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Mugabe's economics dip into billions
Pretoria News (SA)
May 31, 2008

http://www.int.iol.co.za/index.php?art_id=vn20080531085832805C430021

At the present rate of devaluation, the Zimbabwe dollar will hit a billion to one US dollar this weekend. Try looking at the numbers: US$1 = Z$1 000 000 000. But remember that Zimbabwe slashed three noughts off the currency in August 2006, so the real numbers are US$1 = Z$1 000 000 000 000. Or R7.50 = Z$1 000 000 000 000! But perish the discarded noughts! Thank goodness they have gone. Since the beginning of May, the Zimbabwe dollar has devalued 243 percent, or saying it another way, it lost about 70 percent of its value. In three weeks. So, on Monday, a billion Zimdollars equals R15. But R15 in Zimbabwe doesn't buy what it does in South Africa. The supermarkets with South African groceries - and there are hardly any locally manufactured groceries any more - charge about four times what those same goods cost in South Africa. So an anorexic chicken cost four billion Zim dollars, or R60, last Monday. Goodness knows what happened since then as the market and inflation are galloping towards the finish line when the Zim dollar will be abandoned as worthless.

In southern Zimbabwe, many, many people already trade in rands, and people in the cities regularly quote prices in US dollars. Until three weeks ago the Zim dollar devalued on a weekly or monthly basis and relatively slowly over the last eight years of the financial crisis. This is what happened in May, the winter of Zimbabwe's greatest discontent. The Reserve Bank of Zimbabwe temporarily liberalized the foreign currency market to attract some forex into its bare coffers. It had stripped corporate foreign currency accounts in January and February to pay for the elections and Zanu PF's campaign. Now it needs to put some of that foreign currency back in those accounts to pay for the presidential run-off on June 27. It could not persuade anyone to bring their forex into the system when people were offered 20 times less for their rands than the rate currency dealers were paying on the street, even if those deals have always been technically illegal. RBZ governor Gideon Gono is the largest buyer of forex from the street, but he has protection. He prints extraordinary amounts of currency, then goes to the streets, buys up forex, and settles his most urgent accounts, Eskom for example. Every time he does that the rate of the Zim dollar moves down a bit and inflation pushes up a bit. So now the rate of exchange at commercial banks is nearly, but not quite the same as on the streets.

The banks, by way of bureaucracy imposed by the central bank, are not nearly as efficient as street traders. So while Gono is attracting some forex, the largest amount is still being traded on the street. The banks often haven't enough local currency to pay cash for the forex offered and the official rate still lags a few points behind what street traders are paying. This temporary liberalization has produced an astonishing rise in inflation, powered by the staggering increase in import duties. Before the liberalization import duty was calculated at the official exchange rate of Z$30 000 to US$1, ridiculously out of step with the rate on the streets, but it did keep a curb on inflation. Now duty is calculated at what is called the interbank rate, the new liberalized rate set by commercial banks on a willing buyer willing seller basis. So there has been a nearly 250 percent increase in duty on imported goods. It sent hyper inflation into the stratosphere - one million, two million percent, who knows?

Almost every item for sale is imported, as the manufacturing sector was largely destroyed during the price freeze of nearly a year ago. The impact of this sudden rush of fantastic price increases forced Gono to allow a basket of groceries, mealie meal, cooking oil, sugar, flour, washing powder etc to be imported duty free. Prices now change in supermarkets, for example, every two or three days. It means that the new hundred million-dollar note is now obsolete. Gono had to rush to import more paper from his German suppliers, Giesecke & Devrient in Munich, (where he reportedly spends about 600 000 euros a week) and came up with a new suite of notes called Agro Cheques with values of five, 25 and 50 billion Zim dollars. The Agro Cheques have started appearing in supermarket tills and at ATM's. Agro Cheque is another name for the bearer cheque which took over from traditional Zimbabwe currency when it became useless about five years ago as inflation hit three digits.

A 50-billion Zim dollar bearer cheque was worth R750 last Monday, but will probably have halved in value this coming Monday. Accountants say by the time of the presidential run-off - in four weeks - it will cost five billion Zimbabwe dollars for one US dollar. This week chickens in the deep freeze of a major supermarket in an upmarket area where many shoppers earn in foreign currency were laying hens, which had been killed off because there is no stock feed. There is no stock feed because Zimbabwe doesn't grow enough maize to feed a quarter of its population, let alone make stock feed. And the inflation and duty mayhem this May, means importing stock feed from South Africa would make a dozen eggs stupidly expensive. Presumably the anorexic chickens from the battery farms will be next. Another absurd figure: the minimum wage for a Zimbabwe worker last Monday was the equivalent of a litre of Coke. So where is it going? Who knows? This is record breaking stuff. There are no precedents anywhere in Africa for this. It is part of the madness of Zimbabwe. Part of the madness which sent so many Zimbabweans to seek what seemed, until two weeks ago, a more sensible life in South Africa.

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