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Waiting for Godot in Zimbabwe

Not going anywhere ... President Robert Mugabe

19/02/2017 00:00:00
by Barry D. Wood
 
 
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This article is taken from moneyweb.co.za

IN the Samuel Beckett play, two friends wait on the roadside for Godot who never arrives.  Zimbabwe’s 14 million patient souls wait not for Godot but for two events they believe are drawing near.

One is the demise of their autocratic president, Robert Mugabe, who turns 93 on February 28. He is the world’s oldest head of state and has wielded power since leading war-ravaged Rhodesia to independence from Britain in 1980. Only Angola’s Jose Eduardo dos Santos has ruled longer, 38 years. However, unlike Mugabe dos Santos says he will retire next year.

Also awaited is the demise of the government’s new surrogate money called bond notes, which since December circulate alongside the US dollar in two- and now-five dollar denominations. The Zimbabwean dollar — destroyed by hyperinflation — was abandoned in 2008, but not before the central bank printed a Z$ 50 trillion note!

Adopting the American dollar as its unofficial currency restored stability but created new problems. In hindsight it would have been better to adopt the rand as the dollar appreciated against the SA currency, severely hurting Zimbabwean competitiveness. Unable to issue US dollars, the only way Zimbabwe can increase the money supply is by having an external surplus. But with a chronic trade deficit there’s been a worsening shortage of liquidity in the economy.

This past year money became so scarce that the central bank restricted withdrawals from banks. Cash machines were often empty. When there was a prospect of getting some cash, people waited outside the banks with queues often a kilometre long.

To address the crisis the central bank issued the bond notes, which it says do not signal a return to the discredited Zim dollar. Nonetheless except for a red bond note banner at the top the surrogate notes are identical to the old Zim dollar.

So far the arrangement seems to be working. Bond notes are being accepted in cash transactions. But on the street bond notes trade at a 15% discount and the gap is expected to widen. Some retailers offer price reductions to consumers who pay in dollars. Gresham’s Law where bad money drives out good may be playing out.

The government says the bond notes are backed by a $200 million loan from a multi-lateral bank in Cairo. Zimbabweans are sceptical and waiting.



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Steve Hanke, an American economist who specialises in currency meltdowns, says the Zimbabwean scheme will fail. A professor at Johns Hopkins University in Baltimore, Hanke says Zimbabwe’s economy is approaching a death spiral. Stagnant in 2016, the economy is projected to decline 2.5% this year.

One respected economist in Harare, asking not to be named, worries that the authorities may be emboldened by initial success and will issue progressively larger denomination notes. If that happens, he says, the bond notes will rapidly lose value.

The financial problem is closely tied to the political one. How long, Zimbabweans ask, can Robert Mugabe carry on as he is seen to be increasingly senile? With an election coming next year government decision making is on hold. Mugabe has not designated a successor, the opposition is splintered, and there are multiple contenders for power within the ruling party.

Mugabe is a quixotic figure. Revered by African leaders for his fight against white minority rule, he’s become increasingly despotic. Elections have been rigged, political opponents brutally attacked. Thousands killed, two million people fled to SA, white commercial farmers were evicted. Thousands in rural areas are dependent on food aid. Mugabe’s atrocious human rights record led to sanctions and isolation from the global community. Through it all Zimbabweans wait.

For all its problems Zimbabwe is a rich land. Gold, platinum, chrome and diamonds account for most exports. Once a prosperous city, Harare retains a veneer of modernity although basic services deteriorate.

Unlike the Beckett play, change will come to Zimbabwe but no one knows when or whether the change will be good or bad. Meanwhile Zimbabweans continue to wait.

Washington-based journalist Barry D Wood, a regular visitor to Zimbabwe, spent several days in Harare this month.


 
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