“The situation in Zimbabwe has now reached a critical point. I do not see any way that the government can walk back from this fallout with its own citizens, particularly regarding its heavy-handed crackdown on the fuel price increase protests,” says Tinashe Kapuya (pictured right), agricultural economist, formerly with Agbiz, influential agricultural business chamber.
“Zimbabweans are deeply disappointed with the current leadership and how it has failed to turn around the economy. There was an opportunity for the government to build some goodwill and build on the optimism that followed the immediate aftermath of the Mugabe regime [since late 2017]. However, the continued deterioration of the economic environment has revealed that the Mnangagwa administration has no wherewithal to provide the policy reforms that Zimbabwe desperately needs.”
For the last couple of months a feeling of unease has grown in the country as shelves run empty and almost all of the US Dollars, in an economy that has no currency of its own anymore, disappeared. Now the army is in control (although Zimbabweans point out that the army has always been in control), internet access blocked to prevent a citizen uprising and opposition leaders arrested. There has been loss of life among protestors clashing with the army but the exact death toll is disputed.
Extreme foreign currency shortage
The chickens are coming to roost on the ill-conceived bond note, introduced during the last years of Mugabe, as a replacement of the US Dollar – Zimbabwe’s own currency, the Zimbabwean dollar, ceased to exist a decade ago. This bond note was ludicrously pegged at 1:1 to the US Dollar and has consequently been losing value ever since – production cost of a bond note reportedly exceeds the value of the note.
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As in other countries experiencing severe economic stress, like Argentina, cash and in particular US Dollars have become super-scarce. It has become very difficult to access foreign currency and to import, making export companies less competitive.
Govt very supportive of horticultural exporters
On the other hand, government is very supportive of all companies that bring in foreign currency, which includes a significant horticultural industry based around Harare and the Europort Coldroom at the international airport. Land grabs appear, for the moment at least, to be over and for the past few years electricity supply has been more stable than in South Africa.
Zimbabwe has also been hiking tariffs on food imports from South Africa, their major trading partner, breaching the trade rules of the Southern African Development Community’s free trade area (SADC FTA), as a means of filling up empty state coffers.
“What’s happening now is fraud, or theft,” Tinashe continues. “The state is taking people’s US Dollars in return for a surrogate currency, whose government-prescribed value is beneath the market value. This has completely eroded the purchasing power of hard working Zimbabweans seeking to make a living, mostly in informal trading.
It’s deliberate, he believes. “This government knows what it is doing.”
The BBC has quoted Ashok Chakravarti, economist at the University of Zimbabwe: "It's a pretty big hole. We're suffering the effects of many, many years of misgovernance. We've been living beyond our means and it has come to a crunch.”
Fuel sold below real value, but in nominal terms most expensive on earth
According to an exporter of subtropical fruit and avocados from Zimbabwe, fuel in Zimbabwe has been sold for a third of its real value. Its price has been distorted by the artificial level at which the bond note has been pegged and its continual devaluation and that, as for everything in Zimbabwe, there is an official and a black market price.
The controversial increase in the fuel price is, in fact, a correction of the previous price on which the government, already solidly indebted and bankrupt, has been bleeding money.
“It feels like it’s the most expensive fuel in the world but in real terms it’s not,” he points out. “For a long time it was about the cheapest fuel but the bond value has deteriorated to such an extent.”
Tinashe Kapuya says that in nominal terms and to the vast majority of people, the prices of basic commodities and fuel is completely unaffordable, especially those like civil servants who receive their salaries in bond notes, now worth a tenth of what it was.
“People relate to things in nominal terms, so in practice, Zimbabwean fuel is the most expensive on earth. What the government is proposing, is theoretical.”
Zimbabwe: most cashless society on earth?
Everything in Zimbabwe has three prices: a US Dollar price, which is the lowest, a bond note price and a third price for cashless transactions, which is how most people used to get by. However, the charges on cashless transactions have become almost unbearably high.
Therefore the prices for goods and services through cellphone transactions are far above the US Dollar prices.
Interestingly, this technology has been driven by Zimbabwean internet service provider Econet Wireless. The alternative to cash offered by a private company and enabling Zimbabweans to conduct their daily affairs in the absence of a national currency, has been, some say, the only way the mistrusted Zimbabwean government has been able to survive through thick and thin.
Zimbabwe is the most cashless society on earth, a Zimbabwean horticultural producer claims (although it could be argued that the absence of cash doesn’t necessarily mean the disappearance of its importance). Even buying a single banana from a street seller, in this country with perhaps 90% unemployment (the real statistics are known only to the state), is done via a cellphone. All else, for those who can afford it and don’t have to rely on the bond notes, is done by credit card.
Internet access cut
Earlier this week Econet Wireless confirmed it had been forced by government to cut internet services, therefore halting the cellphone payment mechanism on which most Zimbabweans rely. It was apparently a (futile) attempt at reducing reputational damage.
Rumours are doing the rounds that internet was briefly restored, long enough for President Emmerson Mnangagwa’s office to pay for his chartered flight to Moscow where he has just met with President Putin and gas and diamond companies.
Tinashe, who admits that he is worried about his home country, says that the difference between Zimbabwe’s economic woes now and their well-publicised woes of the past fifteen years, is the disappearance of the middle class. “The people who had an option, left. Most of those who are left, have nothing left to lose.”
“It’s official, I don’t know how you can deny it: Zimbabwe is a banana republic.”