Zimbabwean economy: Same song and dance


Reserve Bank of Zimbabwe governor John Mangudya

IT is common knowledge that if you really want to know whether you are handsome or not, you just can’t ask your mother because even if you are Mr. Ugly, she will still say you are a keeper. Over the years I have mastered the art of discerning between tangible facts and what not to believe when people give their forecasts on the economy. Do you still remember how many times the former RBZ Governor used to tell us how the only way left for the economy to go was up, since we were already at rock bottom? He would paint a rosy image of the future and cut some zeros from the currency only for them to reappear again a few months down the line. Part of the job description of being a Governor is to instill market confidence and to do this; one may need to tell a Mr. Ugly of an economy that he looks just like James Bond. Speaking of Bonds, Zimbabwe is soon to get more of those very soon – $200m more.

Logistical challenges

A month ago, the cash shortages were described as mere ‘logistical challenges and nothing more’. You can imagine the shock that I had when I heard that these mere logistical challenges have driven the RBZ to put in place measures to inject up to $200m in so called Bond notes.This, together with a raft of measures meant to reduce US dollar outflows and promote the use of the Rand and Euro are just some of the plans that are set to go live very soon. The question is will this work?

There really was no multi-currency regime

Although we like to say that since 2009 to date, we have been in a multi-currency regime, the truth of the matter is that is just not true. For as long as I was within Zimbabwean borders, I have never handled Euros, Rupees, Pounds or any of the overseas currencies that sit in our so called currency basket. As for the Rand coins, we just can’t call them a currency – they were just tokens used for change and for as long as the Rand/US dollar exchange rate remained within the range of between 7 and 12, they were acceptable tokens. This started to go awry when the exchange rate hit 14 Rand to the Dollar where one could ride a kombi in the morning, get 5 Rand in change only to get charged 7 Rand in the evening for the same trip. The key takeaway from this story is that people do not like currency fluctuation risks. Even global corporations are risk averse when it comes to currency risk –just look at how Barclays has moved away from Africa to remove unwanted currency volatility from its mega balance sheet.

Forcing someone to accept 50% of their hard earned income in Rand or any other currency other than the US dollar is just giving that person endless headaches. Are we now all supposed to take lessons in currency hedging?

The Bond coin precedence

The way in which Bond Coins were accepted seemed like a stroke of genius from the RBZ. But was it really? I strongly believe that Bond Coins owe the majority of their acceptance to the demise of the Rand on the international currency market. If the Rand was still hovering between 7 and 12 to the Dollar, we could very well still be using it. While Bond Coins were seen to complement the US Dollar, Bond Notes seem to be intended to replace the US Dollar – at least to the ordinary man on the street. I am looking forward to seeing how the powers that be will convince the masses that a government that failed to account for $15bn+ in diamonds can stay true to its promise of printing only up to $200m in Bond Notes.

Serious lack of innovation

The $200m has to be injected into the economy in the form of Bond Notes and not US Dollars because if they don’t do that, the US Dollars would just get externalized and we get back to square one. Guess what, this just shows that Bond Coins are not addressing the real problem. It took us 8 years to go back to the long queuing for cash that we last experienced in 2008. Why did economists make us adopt a strong currency without even doing some rudimentary modeling work to see how the economy would fare in different situations? What have the people in charge of the economy during that time really done to address REAL fundamental problems that are affecting our economy? Every policy move from cancelling zeros, to dollarisation and now Bond Notes has been a temporary fix that can’t stand the test of time. It’s like we are consulting plastic surgeons to work on a patient suffering from bone cancer.

About Author: Thomas Sithole is an actuarial analyst specialising in Enterprise Risk Management. You can contact him via his twitter handle @ZimboActuary or his corporate website: thomas.bluecroftsolutions.com

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