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Inflation forces citizens into mafia economy
Peta Thornycroft, The Sunday Independent (SA)
March 11, 2007

http://www.int.iol.co.za/index.php?art_id=vn20070311085626429C172551

Harare - The reaction to the question put to a long-established gold producer: "Would you like to be legal again?" was a long sigh of profound yearning.

Decent people in the business community - industrialists, farmers, informal traders, gold miners, fuel importers, foreign aid workers - want to obey the law.

They want to be able to stop talking in code on the appalling mobile networks, to stop doing billion-dollar deals by sms, pay tax even, never again do business in car parks at night or slip wads of money under the table at coffee shops.

The vendors want to be able to sell tomatoes on Fridays without having to dodge and dive, fearful that underpaid municipal police will seize their produce for their weekend needs, "because they don't have a licence".

They can't get licences, so they build their losses into the selling price of the next bag of beans.

The craziness of officialdom has forced ordinarily law-abiding Zimbabweans to become part of the mafia economy, which is now the only economy.

The big, established speculators, who deal in gold, diamonds, cigarettes and currency, will do what they have to, and maintain the system from which they profit, which means bribes - some call it "commission" - paid out at every tier of their operations. And however distasteful that system might be, it does keep the economy going.

The Reserve Bank of Zimbabwe, which is not restricted by any laws to maintain the absurd price they officially pay for gold, also breaks its own price rules all the time.

It officially pays producers ZIM$16 000 (about R500) a gram for gold, and gives them written receipts from the mint, known as Fidelity Printers, on that basis. At the official exchange rate of ZIM$250 to the dollar, that is quite a generous $64 (about R470) a gram.

But the real, parallel or black market exchange rate is more like ZIM$10 000 to the dollar (and rising) so ZIM$16 000 a gram translates into only $1,6 (R11,80).

Even for Zimbabwe, this is absurd, so in reality, Fidelity Printers is paying the gold producers (in cash of course,) ZIM$60 000. At the parallel rate, that is $6 a gram, still slightly more than a quarter of the world price for gold - about $21 a gram - which is what the Reserve Bank gets when it sells the gold internationally. But it's the best the gold producers can get, officially.

Even though they are being ripped off, the gold dealers must conduct these transactions from luxury 4x4s in pot-holed shopping malls or at private houses, because they are getting more than they "should" be getting - in the cloud cuckoo-land official world where one dollar is worth only ZIM$250.

So the gold producer, yearning to be legal but trying to stay alive, is forced to sell a minimum to the government and to flog the bulk of his gold to traders who pay him about two-thirds of what he would get on the open market.

Several key officials in the government's quite well-manned and regulated mining departments spend their days twiddling their thumbs, because officials from the Reserve Bank of Zimbabwe have unofficially taken over their jobs.

So this year gold production will officially slump to 100 000 ounces, half what it was in 2006, which was half what it was the year before. And so on. Unofficially, the gold is still coming out of the ground at about the same rate.

To change this and bring all the gold into the economy, all the Reserve Bank need do is pay Zimbabwe's gold producers just a bit less than producers get in South Africa.

Since the Reserve Bank of Zimbabwe's purge of the gold industry began last November, producers, official and unofficial, are either out of business or operate in great danger of arrest and worse, or they have been taken over by the central bank.

This combination means that Zimbabwe's gold - and there is plenty of it - has largely disappeared from the formal market.

Runaway inflation has almost destroyed normal business transactions. In the past 10 days, the rate has doubled. When I started writing this story, the parallel exchange rate was more like ZIM$10 000 to the dollar. Now it's about $11 000. By the time you read this, who knows?

This makes business difficult for everyone, not just gold dealers. In a computer shop this week, a man walked in to buy a cartridge for his printer. "How much?" he said to the girl Friday manning the phones.

"Don't know, we are not trading today. The boss is in Jo'burg, and the rate [the value of the Zimbabwe dollar] has gone mad, so we don't know what to charge."

The buyer, a regular customer, shrugged. He needed his cartridge. He put it in his pocket and the receptionist noted the sale and said she would charge him next week, when the rate settled, if it ever did.

When the price of milk went up on Wednesday to about ZIM$17 000 for a two-litre bottle, from ZIM$10 000 the day before, a woman wailed at the checkout till. That was just one voice in a chorus of wails, because that

24-hours scenario is being repeated everywhere.

At the official rate of exchange, that two litres of milk would have cost about R504. That's correct, ladies and gentlemen, the calculator on my mobile does not lie.

At the real price, if the sum is done using the black market rate of exchange (which is how everyone in the urban areas operates), it would have cost about R1,40 for the same bottle of milk. Quite cheap really.

So the man in Harare's upmarket Avondale suburb running a large house, a borehole all day and the usual DStv, kettles, electric stove, etc, pays R15 a month for electricity, calculated at the black market rate.

Imagine, now, if the Zimbabwe Electricity Supply Authority, Zesa, did begin charging for power at an economic rate, perhaps similar to South African power bills. No one, except the five percent of the population with access to foreign currency, would be able to switch on a light.

Or turn a tap on, providing of course the lights and water are working, which they often aren't.

And yet Gideon Gono, the Reserve Bank governor, has bowed to pressure from Mugabe to keep the official exchange rate of $1 to ZIM$250.

So is a revolution or insurrection around the corner? On the streets and abroad, that's the talk. In reality, it's so hard to tell.

Schoolchildren are still alighting from buses neatly dressed in green checked uniforms, laughing and looking like children in any half-decent society. Yes, their teachers went on strike but only for a day.

There's no sugar, as usual, in the supermarkets, in high or low density areas. But you can get it from the vendors, who keep it hidden under a bush on the side of the road.

In one particularly desolate township this week, where 35 vegetable vendors died when their minibus ploughed into a locomotive, there is talk of revolution. And in other townships too, there is anger and insurrection in the air.

But the police seem well prepared and motivated to beat up enough people to maintain "law and order" should it look like it is getting out of hand.

Remember, it is only the minority of the population who live in the towns. More than 70 percent are out in the rural areas and, while they are struggling, and angrier now than ever before, Zanu-PF is still firmly in control in its three stronghold Mashonaland provinces.

"The army is there, the war veterans are there watching, the police are hanging about, the CIO (Central Intelligence Organisation) is watching, and one can't move without being noticed," said a small trader who was in Harare for the day to pick up supplies for his shop.

"It is very different where I live," he said, loading up groceries into his van. - Foreign Service

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