Zimbabwe – a riddle wrapped up in an enigma

Winston Churchill’s famous description of Russia made during a radio broadcast in October 1939 applies equally well to the Zimbabwe of today. “I cannot forecast to you the action of Russia. It is a riddle, wrapped in a mystery, inside an enigma,” he said. Replace “Russia” with “Zimbabwean economy” and you get the picture. Where else do you have hauliers investing in new trucks, warehouses being expanded, new office parks being erected, and emigrants returning when the economy, according to the figures, is currently in free-fall? The mystery is deeper than that: between 2009 and 2011 the Zimbabwean economy grew faster than that of Hong Kong. Between 2009 and 2011 GDP growth averaged more than 7%. By comparison, Hong Kong’s economy grew 5%. From 1993 until 2013, South Africa’s growth rate has averaged 3.2%. Zimbabwe’s growth spurt was fuelled by the “dollarisation” of the currency following a period of hyperinf lation. Johns Hopkins University economist Steve Hanke calculated that, by November 2008, Zimbabwe’s annual inf lation was the second highest in history, at 79.6 sextillion percent. Hanke calculated that prices were doubling every 24.7 hours. After dollarisation in January 2009 inf lation immediately fell – to 2.3% by the end of the month – and then stabilised. All Zimbabwean money held in the banks or in cash became worthless overnight. This left importers who had cash set aside for duties suddenly having no money in the bank. There is still no money in the bank. Everyone you talk to in Zimbabwe mentions the liquidity crisis. By the end of 2013 there were simply not enough dollar or rand notes (and R5 coins) in circulation to keep the economy moving. It is estimated that individuals withdrew over a billion dollars in cash before and after the July 31 elections in which president Robert Mugabe and his Zanu PF party were declared winners. It sparked a cycle whereby banks did not have the funds to keep businesses af loat, and as a result the companies could not pay staff and retrenchments followed across the board. Investment is also affected as banks are unable to offer longterm lines of credit due to the short-term nature of deposits. Zimbabweans prefer cash in the hand to deposits in the bank. The prospects are not good – on paper. According to data obtained from the Massachusetts Institute of Technology’s Atlas of Economic Complexity, Zimbabwe now exports far fewer types of goods than it did in1995 when there were 759 products shipped out of the country. By 2010 (the latest year for which data is available), the number of products had declined to 604. What has kept government and the economy af loat, according to the US-based Cato Institute, is a combination of a 1800% rise in tax collections in the three years after dollarisation, a US500-billion International Monetary Fund grant in 2008, and loans from the Chinese government. Government expenditure is, however, outstripping revenue growth and it appears that creditors are tightening their purse strings. Back to the enigma. Despite all these challenges, FTW was encouraged to visit Zimbabwe and to run this feature because the companies that are operating in the country remain optimistic. What we found were expatriates – both white and black – who have returned because Zimbabwe offers better prospects than South Africa, Europe or Australia. There are also companies making significant investments in the logistics sector. And, the leafy streets in the upmarket suburbs of Harare are better kept than those in any other African capitals – and much of South Africa. But the streets are filled with a growing army of unemployed, and freight volumes ref lect a fall in consumer spending. A significant proportion of that spending has headed onto the streets as government tariffs designed to support local manufacturing make smuggling more profitable. Zimbabweans always find a way. INSERT 1 A significant proportion of consumer spending has headed onto the streets as government tariffs designed to support local manufacturing make smuggling more profitable. INSERT 2 Expatriates — both white and black — have returned because Zimbabwe offers better prospects than South Africa, Europe or Australia. CAPTION Another enigma – who buys Cheetah flags in Harare?