Then we had what seemed a
deliberate move to starve the country of cash, and there was just no money
available to carry out normal commercial activities. Those whose
circumstances gave them access to quantities of the folding stuff took
advantage of their happy position and sold cash easily at a premium of up to
50%. Banks, (or perhaps their staff in secret) offered premiums to their
clients to entice them to deposit cash money, and demanded fees of up to 50%
to dispense cash. That people participated in such schemes shows clearly
that the currency of this country is practically worthless, whatever the
denomination!Now there is a backlash from all quarters against Reserve Bank policies. We
were promised real new currency, and sample notes were even on display to
some. Apparently this move was overruled by cabinet and higher denomination
notes were ordered to be printed instead. These were hastily printed, but in
insufficient quantities. In an endeavour to strike a blow against those who
have the temerity to deal on the black currency market and therefore keep
adequate stocks of local currency for the purpose, we were promised that the
highest denomination old $200 000 note would cease to be legal tender at the
end of 2007. The banks were instructed to accept only limited quantities of
these notes and report and capture the excess from those depositing more
than the rules allowed.That little manouevre got sabotaged when the banks who were unable to obtain
their legitimate cash requirements from the Reserve Bank, resorted to
issuing out to clients desperate for cash the very notes which were to
become worthless two and three days later. In the meantime, the general
public who believed that their $200 000 notes were going to evaporate at
month end went around buying things they wouldn’t normally, and paid
exorbitant prices for currency on condition they could pay with the soon to
be worthless notes. Rands selling at that time for $150 000 each, traded for
up to $400 000 if bought with $200 000 notes. Most shops, having been
severely bitten the last time the notes were changed, simply refused to
accept this denomination.Then came the bombshell from the Resertve Bank at midday on the last day of
validity. The old $200 000 would continue to be valid after all! Greatcoats
on, and greatcoats off! The whole nation had been expensively inconvenienced
and annoyed and many had spent their annual holidays on the pavements
outside banks. Now it appears that Parliament too is ganging up on the
Reserve Bank and its Governor to try and clarify and make sense of what
essentially is nonsense.We still have insufficient cash in circulation, a situation which will
continue as hyperinflation continues on its merry way. If inflation goes up
by 150% each month, arithmetic tells us you need an extra one and a half
times more money in circulation each month just to stand still. It is a
geometrical progression! It hardly seems cost effective to print worthless
notes with elaborate security features.
Enough said, here are current currency rates: –
FOREIGN CURRENCY RATES AS AT 4 JANUARY 2008
OFFICIALÂ Â Â Â Â Â Â Â Â Â PARALLEL MARKET
PARALLEL MARKET
                          CASH TRANSACTIONS
RTGS TRANSACTIONS
           US$               30 000              1 800 000 to 2 000 000
5 000 000 to 8 000 000
           Sterling           61 691             3 500 000 to 4 000 000
9 500 000 to 14 000 000
           Rand               4 408                 300 000 to 310 000
600 000 to 1 000 000
           Pula                5 040                 300 000 to 400 000
800 000 to 1 100 000
Progressively, transactions are done in hard currencies. This trend will
accelerate as our currency continues to loose value. The Old Mutual Implied
Rate has reached 1 107 000 to the Rand, some 7 638 000 to the US$ and about
15 221 000 to the pound.
The following was received from Dave Pichanick which you will find
interesting.
Investment Notes
December 2007
“The Year that was; The Year about to start.”
2007 has been an extraordinary year for Zimbabweans, and once again a very
difficult and trying one. At the beginning of the year, the Old Mutual
Implied Rate (OMIR) for the US dollar was Z$2,400. As we write it is $4.3
million, a change of 180,000%. Since there are now no official or even
unofficial rates of inflation, we have tended to benchmark inflation using a
monetary indicator and the currency is as good as we can find. The stock
market acts as another measure. As we write the ZSE has gained 225,000% so
far this year. The price of the Herald newspaper has risen by 100,000%, a
number that would be far higher if it were not for Government price
controls. In short, the IMF’s estimate for inflation of 100,000% for 2007,
looks way too low, having at one time looked frighteningly high. In our
November Strategy Notes that we send to our clients, we suggested that it
would not surprise us if the OMIR reached Z$12,000,000 by year end (in
‘existing’ currency terms). At the time, the rate was Z$2,000,000. That
sounded like another scary number back then and whilst we may not hit that
number by 31st December, we may well do in early January. That would put the
year on year change at 500,000%!
As hyperinflation accelerates, there is a closer and quicker correlation
between the amount of money that is created by the Reserve Bank and the
currency and even the stock market. Since the Monetary Policy Statement in
October, the Reserve Bank has been flooding the money markets with Bacossi
and Aspef monies, not to mention funds to fund Government and prop up the
parastatals. Whilst this money may not directly go into the stock market, it
causes the banking system’s liquidity to rocket as corporate and personal
bank accounts are credited with the new funds from the RBZ. The banks then
need to invest these in new loans so that at the end of each day their
surplus is not swept up into compulsory 270 day low yielding bills by the
RBZ. The whole economy then in effect has access to low interest rate loans
from the banks eager to lend funds to their clients. Those clients need to
spend that money very quickly if possible, or if not possible, invest those
funds into the stock market as a means to preserve the real value of that
capital, more often than not into Old Mutual shares which are the most
liquid shares thanks to the foreign investors who bring them into Zimbabwe
for sale. When the borrowers need those funds for productive use, they then
sell a part of those shares back to the market. This is effectively the
transmission mechanism from the RBZ’s money creation and into the monetary
system/currency. The ONLY way to stop it, and hence end hyperinflation, is
for the RBZ to cease creating money and by implication to stop crediting the
money markets with all these new funds used to subsidise the economy. The
RBZ is the root cause of our hyperinflation, and not ‘greedy businessman’
who put up their prices. Indeed their prices would have risen by far less in
2007 than the amount of money created thanks to price controls.
Zimbabwe’s hyperinflation has far surpassed that of Latin America’s in the
1980s where inflation hit 6000% at times. In actual fact, Zimbabwe is
closely tracking Germany’s Weimar Republic in the early 1920s. Indeed there
is a close parallel between the rate of change in the Zimbabwe dollar today
and that of German Marks in 1922. Whilst Yugoslavia has the highest recorded
hyperinflation over the past one hundred years, during that period, many
monetary transactions in that country were actually taking place in
Deutchmarks rather than local currency. We have to believe that some form of
dollarisation will establish itself in Zimbabwe during 2008. Indeed the RBZ
has already confirmed that certain farmers will receive US dollar prices for
their crops. 500,000% inflation makes transacting in Zimbabwe dollars
pointless. An RTGS can take as much as three days to be credited into an
account, a period that will see the real value of that transaction decline
significantly. How the economy moves toward dollarisation in practice is
hard to determine, save to say that the Government sector will be the last
one to adapt, should dollarisation not become official Government policy.
The effects of such high rates of inflation are driving ever increasing
numbers of educated black and white Zimbabwean workers to neighbouring
countries. Indeed it seems that the South Africans, as one example, are
actively recruiting in Zimbabwe to satisfy their own high demand for labour.
For Zimbabwean businesses therefore, not only are they having to adapt to
price controls and power cuts, but also to the loss of their best and most
skilled employees. Maintaining factories, repairing plant and equipment or
sustaining standards in the service sector is becoming increasingly
difficult. This is the de-industrialisation that we wrote about in our
October Notes.
For many managers, the Christmas shutdown has already started and a well-
earned holiday is underway. The question remains whether and when they will
re-open again in the New Year.
Thankfully Zimbabwe is blessed with a flourishing stock exchange and one of
the more developed in Africa. As such Zimbabweans have a means to protect
their capital in real terms. Indeed to the end of November we had achieved
real returns (ie US Dollar returns) for our equity clients. Without the
market, Zimbabwean savings would already have been wiped out by
hyperinflation and the economy would have been substantially smaller as a
result.
2008 is likely to begin where it ended. We hope – for the benefit of the
computer systems – that we will have a new currency soon into the New Year.
Whatever, the bulk of the population would like some cash so that they can
actually buy some food for their families. It is surprising tempers have not
already flared. Assuming no change in monetary policy as the new currency is
introduced, inflation will continue at current high rates. We would be
surprised to see a change in monetary policy prior to the elections as any
removal of subsidies and payouts would be politically very unpopular.
Equally we would be surprised if the election is delayed beyond March as by
that stage hyperinflation would already be a serious/critical problem. Any
change in economic policy is therefore more likely after the elections.
We read last week that 5.6 million people had registered to vote which is a
huge number given that our estimates of the population have fallen to no
more than 9 million. The result may therefore be a foregone conclusion.
Whoever wins will have no choice but to implement some radical economic
policies if hyperinflation is to be conquered. Since price controls have
been tried and have failed, the next drastic measure- and perhaps the only
one left beyond freeing up the economy to the private sector (the only and
obvious policy measure) – will be to implement the indigenization bill and
start to nationalize. Many of our African neighbours have tried this in
their once unhappy past, and all have failed only to privatize them in more
recent happier times. Such is the state of industry at the moment, we are
sure that there are some stakeholders who would not be happy to hand over
51%. Rather hand over 100% of the problems that they are facing today by
handing over the keys! Some of the remaining multi-nationals must be very
tempted to walk away with their exclusive brands and supply Zimbabwe from
elsewhere.
The next three months will consist of lots of political noise that may well
cause some volatility in the market. The underlying trend however will
remain to track the money supply which we remain confident will carry on
rising in the months ahead. Meanwhile the foreign investor continues to
acquire more stock market assets, as they remain attracted by incredibly
cheap valuations and the unsustainable economic policies that this
Government pursues. Like them, we are also optimistic that the economic and
investment climate will change, and clearly hope that 2008 will be Zimbabwe’
s year!
LABOUR
The country’s population, far from being hoodwinked by the promises of pie
soon to fall from the sky, has largely decided to move or at least move
their breadwinners to countries where sanity prevails and currencies hold
their value. The skilled have pretty well all gone; those that haven’t have
either put in their notice and are going, or this possible move is the prime
consideration presently occupying their minds. Border jumping is a growth
industry, and is robbing this country of all our skills. This bodes ill for
agriculture presently, and will make it nigh impossible to resuscitate
agriculture in the future. There is ample evidence to show that economic
refugees, once they have succeeded and established themselves elsewhere, are
loathe to return to their original homes other than for a visit. This dire
prediction will affect all sectors of the economy, including the provision
of services by local authorities. We who stay had better prepare ourselves
to train a new generation.
CAMPBELL’SÂ CASE BEFORE THE SADC TRIBUNAL IN WINDHOEK.
In the last newsletter we stated that it would be in our interests as
dispossessed, and to be dispossessed, farmers to join with Campbell in
Windhoek. The response was muted. Those still farming fear drawing attention
to themselves, and those whose properties have been stolen accept the status
quo as largely final yet dream of some fairy godmother who will appear by
magic and drop vast numbers of real banknotes in their laps. Those who are
still farming can clearly see their affinity to Campbell, and those who have
been expelled from their properties without compensation need to have the
SADC Tribunal declare that there can be no acquisition without compensation.
The facts are these:
Ownership is a real right, and a real right prevails against the whole
world. The whole world includes our government, as it did the communist and
fascist countries who also thought they could rewrite the rulebooks. Thieves
continue to steal until the day they are confronted and caught. It is our
duty and in our very own interests to bring that day closer. We need to make
this abundantly clear, and there is no better opportunity than to join with
Campbell in Windhoek.
Sitting quietly on the sidelines believing the crocodile will eat you last
of all is no strategy whatsoever. When sausages are free, the demand is
infinite. Free farms will continue to attract takers until the supply is
exhausted. The crocodile under the present rules will eat us all! We need to
make it clear to the thieves that their time is up and that this problem
will gather momentum until we are paid or have our properties returned. The
way to do this is to join with Campbell, and if we fail in Windhoek, then
continue with him to the African Union, the Hague or anywhere else.
The following is a communication received from Ben Freeth which amplifies
the point.
Dear Farmers,
I wrote recently explaining why it is that we need to use the law. I wish
to try to explain more specifically where we are at with the SADC case and
how it can affect you.Time is short and I do not need to tell you that there are an ever
increasing number of people being driven off their land. Do we continue to
allow these injustices to continue so that we are then wiped off the land
without trace; or do we try to stand for justice and the future of this
country and indeed our future on this continent?A precedent has been set in the first ever case of the SADC tribunal in
Windhoek. In the Campbell case full relief was given to us until such time
as the main case is heard in Windhoek – possibly in March. The Zimbabwe
President and the lands Minister say that they will go by what SADC says.
So far they have done so. The question is “how can others fall under the
wing of this SADC protection?”
Obviously individual farmers or farmer bodies can not go to SADC unless all
domestic remedies have failed. The farmer will therefore have to have been
to the Supreme Court and not got justice meted out there. As there are no
others in that boat, farmers will have to assert that they are in the same
boat as the Campbells and that the constitutional and human rights issues
that apply in that case apply to them too. ie.[amongst other things]:
– they have been targeted because of their skin colour;
– amendment number 17 is against all principles of justice;
– and acquisition can not be deemed to have taken place without
compensation.
To get protection through the SADC relief farmers have 3 options:
1.Individual farmers take out their own individual cases.
2. A class action is initiated.
3. Farmer bodies take out cases to protect their farmer members.
I wish to deal with the 3 options .
1. In the first option we are looking at the “you are on your own and you
have to fend for yourself” plan. Unfortunately this has been the reality
over several years now. It has resulted in the Party achieving its aims of
driving the white farmers off the land and making the people poor enough to
be easily controlled. The problem with this plan is:
a/ Farmers do not have the time or finance for going to court individually
and paying hefty legal bills.
b/ Many farmers do not really understand the law and what they have to do to
remain on the right side of it until it is “too late”.
c/ The few dispirited “land” lawyers left simply could not cope with the
work load of putting together hundreds of separate rushed applications as
each farmer gets into the soup.
2. The second option then is for a class action to be put together under the
class actions act where individuals club together to put forward a single
case to protect themselves. This option is unfortunately fraught with
difficulties. The class actions act makes it extremely complicated, if not
impossible under the present justice system, to make a successful and
timeous application.
3. The third option is that farmer membership organisations come together
and get into the “Campbell Case boat”. The only disadvantage with this is
that it means a shift in policy from those organisations that for one reason
or another have not put their names to any court cases over the last 6
years. I am quite sure that we have come down the road far enough to now see
the sense in a policy shift. With the SADC court in place we must act. The
advantages of membership bodies going to court are many:
a/ It will protect every member of the bodies that go forward.
b/ It will ensure that the best legal brains work on a single water tight
case.
c/ It will not cost individual farmers anything.
d/ It will be able to be done timeously before too many more farmers are
evicted from their homes.
e/ It will strengthen and unify the agricultural bodies which is healthy for
the long term future of commercial agriculture.
f/Â It will build the credibility of the agricultural bodies amongst civic
society and the international community.
g/ It will be something tangible for us to say “yes our membership bodies
are doing more than paying lip service to the critical importance of the
upholdence of property rights. They are now asserting those rights through
litigating. Let us all throw our weight behind them for the future of us
all.”
Advocate Jeremy Gauntlett SC is perhaps the leading advocate in Southern
Africa. He is, amongst other things, co-chairman of the Forum for Barristers
and Advocates of the International Bar Association [IBA];Â former chairman
of the General Council of the Bar of South Africa; founding Vice President
of the Bar of the International Criminal Court etc.. He has spear headed
the SADC case.After the result of the first part of this case in December Advocate
Gauntlett said that this is a “heaven sent” opportunity for the farmer
bodies to protect their members. We must not, through fear, squander
“heaven sent” opportunities if we indeed do have an eye for the future.
Ben Freeth  freeth@bsatt.com