The authorities are also trying to encourage the country to use the rand (and other currencies). One person pointed out that a packet of cornflakes is half the price in Johannesburg compared with Harare (and this is not just due to transportation costs). This was a problem already evident two years ago. But shopkeepers could change the currency to rand today, and prices would still be twice as high as Johannesburg; it is price and wage cuts that need to be enacted, not a change in the currency in which prices are displayed.
The most significant problem for Zimbabwe is the lack of savings in the country, and the lack of confidence in the future. Hyperinflation always wipes out personal savings, unless investors are canny enough to have gold, property, equities or ideally foreign currency, and Zimbabweans saw their savings destroyed less than a decade ago. As noted above the government has no savings either. Over 2012-2017, the IMF estimates that Zimbabwe gross national savings will have averaged -6% of GDP, one of only six countries with negative savings over the period, and the worst in the world.
These are going to very long-term challenges for Zimbabwe, whatever happens in the short-term. But problems in the short-term could be overcome, if the country attracted foreign capital. This is what encouraged the visit of the finance minister and the reserve bank governor to London last week. Six things could make this happen, but some are likely to take years.
First, commodity prices could soar. Gold prices are already up 29% YtD. A rise in platinum, diamond and tobacco prices would go a long way to helping Zimbabwe boost exports. To attract more foreign capital above this would require the input of foreign investment into the relevant mines and farms. High commodity prices might tempt them, but there is an obstacle which would need to be addressed, which is our second point.
Second, the government could change the indigenisation law. As we have pointed out to governing ZANU-PF officials on a previous visit to Harare, Zimbabwe won the freedom to make the legislation it wants since liberating itself in 1980. But the private sector also has the freedom to ignore Zimbabwe and choose instead to invest in SA, Kazakhstan, Russia, Australia or any other mineral producing nation which might allow majority ownership of mines and farms. There is reportedly more foreign interest in manufacturing, where investors can have majority ownership if they use credits (e.g. by investing in education).
We heard from Professor Stephen Chan at the African Confidential conference, that China is particularly bitter that Zimbabwe has “chosen to bite the hand that feeds it” by taking majority ownership of mines that Chinese companies had developed. In the past, China might have been the lender of last resort to Zimbabwe, but not now.
The government is pushing legislation that will enable 99-year land leases that would allow land to be used as collateral and re-establish a land market. We have not yet met a foreign investor ready to invest in Zimbabwean agriculture.
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