Understanding what is going on

CONVENTIONAL economics do not often apply to the Zimbabwean economy. If we take as an example the period during the government of national unity (GNU) from 2009 to 2013, the hard currency revenues to the State (without changing the rates applied) grew by an average of over 70% per annum. In 2009, it was a mere US$280 million and by 2013 the budget was based on revenues of US$4,3 billion. To date, no one has attempted to explain how that happened.

In 2009, when the GNU had just come into being, all retail outlets were empty. In six weeks, everything you wanted was in free supply. Where did the hundreds of millions of hard currency come from? No one has even attempted an answer.

Today, only about 10% of all adult Zimbabweans have a formal job; we have no safety net here, no means of meeting essential basic needs except a bit of food aid and we do not see the usual signs of abject poverty and hunger that you see in many other countries and places, how does 90% of our adult population survive? Again, no rational economic reasons are given.

Today, we live in a country where we understand there is no confidence, no foreign investment and little liquidity in the banking system, yet for the past decade we have been in the midst of the largest sustained building boom we have ever seen.

Google any town or city in Zimbabwe and the physical evidence is there for all to see — hundreds of thousands of homes under construction — not shanties, real homes, many with tiled roofs and all amenities. Yet the central bank tells us that the diaspora sends home only about US$800 million every year. Where does the money come from? How does it get here?

I am not saying things are okay — clearly we have problems, but what I am saying is do not use conventional economic principles to try and interpret just what is going on.

In 2019, we had all the ingredients in place to secure a stable and growing economy. We had a fiscal surplus, improved discipline in State finances, we had a balance of payments surplus (on paper) of nearly a billion US dollars with total foreign currency inflows of about US$7 billion and official outflows of US$6 billion. We had a central bank that was trying to get money supply under control and had almost succeeded by the end of the year. If you went into a supermarket in 2017 and measured what was the percentage of locally-produced goods on the shelves, you would have struggled to identify 5%.

By the end of 2019, the percentage of locally-produced goods was over a third. Industrialists were reporting that they were, once again, regionally competitive. Exporters were all reporting the same thing and exports were growing fast.

But in the past year, the wheels have again come off the economy. Inflation is nearly 1 000% per annum and our local currency, which was worth one US dollar at the start of 2018, is now worth a cent. In 2019, we had a specific problem with money supply for a short period due mainly to one issue, once that was fixed, this should not have happened, but it did. Why?

In the period 2003 to 2008, the main driver of inflation and the reason why the local currency crashed was quite simple really — and classical. We ran a massive fiscal deficit and to fill the gap in State revenues, we printed money. When finally, the State woke up to what it was doing and we introduced the multi-currency system (we did not dollarise — that happened naturally) the change was dramatic and instant.

Prices which were doubling every three hours on February 16 2009, were down to -7% in three months. We did not print money (the machines were literally closed down) and without any help from anyone, Zimbabweans started using the rand and the US dollar as their main means of exchange. When finally we demonetised the local dollar, it cost us US$23 million — not even US$2 per capita.

Apart from the destruction of all monetised savings, it destroyed debt and left every bank, building society and insurance company completely broke except for physical assets. Eliminating the market for farmland took another US$15 billion out of the economy in the form of collateral assets.

One aspect we did not understand at the time was that we inadvertently gave the US dollar an enhanced value that it did not deserve when we finally settled for the dollar as our main means of exchange. The result, we destroyed the competitive character of our productive economy, only the extractive industries survived.

With the king of all currencies as our main trading vehicle, we became the region’s supermarket, importing everything from outside the country, even water in plastic bottles.

When Mthuli Ncube became Finance minister in 2018, coming from the rarefied altitude of the Alps in Europe, he quickly identified that we had, in effect, created a new currency for ourselves because we simply did not have enough of the green stuff to go around. He called it the “RTGS dollar”.

Clever and spot on and we had a mountain of the stuff, $23 billion of it. We thought it was US$ and that we were rich, it was a national deception.

The moment he made it unconvertable, the RTGS dollar was adrift in a sea of uncertainty and doubt. Our collective minds went back to 2008 and we all said to ourselves — not again! What the authorities failed to recognise was that not only had we dollarised during the GNU, but we had discovered electronic banking and Strive Masiyiwa had brought the ubiquitous cellphone to our streets. Like everything Zimbabweans do, we took to these new tools with great enthusiasm.