News from Zimbabwe is increasingly grim. Collapsing infrastructure,
hyperinflation, cholera, the world’s highest HIV/Aids rate, a diaspora
of refugees, and high unemployment are all signs of a country in ruins.
Last week the government announced plans to dollarise the economy. This
amounts to the official demise of the Zimbabwe currency, and represents
another milestone in the collapse of the formal economy. The fact that
fuel coupons are seen as a stronger currency than the official Zim
dollar bears testimony to a nation in agony.
It means there is even greater pressure for a lasting political
resolution that could apply effective policies and open the doors for
international support.
The dollarisation scheme, described by analysts as surreal, is almost
certainly unworkable. It has been tried before by other countries that
have suffered hyperinflation. But it always fails to fix the underlying
problems and can, at best, buy some time for an unpopular and failing
government.
Finance minister Patrick Chinamasa’s dollarisation plan is based on an
unrealistic assumption that workers will accept wages in worthless
Zimbabwe dollars while paying some of their taxes, electricity bills
and school fees in US dollars. That is a vain hope when only a tiny
minority of the population have access to foreign currency.
But the scheme implicitly recognises a reality of life in Zimbabwe.
Most people and organisations already avoid using the worthless local
currency whenever possible. Much of the economy operates informally,
through barter or other means.
Poor governance, shortages of capital, corruption, loss of skills and
crumbling infrastructure have taken a terrible toll on the economy in
the past seven years. Analysts estimate GDP has contracted by more than
40% since 2001. Unemployment has surged and key sectors – agriculture,
mining and tourism – are operating well below capacity.
In the past two years, Zimbabwe has endured the longest and most severe
period of hyperinflation of any country since 1920. Hyperinflation
makes the numbers meaningless. It has caused consumer prices to rise at
more than 50% a month. For ordinary people and businesses, life becomes
nightmarish.
While hyperinflation continues, currency stability is impossible.
But international experience shows it can be beaten, provided there is
a strong and credible government, correct policies, an independent
central bank and foreign aid.
For now, businesses operating in Zimbabwe have had to hone their
survival tactics and continue dealing with a dysfunctional government
and civil service.
The country’s biggest gold miner, Mzi Khumalo’s Metallon Gold, pays
workers in petrodollars and Zimbabwean dollars, and may pay them in
groceries, too. Other companies pay workers in different ways,
including food or fuel coupons which are issued by fuel importers such
as BP and Shell.
SA companies with investments in Zimbabwe say running a business there
can be extraordinarily difficult. How do shop managers deal with prices
adjusted for hyperinflation? A retailer says a fridge has to be rung up
400 times to record its price in the till.
There are also the challenges of dealing with mercurial bureaucracy.
Retailers complain of fast-changing regulations. These affect payment
methods, and last November required huge, compulsory salary increases.
Land reform, the issue that triggered the systemic political, social
and economic deterioration in the late 1990s, remains unresolved.
Why do people and businesses stay in Zimbabwe? One reason given is the
country has great potential and a political resolution may be nearing.
These and other aspects of life and business in Zimbabwe are considered
in more detail in the stories that follow.