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Zimbabwe inflation hits 50% as Zanu-PF big-wigs milk crisis

Sparks fears of a return to the country’s hyper-inflationary past.

South Africans tuning into the Zondo Commission of Inquiry into State Capture may be horrified at the depth and extent of corruption alleged to have infested our government – but Zimbabwe is at a whole different level.

To take just one example: those with access to foreign currency allowances approved by the Reserve Bank of Zimbabwe, mostly those with top level Zanu-PF connections, were able purchase fuel at US$0.45 a litre in Zimbabwe and sell it in South Africa at US$1.20/l and in Zambia at US$1.10/l.

It doesn’t take long to become a dollar millionaire with that kind of arbitrage opportunity. It is the same story with maize meal, bread, flour, cooking oil and other basics. Connected Zimbabweans are making millions while ordinary people – or at least those with fixed salaried jobs – are paying 50-100% more for basic goods. They can barely feed their families.

This explains the recent rioting and violence in the country, says Bulawayo-based economist Eddie Cross. The country is a cesspool of infighting and intrigue, with President Emmerson Mnangagwa fighting rearguard action against his enemies who see an opportunity to unseat him.

“One of the problems we have here is open conflict between the ministry of finance and the Reserve Bank of Zimbabwe,” says Cross. “The Reserve Bank recently announced it is taking 50% of export proceeds from companies like Zimplats and offering them artificial exchange rates which are less than a third of their real value.

Export industries’ hands tied

“As a result, all export industries are effectively going bust. The biggest ferrochrome producer in the country, owned by Chinese investors, says it will have to suspend operations because a large part of its revenues are effectively confiscated by the Reserve Bank.”

Gold sales are down nearly 50% as a result of the Reserve Bank’s confiscation, so gold is now being marketed informally on the black market.

These dollars confiscated by the Reserve Bank are then allocated to the politically connected, who use them to arbitrage fuel, food and other commodities. Most Zimbabweans are forced to use so-called ‘real-time gross settlement’ (RTGS) dollars, which are worth less than a third of the value of US dollars.

Zimbabwe’s finance minister Mthuli Ncube is taking heat for the current economic crisis as inflation soars to 50%, raising fears of a return to the country’s hyper-inflationary past when consumer goods prices were doubling every few hours. That was a decade ago. The crisis was brought under control by introducing US dollars and South African rands as the accepted payment method. Almost instantly, inflation reduced to less than 3% a year.

Ncube’s economic reforms seemed sound enough. Public sector wages swallowed more than 90% of revenues, and the fiscal deficit was running at 40% of the budget. Something had to be done to fix this. In August last year he announced a roadmap of reforms, including lowering government expenditure and additional sources of revenues.

One of the new sources of revenue was a 2% tax of all money transfers. This is expected to generate US$2 billion on the roughly US$120 billion from electronic money transfers each year. Announcing these reforms in August 2018, Ncube also allocated hard currency accounts to all Zimbabweans, allowing them to receive payments in dollars, rands or other hard currencies.

Dollar parity revoked

The local dollar accounts are known as RTGS dollars (electronic currency used in the Real Time Gross Transfer System, where funds are immediately taken from the payer and the payee has access to them right away; allows transfers to clear with immediate finality). These RTGS dollars were historically interchangeable 1:1 with the US dollar. Then Ncube announced that the parity between RTGS and US dollars was no longer applicable. Immediately, the long-abandoned black market in US dollars reappeared on the street, with US dollars changing hands at the rate of one US dollar for seven RTGS. The black market rate has since improved to 3.5:1.

This means most imports are being cleared at the black market rate of 3.5:1, which explains why inflation has surged to 50% in the last two months (in 2013, during the government of national unity when the opposition MDC ran the finance portfolio, inflation was 3.5% a year). Ncube removed import controls on a range of goods, but with the deteriorating currency value, food and fuel shortages are back.

While Mnangagwa was in Russia earlier this month, his enemies – using the corrupt dollars they had amassed through black marketeering – saw an opportunity to get rid of him. Mnangagwa had advance intelligence that his enemies would use his overseas trip as a pretext to ignite violence, and decided to flush them out of their lairs. Ironically, the man supposedly leading the rebels was the now retired general Constantino Chiwenga, who assisted Mnangagwa to power by ousting his predecessor Robert Mugabe in a ‘soft’ coup in November 2017.

Cross says the relationship between Chiwenga and Mnangagwa is a serious problem. “Chiwenga believes Mnangagwa owes him big time for installing him in power, and following the coup, he ensured that the interim cabinet comprised of many individuals who were not loyal to Mnangagwa.”

Loyalties

Following the mid-year elections, Mnangagwa removed Chiwenga as his minister of defence, replacing him with a loyalist. Before leaving for Russia, Mnangagwa announced a number of economic reforms, including an increase in the fuel price to an open market rate. Violence broke out throughout the country the following Monday morning.

It is reported that Chiwenga arrived at the weekly scheduled meeting of the security chiefs on Monday morning. Following the meeting he announced that if law and order was not restored he would declare a state of emergency and impose martial law. That evening, the military took control of Zimbabwe. The country was in lockdown and the internet was shut down for four days.

Mnangagwa arrived back in Zimbabwe a week ago (Monday, January 21) and was greeted by loyalists. “He has reassumed control of the country,” says Cross. “He has also shown Chiwenga who’s the boss.”

What does this mean for the future of the economy?

Ncube is expected to announce further economic reforms, including floating the RTGS dollar, removing the retention of foreign earnings by the Reserve Bank, and transferring monetary policy controls to a monetary policy committee already announced by the Reserve Bank. A new currency may be launched in the next few months managed by the committee, and the Zimbabwe bond currency demonetised.

Cross believes that if these additional reforms are enacted, the new currency will eventually trade at roughly 2:1 against the US dollar, and inflation will return to a more manageable level.

Read: When Zimbabwe was the freest economy in the world

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PUTIN Ramaphosa Maduro
Venezuelan oligarchs
Russian oligarchs Motsepe and other oligarchs
Manangwa and his……..
NEED I SAY MORE?

I guess American the best thing for you.

@Dazee you’re the same type of fool that still blames Jan Van Riebeck even though he has been dead for 342 years, aren’t you?

Dazee i can guess yr background –
took you 400 yrs to realise u being screwed-
not me bobs , me makea da plan
hoo hoo hoo

Saibotkram1988 and geranium. No is both cases. I find a lot of people like that but not me.

@Saibotkram1988 ‘I am not good as insulting competition’.

Nobody seems to get too upset when African Governments treat their people like dirt. Still waiting for a meaningful response from the ANC Government to the disgraceful treatment of ordinary Zimbabweans. All this while the ZANU-PF elite live like kings and buy their petrol at a discount.

Africa and its warlord-gangster model. We had Zuma for 9 years and came close to the precipice and the sheeple are just hoping that Ramaphosa, because he has already ‘earned’ US$ 400m, wont steal on such a large scale. This is not an ‘event’ in Zimbabwe, its a ‘pattern’-its just local politicking and it will never, EVER change

Would it remain that way if the majority of Zimbabweans removed Zanu?

OMHO yes, sunrise period then decay

The reality of the matter is that, there is only one solution for the problems of Zimbabwe…. They will have to join South Africa and we become one country. Let us salute one flag… or they will continue on their path to face an abyss of national degradation and eventually be wiped out of existence like all great civilizations of ancient times.

This will also help South Africa survive a little longer, maybe another 400 years… but in reality Africa will not exist beyond the next 200 years.

Sadly no. That’s why I’m getting my affairs in order to leave. I don’t see an economic future for SA with this type of thinking of the local people. It’s like Pamplona said, this is a “pattern”, and it’s observable throughout the whole of Africa.

It is more of an incurable Africa disease.

Boombang; very apt name – that is what could happen if Zim “joins” SA. Do you think SA with already very risky debt levels used to pay ANC cadres can take on Zim’s insolvent level debts and pay them off? The ANC can’t do it with Eskom or SAA, now you wnat them to try a whole country! Warren Buffet could do it but not the self serving Cyril and his cargo cult thieving ANC mob. They would just steal more.

Just another bunch of liberation cadres abusing the people they are meant to serve, with the assistance of fellow liberation cadres in SA.

Why do we need to provide cheaper fuel and electricity to Zim in the first place???

Zimbabwe’s people are getting ripped off by their government officials. Why is it always the same old story?

African democracy in practice. Never changes. Has been the same for hundreds of years only now the excuse is “colonisation”.

I am glad that Eddie Cross is still telling it like it is. Keep up the good work. Eddie!

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