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Zimbabwe’s cash cows are signal of desperation

16/04/2017 00:00:00
by Financial Times
 
Finance minister Patrick Chinamasa
 
RELATED STORIES

THEY don’t call it a cash cow for nothing. In Zimbabwe, new legislation would make it easier for small- and medium-scale farmers to use “moveable assets”, such as cows, goats and sheep, as well as farm machinery, vehicles and accounts receivable, as collateral for loans. Under the law, introduced by President Robert Mugabe’s ruling Zanu-PF party, financial institutions would be obliged to accept such items as security for credit.

There is nothing wrong with the idea per se. In other parts of Africa, including Ghana, Kenya and Nigeria, livestock is frequently used as collateral. That can be a way of enabling people normally excluded from the banking sector to access loans without paying exorbitant interest rates.

Theoretically, it could work in Zimbabwe too, notwithstanding banks’ concerns over the vulnerability of livestock to rapid depreciation — for which read death in a country prone to drought. Yet the true intent of trying to spirit cash from cows has its roots not in a sensible attempt to uplift the poor, but rather in a desperate one to keep the struggling economy afloat.

Zimbabwe is slowly being squeezed by a credit crunch largely of its own making. Since 2009, it has been a dollarised economy. The only problem is it doesn’t have nearly enough dollars. So acute is the shortage that the government regularly settles its debts by printing treasury bills.

The public is starved of cash. Even the practice of giving money at weddings has yielded to the new reality: couples have taken to bringing a card reader to their nuptials so that guests can swipe them a wedding gift instead.

The origins of the cash crunch lie in the hyperinflation that peaked in 2008 when people needed wheelbarrows of money to buy simple household items. That, in turn, stemmed from years of economic mismanagement; Zimbabwe went from being the region’s breadbasket to near-ruin through badly mishandled land reform.

Dollarisation stabilised things. But it also strangled what remained of the economy. Zimbabwe’s central bank has no control over money supply, which is wholly dependent on how many dollars flow in — and out — of the country. The desperate shortage of cash has obliged it to try various wheezes to spirit credit out of thin air, including the recent introduction of “bond notes” as a dubious form of exchange.



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Harare has also tried to repair relations with multilateral bodies by clearing $1.8bn in arrears, a deal that could unlock fresh lending. Yet that process appears to have stalled, partly because of Washington’s reluctance to throw the government a lifeline. At bottom, Zimbabwe’s crisis is political rather than technical.

President Robert Mugabe, 93 and in his 37th year of power, is refusing to leave office. Harare is consumed by intrigue as factions jockey ahead of the power struggle that will ensue once he finally dies.

Economically, little seems possible under the current regime. The international community could strike a deal on arrears, which might give Zimbabwe the reserves it needs to transition back to a local currency. But given their considerable leverage, foreign lenders should not do so without a guarantee that next year’s elections will be free, fair and internationally monitored.

That is the last thing Mugabe appears ready to accept. It seems he would prefer to take Zimbabwe’s economy down rather than relinquish power. In the meantime, like the story of “Jack and the Beanstalk”, his government can only resort to a clever bovine exchange. For anyone who believes this will be enough to save the economy, President Mugabe has some magic beans to sell you.


 
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