Tag Archives: RBZ

Hopes dashed in Zimbabwe as the economic crisis deepens

It is now a year since people came out onto the streets of Harare to celebrate the army-led ‘coup’s’ ushering in of a new post-Mugabe era. The year has not delivered the dreams and hopes of those on the streets, however, and now an economic crisis is enveloping the country once again.

Despite clear wins for ZANU-PF in the parliamentary elections, even in surprising places (see this interesting recent report focusing on Matabeleland), the July presidential elections between Emmerson Mnangagwa and Nelson Chamisa were disputed. In the aftermath, violence erupted on the streets and the ruthless backlash by the security forces resulted in civilian deaths that shocked the country, and the world.

The uncertainty surrounding the presidential elections, despite numerous international reports, has made international re-engagement difficult. The opposition has capitalized on this to try and push the Mnangagwa regime into concessions. Added to this, the failure to agree a long-term economic stabilization deal with the international finance institutions, so far, has resulted in an accelerating economic crisis. This has resulted in commodity shortages, a growth in a parallel currency market and rising inflation. As in 2006-08, the impacts on those in the cities, and particularly the middle classes, has become in the words of one commentator, ‘unbearable’.

The political roots of the crisis are becoming more and more openly debated. In an extraordinary outburst, presidential advisor Chris Mutsvanga named Kudakwashe Tagwirei, boss of the network of companies linked to Sakunda holdings, as getting preferential access to foreign exchange from the Reserve Bank and being central to manufacturing scarcities, particularly in the fuel market. Close ties to the political-military elite of influential business people who control the economy, and with this parts of the state have been exposed. Meanwhile, maverick politico, Acie Lumumba, the short-lived adviser to the new technocratic minister of finance, Mthuli Ncube, in a bizarre Facebook live broadcast made a dramatic set of allegations about RBZ corruption, the process of state capture and the role of ‘queen bee’ at the centre of the network. Social media speculation went wild, but these interventions only served to confirm what everyone knew already: some ZANU-PF factions and some in the security forces are intimately tied up with controlling oligarchic forces in the economy. This makes effective economic reform and stabilization extremely difficult, without getting rid of these networks of power and economic control.

In the midst of rising crisis, the MDC appears to be holding out for a renegotiation of power. But as Brian Raftopolous argues in a typically perceptive article, there are several problems with their approach.

“Firstly, as we have seen in other parts of the continent, crisis authoritarian states can maintain their rule for long periods of time through minimalist state forms of rule that combine a control of certain extractive forms of revenue with command over the central means of coercion. Moreover, as Paul Nugent points out, such states can combine coercive, productive and permissive forms of rule involving varying relations of coercion and consent and different episodes of negotiations and conflict between states and citizens. The reductionist view that economic crisis will deliver what the election could not is extremely precarious.

Secondly, the social base of the opposition, particularly in the now largely informalised urban sector, is likely to be further weakened by a deepening economic crisis. This is unlikely to result in more protests and a strengthening of the opposition presence in the public sphere. It could lead to a further retreat into individualised forms of survival and already well supported religious structures and their more optimistic ethereal futures.

Thirdly, the international pressure that the opposition is counting on will not take the forms of more open political conditionality in favour of the opposition. At present, key players in the international community are more concerned with keeping Zanu PF on the reform agenda than with any more open or surrogate support for the opposition as in the past. For many countries in the EU the stabilization agenda in countries like Zimbabwe remains a key factor in the face of all the changes in European politics, particularly around the massive migration issue that is currently dominating European politics.”

At the moment there remains a stand-off. While the government desperately seeks international political agreement for a stabilization programme, and the injection of liquidity into the economy, the opposition pushes for the maintenance of sanctions, holding out for political reforms and perhaps a sharing of power. It is a dangerous moment, with little sign of anyone shifting from entrenched positions.

Strangely, both main political parties seemingly agree on the broad contours of the way forward, and both are committed to a radical neoliberal reform package, with unknown, perhaps disastrous, consequences for the long-term. Currently debate on what types of reform are needed, and how Zimbabwe moves from this crisis mode is limited.

Raftopolous argues that, to move forward, “there is clearly a need for a new national dialogue, including but not just limited to, the major political parties”. The terms of any macro-economic stabilization programme alongside political reforms “should be the start of such a national discussion”, he argues, leading to “a serious critique of this currently shared economic policy”.

This is a hopeful, positive position that I share, but it currently has few backers, given limited evidence of progressive visions for economic policy from all sides. As argued before on this blog, unless a locally-developed response to the economic crisis emerges, rising inequality, lack of sustainability and capture – this time by new actors – will likely result. A future, resilient economy must therefore be rooted in the existing productive economy where most people work and gain a livelihood. Reform efforts therefore must focus on small-scale agriculture and the informal urban economy linked to area-based local economic development, and not expect large, external investments to do the job, even if they paper over the cracks temporarily.

Building long-term resilience for a broad-based economy that will reduce poverty and share wealth will take time. But small steps – most notably through providing reliable and cheap sources of funds to support farming and small businesses – can have a big impact.

This post was written by Ian Scoones and this version first appeared on Zimbabweland.

Photo credit: Flickr CC, Baynham Goredema

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Zimbabwe’s bond notes: the birth of a new currency?

bond-note

The bond notes have arrived! Well at least a $2 one and a $1 coin. Subject to street protests, court cases, beatings and arrests, and the object of both ridicule and fear, never has a new form of exchange been subject to such intense – and prolonged – debate.

I got my first note in a bar in Mvurwi on the day they were released, and they have been circulating widely since. While, the Reserve Bank of Zimbabwe (RBZ) didn’t follow my advice for the design and instead opted for the famous Epworth balancing rocks on one side and a picture of parliament and the Heroes Acre flame on the other, they certainly look like ‘real’ money.

But exchange is all about trust and confidence, and that has been in short supply. The RBZ’s endless TV adverts and the full page spreads in the newspapers, along with the calming words of a string of ministers, will not satisfy everyone. The bond notes are supposed to provide an incentive for those who export, and aimed to preventing the massive expatriation of US dollars. Zimbabwe has become the ‘bureau de change’ of the region, with foreigners joining local elites in removing valuable currency reserves. The result has been a massive liquidity crunch, with less and less physical cash circulating.

Yet the spectre of a return to the Zimbabwe dollar, and a return to money printing and hyperinflation is ever present. The trauma of 2008 is very recent, and memories last. Of course Zimbabweans have had bond coins for a while, and they appeared without any fuss. In the absence of small change, and as an alternative to endless supplies of boiled sweets and lollipops as change in supermarkets, the small denomination bond coins were widely welcomed.

The government has assured the population that the new bond notes are backed by a US$200m bank loan and only that amount will be issued, although the details of the deal with Afrexim bank remain opaque. With such backing, it is argued, the new notes are ‘real’, exchangeable one to one with the US dollar. In most transactions this seems to be the case and over two weeks I have not had a bond note refused, although parallel trading to secure US dollars has inevitably started with the exchange apparently currently at 1:0.7. The fear certainly exists that with new control on monetary policy, there will be a temptation to print more, with or without security, and this will get out of hand once again, with local accounts filled with useless bond notes, as was the case with the ill-fated Zimbabwe dollar.

Some claim that there was under a million US dollars of physical cash circulating in the economy, although Finance Minister Chinamasa is more optimistic. Much of this is not in the banks, as many prefer to store it themselves, and significant amounts may have already left the country, so it’s difficult to know. But bank queues and limits on withdrawals (down at one stage to $50 a day) were witness to the troubles being faced. The liquidity crunch is severely hampering business and constraining investment, so boosting cash supply must be a good thing.

However many fear the gradual conversion to a local currency, while hard-earned US dollars are siphoned off from bank accounts to service the government’s massive debts. It is no surprise that many commentators remain sceptical. While the present RBZ governor, John Mangudya, is no Gideon Gono with is wild ‘casino economy’ of the mid-2000s, the severe economic crisis, combined with huge corruption, suggest desperate moves are possible, especially if pushed by political circumstances.

It is also worth reflecting on some of the potential benefits of this controversial move. While many have moved to cashless exchange – just as Greece did during the euro crisis and India is trying to do now – the lack of hard cash in circulation can affect exchange. I was in a resettlement area the other day, and one of my colleagues bought two buckets of sugar beans for $40 using an ecocash transfer there and then, thanks to both parties having accounts and there being 3G network.

But not everyone has a mobile ecocash account, an electronic ‘wallet’ on a smart phone or a swipe card linked to a bank account, although in a very short space of time out of necessity increasing numbers do. As we enter the farming season, having small dollar denominations that are valid sources of exchange is vital for buying inputs, marketing crops and for day-to-day supplies. Going to the grinding mill, buying a cup of beans, securing a bag of fresh termites or purchasing a bowl of maize flour cannot be done without.

You can already see the changes happening as cash circulates again, particularly in rural areas where such exchanges are so vital. Keeping the bond note introduction to small denominations, up to $5 (although we haven’t seen this one yet – apparently with giraffes on the note), seems to make much sense, particularly for those outside the electronic exchange economy. We will however fear the worst if denominations creep up, and hugely divergent parallel markets emerge. We all remember how notes and bearer cheques increased in the 2000s, with so many zeros that cash machines couldn’t cope.

While the introduction of the US dollar in 2009 put an end to the hyperinflationary period at a stroke, it also limited options for economic policy making, hiked prices, reduced liquidity, as the dollar is so strong, and domestic growth and productivity is so low. The Rand as an alternative currency in a multicurrency environment soon got squeezed, and the US dollar dominated. US dollars in a region of weak currencies proved a honey pot for those wanting to exchange into a harder currency, and often illegally moved funds offshore, reducing cash availability yet further. Returning to a more diverse currency arrangement, with US dollars focused on international transactions, and bond notes, and perhaps the Rand making a comeback, being more for local exchange, has some logic.

Radical and inventive solutions are certainly needed, as Zimbabwe’s economy is in dire straits. Injection of cash to relieve some liquidity problems must be combined with new investment, and increased export earnings. Whether gaining access to bond notes will incentivise this waits to be seen, and more structural macro-economic measures, combined with improved political relations with investor countries, will have to take place in tandem.

This post was written by Ian Scoones and appeared on Zimbabweland

 

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