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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 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 cent 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 of all kinds were empty – wholesalers, stores, supermarkets and filling stations. In six weeks everything you could want 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 per cent 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 per cent 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 Reserve 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 OK – 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 Reserve 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 per cent. 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 1000 per cent per annum and our local currency, which was worth one US dollar at the start of 2018, is now worth US$1 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 fil 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 the 16th of February 2009, were down to minus 7 per cent 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.
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