cannot be ruled out.
The deterioration in the few economic fundamentals briefly stated above suggests it was too premature to be introducing the discredited Zimbabwe dollar. So, the question is why did they rush? Before I attempt to explain this bewildering question and events that surround it, I will provide a brief explanation of Zimbabwe’s recent monetary history.
In 1980 when Zimbabwe attained independence, the Zimbabwe dollar was much stronger than the United State dollar (ZW$1 to US$1.56). A decade after that, the IMF and World Bank imposed their disastrous Economic Structural Adjustment Program (ESAP) experiment, combined with government economic mismanagement and corruption, the economy took a devastating knock. The toxic combination of President Robert Mugabe (who claims to have an economics degree) and the RBZ governor Gideon Gono, and their preferred monetary policy of printing money finally broke the camel’s back.
By 2008, inflation was an unbelievable 231 150 808 87%. After this ‘high point’ the RBZ could not be bothered calculating it, however, researchers who persevered (see Steve Hanke and Alex Kwok’s 2009 article here) found it to be much higher at 89 sextillion percent (see World Bank 2018). Because of the hyper-inflation, the Government of National Unity (GNU) decided to adopt a multicurrency system in January 2009, made up of the South African Rand, British Pound Sterling, and Botswana Pula but as time went on the USD became the preferred currency resulting in the economy becoming effectively ‘dollarized’. Many scholars rightfully point to the fact that the GNU dollarized the economy, but the fact is that the majority of Zimbabweans, ordinary citizens, retailers and companies had abandoned the Zimbabwe dollar well before dollarization took place.
Under the coalition government and dollarized economy, the country’s GDP grew at an average of 12.08% per annum between 2009-2013. For the same period total GDP averaged US$12 billion which was three times the rate immediately prior to the formation of the coalition government when inflation was at its peak in late 2008. Quickly, inflation dropped to an average 3.45%, this was partly due to the cash budgeting constraints and use of the US$, which diminished opportunities for overspending (the government simply could not print their way out of budgetary constraints). Consumer confidence returned to the economy and the country’s international standing also marginally improved as the long standing tendency of the ruling ZANU-PF government to abuse national funds was restrained under the coalition government.
In addition, the Ministry of Finance was under the control of the opposition party’s Tendai Biti, a lawyer by profession, he was celebrated by the international community for accepting the orthodox mantra, ‘we eat what we kill’. Though how many countries have ever lived only on what they ‘killed?’
The inherent risk of monetarism is that too much emphasis is ascribed to pure economics, the narrow functions of money and superiority of the market at the exclusion of social and institutional factors. Cash budgeting – eating what one kills – may have worked for Zimbabwe in the short term but not in the long term. The failure to address the underlying institutional factors which have long ensured that the nation’s financial resources only serve the ruling elites and their cronies is the reason why economic progress under the GNU was reversed almost as soon as the government of national unity ended.
When the GNU came to an end, the government decided to start printing money and introduced what they called the bond coin in 2014, then the bond notes in 2016. Initially the idea was presented (or sold to the population) as a means to ease the small change shortages, where shoppers were forced to accept small value items in lieu of their change in low denomination notes and coins. The commodities which ended up functioning as money included mobile network credit, sweets, chewing gums, lollipops and other goods that shoppers would not ordinarily have wanted. Soon afterwards the government and RBZ decided to introduce higher denominations, namely the ZWB$1 coins and ZWB$2 coins in 2016 and lastly the ZWB$5 note in 2017.
At the end of 2017, Robert Mugabe was deposed in a military junta, in came his lieutenant Emmerson Mnangagwa, this time pared-up with a neoclassical economist Professor Mthuli Ncube as Finance Minister and the incumbent, RBZ governor, the economist John Mangudya (who like his predecessor Gideon Gono holds a doctorate degree from an unregistered American university, Atlantic International University, on their website it is stated that, ‘ATLANTIC INTERNATIONAL UNIVERSITY IS NOT ACCREDITED BY AN ACCREDITING AGENCY RECOGNIZED BY THE UNITED STATES SECRETARY OF EDUCATION.’) The trio continued with the bond note and then introduced what they called the RTGS dollar in February 2019. As Jesus turned water into wine, they decreed that their RTGS dollar was equivalent to the US$ at a 1:1 rate. As a consequence, real US$ bills started to disappear from banking halls and ATM dispensers.
Ordinary Zimbabweans started to experience serious liquidity problems, long, endless bank queues became a common sight, customers spent days queuing at their banks only to withdraw a $20 bond notes which was at times dispensed in coins. To ease the liquidity problems, the government encouraged its citizens to go cash-light and adopt electronic forms of money. As a result, the nation’s payment system is currently virtually cashless, according to the RBZ’s National Payments Report for the fourth quarter of 2018, 98% of payments were made via digital forms of money. Bizarrely, this aligned the government with the World Bank, the IMF, and other affiliated organisations such as the Alliance for Financial Inclusion (AFI), the Bill and Melinda Gates Foundation, Mastercard, VISA and others who argue that digital forms of money will lift Africans out of poverty (see the recent roape.net blogpost on fintech). These forms of money attract between 1-6% transaction fees (paid by both payer and payee), to top it all, the Finance Minister saw it fit to impose a 2% tax on all mobile money payments made predominantly by the poor. In total the government and mobile network operators are making nearly 10% out of every mobile payment transaction. The question that International Financial Institutions and their affiliates must answer is, how exactly does digital money alleviate poverty?
Before long the fiction of a 1:1 exchange rate between the US$ and a useless local currency which had no use beyond Zimbabwe’s borders (and at times even within), started to collapse. Parallel market activities increased, the local currency traded at a discount, inflation spiralled out of control, and in response civil servants started to strike against low salaries and eroded purchasing power and ordinary citizens took to the streets in protest at the exorbitant fuel price increases of up to 150% in January 2019 (a few months later in May, again fuel prices shot up by 47%). In turn transport costs became unaffordable, and the Minister of Energy and Power Development announced severe power shortages as households and industries went for hours without power.
The country’s agriculture and manufacturing sector is also in complete paralysis. Almost all foods products are imported from other countries which requires foreign currency, which the government simply does not have. The country recently ran out of wheat, communal cattle are dying because the government cannot afford basic vaccinations, or the dipping of livestock to control ticks etc. So, in several regions cattle are dying in their thousands, while butcheries are buying the same diseased meat and selling it but no one from the government seems to be concerned. In Matabeleland North where I conducted research for two years, domestic production is purely for subsistence purposes and can barely meet basic nutritional needs to the extent that people are surviving on just one meal per day. Many people are having to depend on the flourishing informal market which has sprouted in all large and small towns across the country.
The demand for foreign currency on the informal market is not only spurred by import needs, local retailers are also demanding payment in foreign currency. These pressures are causing ordinary consumers to abandon the local currency, furthering its collapse in value.
As a consequence, the US$ retail prices of food stuff, agricultural inputs, pharmaceutical products etc are becoming increasingly unaffordable, to survive employees started demanding payments in US$. Civil servants – teachers, nurses and other government employees – are threatening to strike because their local currency salaries are becoming worthless. In a June 2019 interview, the former Finance Minister, Tendai Biti, said someone who earned $500 in the local currency was effectively now earning US$35. There were recent rumours that at one-point soldiers at several army barracks threatened to protest after refusing local currency denominated payslips, and instead demanded to be paid in US$. Realising they could not meet these demands, the President and Minister of Finance rushed the reintroduction of the Zimbabwe dollar.
In his bid to sugar coat this disaster the President claimed that the local currency was one of the strongest in SADC, even stronger than the South African Rand. As part of this magic show, the Finance Minister boasted of a local currency budget surplus, in one interview he strongly advocated for the use of the local currencies by the business sector and government. Underlining these arguments is a dangerous belief in monetarism, the idea that one can have a strong currency in a country with a dead production base, while celebrating a budget surplus denominated in rotten eggs!
Most if not all these policy announcements were plucked out of a typical economics or finance textbook written from the perspective of the Global North. There is very little evidence of any originality. The Finance Minister once claimed the Zimbabwe economy was undervalued, arguing that the per capita income is actually around US$1500 (see ‘Zimbabwe’s economy is undervalued by the media’ a report by SABC, 2018), one wonders where exactly he got this figure? However, the fragile economy and political tension will soon dispel these illusions, and hopefully no one will ever again reduce people’s real lives into worthless numbers.
In all this, no one seems to be standing on the side of the suffering and vulnerable members of Zimbabwean society, particularly the elderly, disabled, orphaned children or even civil servants, low wage earners and the so-called self-employed. In 2008 when Zimbabwe dollarized, people lost all their bank savings, however they gradually managed to accumulate US$ denominated savings, but after a few months the government used up these bank account savings and replaced them with the valueless local currency. Today people are lumbered with a currency which can only buy 10% of what they could purchase in 2018.
Some insurance and pension companies pay pensioners as little as US$6 per month, despite making contributions all their working life. According to a 2017 Commission of Inquiry into pensions and insurance policies, the Zimbabwe insurance industry owes these pensioners close to US$3 billion dollars. The insurance companies claim that the pensioners investments were lost during the period of hyperinflation and yet the majority of assets in their balance sheets were acquired well before hyperinflation.
The government owned National Social Security Authority (NASSA) is no better, pensioners are being paid as little as US$30 in a country where the Total Consumption Poverty Line (TCPL) for an average family of five persons per household is estimated to be US$562. But, the saddest part is that in 2014, it was reported that the CEO of NASSA was paid about US$30 000 per month, (basic salary plus benefits), while senior managers are earning US$18 000 per month and this excludes bonuses and other benefits. When confronted about this, the chairman of the board stated that the wage rates were in line with the going market rates, unfortunately the same ‘market rates’ do not extend to pensioners who live on US$30 per month. Sadly, no one from politics or civil society batted an eye, it was business as usual. Similarly, Premier Service Medical Aid Society (PSMAS) a government owned medical aid insurance company paid its chief executive officer close to US$7 million per year, and yet they refuse to honour a large percentage of medical aid claims, in the process forcing poor subscribers to pay from their earnings and savings for unaffordable medical expenses. In one way or another all of these activities are labelled as ‘monetarism’.
Many maintained hopes in the main opposition party, the MDC Alliance, but their 2018 general election manifesto was almost juvenile in its content. The party’s leader, Nelson Chamisa, is unable to articulate an alternative policy position. In his short period as leader of MDC Alliance, he has already made far too many serious mistakes to be relied upon e.g. the depravity of manoeuvring himself into power while former leader Morgan Tsvangirai’s family was in the middle of mourning, or agreeing to proceed with the 2018 elections without the necessary electoral reforms. He has also failed to manage or lead the hungry and justifiably angry youth when they protested about the delay in announcing the results of the 2018 general elections. Though perhaps Chamisa’s greatest blunder was publicly supporting the military junta in 2017.
Due to the absence of strong leadership the likelihood is that the looming protests will be spontaneous and largely leaderless. Zimbabwe sorely needs militant and organised political leadership that can challenge the incompetence and barbarity of the current government.
Mike Chipere-Ngazimbi is Associate Researcher at the University of Pretoria, Human Economy Program, where his research looks at the future of money in developing countries.
Featured Photograph: During the height of the inflation crisis in Zimbabwe in 2009, people resorted to ox carts as fuel prices were high and only available in US dollars (Kate Holt, 22 April 2009).
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