We have just come through the most peculiar wet season I can ever recall. The season started early in October, about two week before they usually start and they were above normal but short lived. Many farmers planted only to see their crops wither and die as the rains did not come back until late December. Then it rained until about the 20th of January and we saw rivers in flood and our national dams reach about 85 per cent full. Since then, we have had virtually no rain at all and February, normally a very reliable wet month, was the driest on record, not just for us but most of Zambia, parts of Angola and the Congo.
The consequence is that we have almost a total dryland crop failure, our dams are generally about 70 per cent but in many areas there is a water crisis developing. Bulawayo City, our second largest City, is in desperate straits. Watching the weather on satellite has become a daily task and I have been astonished as to how frequently Zimbabwe has been in the middle of a large circle in Central Africa with little cloud cover or rainfall. By contrast many areas of southern Africa have seen quite a decent season, South Africa is still reporting a fairly large summer crop but it will still be over 20 per cent less than 2023.
From a supply perspective we are in a much stronger position than we were 5 years ago. Today the private sector has the resources and the capacity to import our needs and there should be no shortages of basic foods in the next 15 months until the next season starts meeting our needs. However, we will face very substantial problems because rural areas, normally self sufficient in basic foods will now have to be supplied with their basic needs – both a logistical and financial problem.
We have about 700 000 families living in remote rural districts or about 4,2 million people. They are poorly serviced by the retail sector and this will have to receive attention. In addition, we will have to try and provide most of this population with their basic needs as their crops have failed. Government stocks of grain of about 200 000 tonnes will cover this need until August but after that we are going to have to look at some form of income grant administered by Village Heads. I am very much in favour of a food voucher system which can be administered by Village Heads based on their assessment of need. The Diaspora will help but this will not cover everyone.
The private sector will provide the US$1 billion needed to import the shortfall in food supplies and will process and pack for retail distribution but may also have to look at how to get the food and other necessities into the remote areas where it is needed and not available. 5 years ago, we could not have done this, today we can and this shows how far we have progressed since then.
Today the President declared a National Crisis involving all of the above issues and this might attract some international assistance, however in the main we will have to deal with this ourselves. A basic food voucher for a family of 6 would cost about US$35. If we have to support up to 8 million people then this would cost US$50 million a month. This should be possible and the private sector might help make this happen by putting in special arrangements to make these products available everywhere.
Is this climate change? I can remember worse droughts – 1992 when our sugar crop died and we had to import everything. 1983 when we slaughtered 850 000 head of cattle and kept 250 000 alive on CSC ranches. But this feels like something different. If it is then how do we manage these critical changes that will affect everyone.
Then there is the hoary old problem of our currency. In this respect we have lived on a roller coaster for so long we forget when our local currency was stable and worth twice as much as the US dollar. When I started work in 1957 I was paid in pounds and the local pound was worth 2,4 pounds sterling. We operated in the Sterling Zone, our reserves were held in London and the local currency was stable and we happily used it as a means of savings, travel and all our local needs.
At Independence in 1980 our currency was the Rhodesian Dollar which was worth two US dollars and reasonably stable. We were quite happy to bank what we earned and we got value for money in our markets, even after 15 years of mandatory US sanctions and 20 years of civil war. We took it for granted but it represented quite an achievement for those in control at that time.
For the first 5 years after Independence, the currency situation did not deteriorate a great deal, but problems were coming. Government, keen to fulfil their promises, spent money on new schools, hospitals and a rapidly expanding civil service. The fiscal deficit grew to nearly 10 per cent of GDP and stayed there for the next 20 years. Despite receiving several billion dollars in aid, our national debt escalated from US$700 million in 1980 to over US$6 billion in 1997. Then we paid out Z$3,7 billion in unbudgeted payments to war veterans and entered the war in the Congo, costing us US$500 million a year for three years.
The local dollar crashed and we were kicked out of the UN multilaterals and stopped servicing our national debt. We slipped into default territory and were unable to borrow. This deepened our fiscal crisis and to meet the growing gap between tax receipts and government expenditure the Reserve Bank began printing money, not just electronically but on paper. By 2008, we were a failed State, our local currency was completely worthless, we had to buy our groceries in neighbouring countries with hard currency and our Government, banks and building societies as well as all pension funds were essentially nonfunctional. Savings of 120 years of enterprise were wiped out.
Then we dollarised in February 2009, lifted all controls – no price control, no exchange control, a free market economy with a vengeance. What then happened was not planned or managed, the economy recovered, tax revenues rose by an average of 70 per cent per annum for four years and our markets were fully supplied at competitive prices. Inflation, which was many thousands of percent in 2008, fell to minus 7 per cent and stayed there until 2014.
Between 2014 and 2017, the State printed billions of “US dollars” in electronic form eventually accumulating “US$23 billion” in local bank accounts. In 2017 I stated that if I presented a “US$ dollar note” to the Reserve Bank and was paid a real US$ dollar note in return, there would be an instant queue outside the bank for kilometres. What we had in our bank was not US dollars it was air. In 2018 when the new Minister of Finance was appointed he pointed this out to everyone, called the stuff “RTGS dollars” and separated these from the real dollars. In 2 years, the bank balances were down to about US$3 billion – 13 per cent of their 2018 balance, the rest was “air”.
In the process, our bank balances were again wiped out but worse still there was a short period when the Reserve Bank took real dollars out of our banks and replaced them with local RTGS dollars at 1 to 1. This was just theft and as a consequence confidence in our own currency and in the institutions that manage it is below ground zero. People do not bank, they hold hard currency in paper form in bank security boxes and under their mattress at home. Despite the fact that we have our own currency we are back to almost totally dollarized. The informal sector, like 2008, has been there for years and you simply cannot trade there in anything else. The formal sector, which is obliged to recognise the RTGS stuff, is rapidly going broke.
This is the elephant in the room right now and we are all waiting to see what a “Structured Currency” looks like. The rumours are all over the place but with the RTGS dollar now trading freely at 40 000 to 1, it is worthless – again. So, what is a structured currency? I have asked, looked it up in books on the subject and on the internet and can find no explanation. That is because it basically does not exist.
I can only imagine that it involves a new currency for local transactions. In any other economy, this would be quite normal. Not here, we have absolutely no confidence in the Reserve Bank or our own banks to protect our interests. We know from the past that if they start printing the stuff, in whatever form, it quickly loses value.
Yet I know that we have to have our own currency and we have to make it work for us. Dollarization does not build our own capacity and employment, it destroys our comparative and competitive edge, even regionally. We need our own currency and we need to re-establish confidence in it and to believe that once it goes into your pocket, it retains its value so that when you take it out to spend, it is worth what you paid for it in sweat or kind.
The ONLY way to do that is to make it convertible, on presentation to a Bank into a hard currency which we can use internationally and has a secure stated value. Nothing else will work; let’s wait and see what the authorities come up with this time.
Eddie Cross
Harare, 3rd April 2024
Post published in: Featured