Is Mnangagwa fighting a losing battle?

Transiting truckers from every surrounding country fill up their tanks (and 200-litre drums) in Zimbabwe. Government’s fuel bill has soared, contributing to the widening budget deficit and eating up scarce US dollars.

This kind of problem is replicated in several other sectors of the economy, from air tickets to import duties.

Zimbabwe’s new Finance Minister Mthuli Ncube has recognised the situation as unsustainable. On 1 October he ordered banks to divide depositors’ accounts, one reflecting hard cash deposits and one RTGS deposits.

The move was rightly interpreted as a first step towards regulated re-dollarisation by allowing the value of RTGS money to float.

The market reacted instantly. The black market value of RTGS money plummeted to 5:1. With many manufacturers and retailers compelled to buy imported inputs and goods with real dollars sourced on the black market, prices skyrocketed.

Consumers rushed to buy products still marked at old prices or before the rate declined further. Panic buying set in and consumers hoarded or bought goods for resale on the black market. After several days of consumer chaos, the black market rate for RTGS money began to fluctuate wildly.

Unsure of how to price goods, several retailers closed their doors, hoping the economy would stabilise. Some adopted ‘tier pricing’, offering differing prices for goods depending on the mode of payment. Others demand hard cash.

Although pricing in US dollars is technically illegal, despite some desultory threats, government has so far taken no action against offenders. Government doctors and teachers have also demanded that their salaries be paid in real money. Others will follow.

It thus appears that the market is taking over and re-dollarising, regardless of laws and government policy.

If RTGS deposits return to the ether whence they came, many will lose significant amounts of money.

Zimbabwe’s largest bank by asset base is CBZ Limited. More than 50% of that asset base comprises treasury bills and other government bonds, which may become virtually worthless through re-dollarisation. If CBZ can’t survive the stress, Zimbabwe’s entire financial system will be in jeopardy.

Mnangagwa has always known that he is in a race to engender some sort of recovery before the economy reaches the edge and falls into an irreversible downward spiral. The events of October suggest he is losing.

Recovery can only come with foreign investment in Zimbabwean commerce and industry. But what investor would want to bring hard currency onshore, to see its value immediately reduced as it is turned into RTGS money, where profits are generated in RTGS money and offshore shareholders cannot be paid?

So the logjam continues. The currency problem cannot be solved without investment, and investment won’t come until the currency problem is solved and certainly not while Zimbabwe has shown itself prone to bouts of extreme economic chaos and potential social unrest.

And while government scratches its collective head, Zimbabwe’s economy inches ever closer to the brink.

By Derek Matyszak for ISS Today

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