October 25, 2016

ZIMBABWE: When An Egg Cost 1 Billion Zimbabwe Dollars, It Was Replaced By US Currency. Zimbabwe Civil Servant (Marxist Government) Wages Swallow About 83% Of National Revenue.

Mail and Guardian Africa
written by Bloomberg staff
November 9, 2015

ZIMBABWE freed its economy from the nightmare of hyperinflation by dumping its currency and adopting mainly the U.S. dollar. Six years on the economy is back in crisis.

Deflation is hindering spending and investment, factories are closing and the government is struggling to find money to pay its workers.

The dollar’s appreciation has made imports cheaper, exports more expensive and fuelled a cash crunch, said Mark Ellyne, an economics professor at the University of Cape Town.

Laws adopted in 2008 that compel foreign- and white-owned companies to sell at least 51% of their shares to local black investors have compounded the problem by deterring investment, he said.

“The dollar strength really works against them,” Ellyne, who worked at the International Monetary Fund for 25 years, said by phone. “They’ve made a wrong choice about the currency and they’ve not opened up enough. They should have tried to do a deal with South Africa to use the rand.”

Zimbabwe imported $2.5 billion worth of goods from neighbouring South Africa last year, more than from all its other trading partners combined, according to data compiled by Bloomberg. Their economies are further entwined by the estimated 2 million Zimbabweans who migrate to find jobs in Africa’s most industrialised economy, according to United Nations estimates.

Zimbabwe’s currency regime means its factories can’t compete with their South African and Zambian counterparts, according to Busisa Moyo, president of the Confederation of Zimbabwe Industries, who has called on the government to enact laws to cut salaries and utility prices. The rand has slid 26% against the dollar since the start of last year, while the kwacha has dived 60%.

Zimbabwe’s economic meltdown dates back to 2000 when militants backed by President Robert Mugabe’s government began seizing white-owned commercial farms, slashing tobacco exports. Inflation soared as the central bank printed money to enable the government to pay its bills.

The Zimbabwe dollar was scrapped in early 2009 and a basket of currencies, including the dollar and rand, became legal tender. Today all pricing and about 90 percent of trade is in dollars.

Multi-currency system

“There’s no immediate plan to return to the Zimbabwe dollar,” Finance Minister Patrick Chinamasa said by phone from Harare, the capital. “We’re tied into the multi-currency system and our focus is on creating growth.”

When hyperinflation peaked, Zimbabweans had to pay for restaurant meals before they ate and quotes from repairmen and businesses were valid for 15 minutes. With a single egg costing more than 1 billion Zimbabwe dollars, shoppers carried money in suitcases and rucksacks.

The experience still jars and few Zimbabweans favour renewed state control over the monetary system.

When the central bank introduced locally minted so-called bond coins to alleviate a shortage of U.S. coins, they were widely rejected, with most people opting to take change in candy or ballpoint pens instead.

“I doubt anyone will ever trust them with money again, not after 2008,” said Fred Nyikadzino, who sells building materials in Harare. “It’s better we struggle now with a U.S. dollar they can’t control than let them print trillions and trillions of worthless money.”

Businesses close

More than 80 Zimbabwean businesses shut last year, a trend that’s continued this year, and just 34% of the country’s manufacturing capacity is being utilised, according to Moyo.

Consumer prices have fallen every month since March 2014, dropping 3.1% in September from a year ago, without boosting sales volumes. About 700,000 Zimbabweans have formal jobs, the lowest number since 1968, government data shows.

The dollar forces fiscal discipline on the government and is “a red herring” when it comes to assigning blame for Zimbabwe’s woes, according to Steve Hanke, professor of applied economics at Johns Hopkins University, who together with research associate Alex Kwok calculated that at the peak of hyperinflation prices were doubling every 24 hours.

“Companies’ lack of competitiveness in Zimbabwe is largely influenced by the difficulties created by the government’s regulatory burdens,” said Hanke, who’s also director of the Troubled Currencies Project at the Washington, D.C.-based Cato Institute. “No one knows from one day to the next what the rules of the game are and how secure their property rights will be.’’

Mugabe’s control

Zimbabwe ranked 171st out of 189 countries in the World Bank’s 2015 Doing Business survey, which considers factors such as how easy it is to start a business, pay tax and enforce contracts. Civil servant wages swallow about 83% of state revenue. In August, the IMF its 2015 growth forecast in almost half to 1.5%.

Mugabe, 91, and his Zimbabwe African National Union- Patriotic Front party have ruled Zimbabwe since independence from Britain in 1980. Their blueprint for reviving the economy focuses on increasing the role of the state and black nationals.

“It won’t succeed because it’s premised on Zanu-PF and the government retaining control,” John Robertson, an independent economist, said by phone from Harare. “Nothing can change the direction unless they let go of the strings.”

Bloomberg News
written by Brian Latham and Michael Cohen
September 2, 2015

Alfred Moyo sees two possible ways of moving stock from his hardware store in Mabvuku township on the eastern outskirts of Harare, Zimbabwe’s capital: selling it at a loss or giving it away.

“There’s simply no money out there,” he said in a phone interview. “It doesn’t matter if you’ve got $10 million worth of stock or $1,000 of stock, either way all you can do is sit it out and hope things will improve.”

Moyo is one of thousands of Zimbabwean business owners who are caught up in a spiral of stagnating growth, rising unemployment and now, worsening deflation. Consumer prices have fallen every month since March 2014, dropping 2.8 percent in July from a year ago. That’s a far cry from the days when prices rose an average of 500 billion percent at their peak in 2008, according to estimates from the International Monetary Fund.

Zimbabwe’s decision to scrap the local currency in 2009 helped end hyperinflation as it cut off the government’s ability to print money to pay debts. At the same time, it eroded manufacturers’ competitiveness by making it cheaper to import everything from food to clothing rather than produce them in a country suffering from a lack of cash, power shortages and high costs.

With Zimbabwe adopting the U.S. dollar and currencies such as the South African rand as legal tender, authorities have no ability to boost money supply in the economy.

“The macro-economy is under enormous pressure,” Joseph Rohm, a fund manager who helps oversee about $1.3 billion in African investments in countries other than South Africa for Investec Asset Management, said by phone from Cape Town on Aug. 31. “Because it’s a dollarized economy, we are seeing a lot of cheap imports flood into the country, particularly from South Africa. It’s hurting some of the businesses that we’ve invested in.”
Growth Target

Hundreds of abandoned buildings, workshops and factories line the potholed roads in Harare’s industrial areas, evidence of Zimbabwe’s economic slide. The situation is even worse in Bulawayo, the second-largest city, where production has been hobbled by water shortages. More than 80 businesses shut across the country last year and just 39 percent of the country’s manufacturing capacity is being used, according to Busisa Moyo, president of the Confederation of Zimbabwe Industries.

The economy’s nascent recovery that followed a 2009 power-sharing government between President Robert Mugabe’s party and the main opposition has largely been eroded. Investors have been loathe to enter Zimbabwe since Mugabe, 91, won the 2013 election, pushing ahead with plans to force foreign-owned businesses to cede majority stakes to black Zimbabweans. Mugabe has been in power since 1980.

The economy, which grew on average 9.2 percent a year between 2009 and 2013, probably won’t expand fast enough to meet the government’s target of 1.5 percent this year, Christian Beddies, the IMF’s resident representative in Zimbabwe, said on Aug. 26.

“Local production costs are too high, so there is no way of competing with the imports,” Christie Viljoen, an economist at NKC African Economics, said by phone from Paarl, near Cape Town. “There is no way of being optimistic about the downward spiral ending any time soon.”

The United Nations estimates that more than 70 percent of the population of 14 million live on less than $2 a day. [but NOT Mugabe's Marxist Government loyal employees and loyal Marxist businesses feeding off of the government. (emphasis mine)] Remittances from Zimbabweans living abroad reached an estimated $837 million in 2014, exceeding humanitarian assistance of $735 million, according to data from the central bank.

Beer Volumes

Deflation comes with its own problems. It discourages consumers from spending as they anticipate prices will fall further, while declining margins reduces the incentive for businesses to invest and hire workers. That, in turn, limits wage increases, curbs tax receipts and worsens corporate and government debt burdens. Deflation fueled the Great Depression of the 1930s and several decades of almost no economic growth in Japan.

Brewer Delta Corp Ltd., Zimbabwe’s biggest company by market value and part owned by SABMiller Plc, cut the price of bottles of clear beer by 10 percent to 90 U.S. cents in December, the second reduction in three months. Sales dropped 4.3 percent in the year through March as volumes of lager beer slumped 17 percent. Econet Wireless Zimbabwe Ltd., the country’s largest mobile-phone company, said on Aug. 21 it agreed with staff to cut their salaries by 20 percent to ward off job cuts after annual net income plunged 41 percent.

No Comfort

In his annual state-of-the nation address on Aug. 25., Mugabe blamed the nation’s economic woes on drought, and said the government would repeal all laws hampering businesses, while implementing plans to revive agriculture and the mining industry.

Those assurances are of little comfort to Wilbert Chimedza, a manufacturer of security fences, who has resorted to only opening his workshop when he has orders to fill.

“The hardware shops aren’t buying because they have no customers, the people aren’t buying because they have no jobs,” he said by phone from Graniteside, an industrial area east of Harare’s city center. “I’ve explained to my staff, we either sit it out on piece-work or starve.”

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