Zim to shelve hard decisions on money until after elections
● As the elections approach, scarce dollar bills are trickling into Zimbabwe, brought by cash-flush foreign observers, but the country’s cash crisis is far from over.
At the Holiday Inn in the capital Harare, along busy Samora Machel Avenue, US dollars, it seems, are flowing freely. Several sports utility vehicles emblazoned with the European Union emblem — 12 gold stars on a blue background — are parked there.
The vehicles are in the EU election observer mission’s reserved parking lot at the three-star hotel. It is understood that the vehicles are hired for $200 (about R2 700) a day from a car rental company in Harare.
On average, rooms at the hotel cost about $130 per night. Since June, the EU observer mission has rented out the entire third floor of the hotel and converted it into an election command centre, as it tracks Zimbabwe’s election campaign.
A staff member at the hotel said it “is not unusual” to have seen increased payments in hard dollars by guests since the onset of the election season.
But just outside the hotel, away from the cash-flush guests, the reality of Zimbabwe’s cash crunch is stark. For Zimbabwe’s next leader, who will be chosen in the elections at the end of this month, tackling the cash crisis will be an immediate priority.
Next to the hotel, an Ecobank branch looks forlorn and its ATM is switched off. Other banks, such as Barclays in the central business district, also have most of their ATMs switched off. In the CBD, only one Barclays ATM displays the message: “Sorry, out of service.”
It has been a long time since most banks dispensed dollars via these machines.
An official at Barclays said on Wednesday that it gave out only a weekly allocation of $30 to depositors inside the banking hall.
Private banking clients at Nedbank Zimbabwe — the South African unit of Nedbank — in the upmarket Borrowdale branch are in a much more enviable position and are given a one-off $400 monthly allocation.
Near the hotel is a thriving black market that trades in the scarce foreign currency. Wads of the $2 bond notes and US$20 bills are held up by the cash traders, who accost motorists, inviting them to buy the cash at premium rates.
“For a $100 it will cost a $130 bond, and if it’s a bank transfer then it’s $175,” said a man who trades in cash along Kwame Nkrumah Avenue, outside the Holiday Inn. The bond note, a token currency that circulates within a basket of currencies, has long lost its 1:1 parity with the US dollar, which former president Robert Mugabe decreed was the exchange rate while he was in office.
New data released by the central bank this week shows that only 4% of bond notes and coins are in effective circulation, despite the bank releasing notes and coins worth nearly $350-million into the economy.
The government released the bond notes in November 2016, while bond coins have been in circulation since December 2014.
The Harare-based research firm Equity Axis, in a note this week, said the low circulation of the bond notes showed that the money being funnelled into the banking system was “going one way — out — and not the conventional two ways of withdrawal and depositing”.
Do we adopt the rand as our currency or do we have a local currency?
Tony Hawkins
Economics professor at University of Zimbabwe
“Rent-seekers seeking to exploit the cash crisis have resorted to hoarding notes for further [transactions] on the parallel market. Hard-pressed customers likewise do not have an incentive to bank the elusive notes, whose asking price on the parallel market is now at 30%,” it said.
Tony Hawkins, an economics professor at the University of Zimbabwe, said the administration’s resolve to fix the cash crisis was in doubt, as it appeared to favour making politically popular decisions rather than the hard ones needed.
Last week, teachers were given a 17.5% pay hike, while the military got even more, 22.5%.
“When you see pay increases for the public sector of about 17% to 22%, when in the private sector this is only about 3% and 5%, it shows a fundamental problem exists,” Hawkins said.
“The government is presently reliant on printing money and borrowing money to subsidise exports. There is a need to get rid of the distortions in the economy and the question is: do we adopt the rand as our currency or do we have a local currency?
“After the elections, reality will start to kick in and the re-engagement with the World Bank and IMF is where Zimbabwe will be told that this is what you need to do to fix the economy.”
Rand customs union
Nelson Chamisa, leader of the largest opposition group, the MDC Alliance, is in favour of adopting the South African rand as legal tender and wants Zimbabwe to join the rand customs union.
“We are going to face one of the toughest challenges,” he said. “There are no jobs, absence of cash, no roads, and broken families. Those are tough challenges that require a tough leader, and that leader is myself.”
So far, President Emmerson Mnangagwa’s government has rejected widespread calls by industry organisations in Zimbabwe to adopt the rand. South Africa is Zimbabwe’s biggest trading partner, with trade last year valued at about $5-billion.
Increasingly, John Mangudya, the governor of the central bank, has had to deny speculation that the monetary authorities are on the verge of adopting a local currency in order to fix the cash crunch.
“The bank would like to urge members of the public to dismiss, with utmost contempt, reports circulated on social media regarding the introduction of a new currency. The country shall continue to use the multicurrency system as evidenced by the continuous significant disbursement of foreign currency cash in the market,” Mangudya said this week in a statement.