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'Can I give you some Harare luggage for your US dollars?'
IRIN News
July 04, 2008

http://www.irinnews.org/Report.aspx?ReportId=79106

The flower seller booths on Unity Square in the Zimbabwean capital, Harare, are now the haunt of money changers, because this is one of the few commercial activities in the country still experiencing any kind of growth. Cosmos, 24, fell into the business a few years ago while working at a bar, where he changed some local money for foreign tourists who had US dollars, or "green leaf" as he calls it. The roughly US$150 a month he makes in profit helps support his mother and pay the educational costs for his younger sister. Dressed in a worn T-shirt bearing the slogan, "I'm saving for my retirement, are you?", Cosmos told IRIN that one of the gauges used for the US dollar-Zimbabwe dollar exchange rate was the fuel price.

On 4 July, US$1 dollar was worth Z$35 billion, and a litre of fuel cost Z$60 billion.

Sonny, another currency dealer stationed opposite an upmarket hotel, was accosting potential customers with the line: "Do you want some Harare luggage?" a euphemism for the bundles of local currency a US dollar transaction requires. Sonny said he thought there must be thousands of illegal currency changers in Harare, while a passing patrol of about six riot police wearing crash helmets and carrying metre-long truncheons briefly interrupted business. Zimbabwe's largest denomination is currently a Z$50 billion note (US$1.40), but this is not currency, it is a bearer bond. Like other denominations, it has an expiry date, and although many of the smaller denominations have expired, it remains in circulation out of sheer necessity.

Official estimates of Zimbabwe's annual inflation rate were last available in February 2008, when it was cited at an already staggering 165,000 percent. Estimates by independent economists now range anywhere between one million and 10 million percent. The currency dealers are kept busy, not by the few foreign visitors, but by the more than three million Zimbabwean thought to have left the country since 2000 that remit money back to their relatives. A food security analyst, who declined to be named, estimated that these remittances now equalled or bettered the foreign currency received for the country's tobacco harvests, which used to contribute about one-third of the Zimbabwe's foreign currency reserves.

Local currency fading away
Inflationary pressures and demands to change ever-increasing amounts of money have already made it difficult for dealers to source enough local currency for exchange. Sonny told IRIN that he sourced large consignments of money from "the big men" who owned cash businesses, such as liquor stores, and sold his US dollars to the m for local currency at preferential rates. A salesman at a luxury car dealership said customers had to deposit hard currency - US dollars or Euros - at the factory in Germany, although some residents told IRIN that they were using foreign currency to buy basic goods from shops instead of the local currency.

The cash crunch, which makes long queues outside every bank a feature of the city, is expected to worsen substantially since the German company that used to supply the paper for Zimbabwe's banknotes, Giesecke and Devrient, decided to cancel its contract with the Reserve Bank of Zimbabwe (RBZ), citing a "deteriorating" political situation in the country. "Our decision is a reaction to the political tension in Zimbabwe, which is mounting significantly rather than easing as expected, and takes account of the critical evaluation by the international community, German government and the general public," the company's chief executive, Karsten Ottenberg, said in a statement.

General elections on 29 March saw the opposition Movement for Democratic Change (MDC) become the majority party in parliament, usurping ZANU-PF's domination for the first time since independence from Britain in 1980. In the presidential poll President Robert Mugabe came off second best to MDC candidate Morgan Tsvangirai, although Tsvangirai was unable to attain the 50 percent plus one vote required in the presidential poll for an outright win, and a second round of voting was required. In the lead-up to the 27 June presidential ballot, widespread violence saw Tsvangirai withdraw from the poll and Mugabe become the sole candidate. The run-off has been roundly condemned internationally as a farce, and even the few African observer missions permitted to monitor the poll declared the election unfree and unfair.

Printing money
"We have witnessed biting cash shortages before, but the withdrawal of the German-based company is going to plunge us into a far worse situation, and, as usual, it is the consumers, not political culprits, who will bear the brunt," John Robertson, an independent economist based in Harare, told IRIN. "Of late, we saw the RBZ printing money wantonly to finance elections, and give civil servants big salaries that were meant to keep them happy ahead of the polls - unsuccessfully, though, because of rampant inflation - but the central bank had the paper. Now it will no longer be the case and, as prices keep on rising, we will see less money in circulation," Robertson warned.

He said the reduced capacity of the RBZ to print more money also meant that it would not be able to make adequate imports of essential goods, such as the staple food, maize. "The banking and transacting public should go about their business in the usual manner, as the above-mentioned development will not have any impact to the economy," RBZ governor Gideon Gono told the state-controlled The Herald newspaper.

Signs of cash shortages are already there. As businesspeople, we import raw materials and depend on the local currency we manage to get to buy foreign currency from the parallel market, but informal dealers are saying business is being affected by a shortage of notes Innocent Makwiramiti, an economist, businessman and former chief executive officer of the Zimbabwe National Chamber of Commerce (ZNCC), said the withdrawal of Giesecke and Devrient would adversely affect business operations. "As a result, we have to depend on bank transfers that don't involve cash, but that means we are having to buy the foreign currency from the [official] dealers at double the price, compared to the streets," Makwiramiti told IRIN.

In order to remain in business, he said, they would have to pass on the costs to consumers, who were saying the increases in the prices of commodities had shot up beyond their reach since the 27 June elections. Makwiramiti said traders who were managing to get large sums of cash from daily sales were resorting to selling it at a premium. He doubted that the RBZ would be able to resolve the problem of cash "any time in the near future". He pointed out that "Alternative firms that supply the money paper might be unwilling to do business with a government that has been condemned internationally, or could ask for the kind of money that the central bank cannot manage to raise."

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