Market won’t be fooled, says Ncube

THE currency reforms undertaken by the central bank are unlikely to fool the market, says Trevor Ncube (TN), publisher and executive chairman of the Zimbabwe Independent and the Standard as well as chairman and CEO of South Africa’s Mail

& Guardian
. Below we reproduce an interview he held with Moneyweb (SA) CEO Alec Hogg.

MONEYWEB: Well, Trevor Ncube, it does look — certainly from what Fungai Tarirah (Imara Securities’ investment analyst) has been saying and reading through Dr Gideon Gono’s logic in the reasons for lopping the three zeros on the end of the Zimbabwe currency — that it really is semantics they’re playing with here.

TN: It is semantics, Alec, and it is, like you are saying, rearranging the chairs on the Titanic, as it were. It addresses the symptoms, it doesn’t address the fundamentals. I think the fundamentals are very clear to everybody. It’s prudent management of the economy. But above that, it’s attending to the political question that Zimbabwe currently faces. Perhaps more than that it is also creating an environment which attracts foreign investment and an environment that inspires the international community to have confidence to come in and invest in Zimbabwe.

What Gideon Gono did on Monday unfortunately does not address those issues, and what that means is that inflation is going to come back in a big way. I mean, you heard from the analysts in Harare, for instance, that there has been a revaluation of prices already. Before this was done, for instance, to give you an example, Old Mutual was priced at $1,7 million. As soon as that announcement was made, Old Mutual jumped to $2,9 million, which now is $2 900. So a lot of people are already jumping in and speculating. And just before I came here, the people on the street were rushing to the shops to buy commodities because they have no confidence any more in the currency. They would rather keep commodities — rather than hold on to the currency.

MONEYWEB: But what was he thinking when he made this statement – that perhaps people would be naïve and believe we now have inflation under control, because what was $1 000 previously is now $1?

TN: I think it’s shot-gun economics. This is very punitive economics, and the surprise with which this thing was sprung on everybody else. There is a sub-text running here, Alec, and you get that sub-text when you listen to his comments, when you listen to the president’s comment. The reason being given is that we want to tackle inflation. But clearly you and I realise that this doesn’t tackle inflation. There is a sense that there have been some people that the governor is aware of, that the president is aware of, who have been hoarding money, using that money to trade in gold, to buy gold on the black market, using gold panners, to buy fuel and get the money out of Zimbabwe, bring it, somehow wash that money offshore, something like that, take some of the money outside. So it’s a punitive thing, targeted at people that the governor himself knows.

He has talked about a handful of people that are doing this. But does that justify inflicting this damage onto the whole economy? I don’t think so. Granted, the many zeros were causing a huge problem to a lot of people. Let me just relate to you a very quick story. I went to buy vegetables when I was in Harare a fortnight ago. And those vegetables, potatoes and stuff, cost me $5 million. I handed the $5 million to the lady across …

MONEYWEB: How many bank notes?

TN: A big pile of Zimbabwean dollars. And she counted it and, surprise, surprise, she had a scale in front of her. She threw the bundle of money I gave to her and weighed it. I have never seen this in my entire life. I said to her, why are you doing that? She said, well, we know that if it’s five million Zimbabwean dollars, and it’s dirty, as the currency is that you’ve given me now, it’s going to weigh 104 grams. If it’s fresh from the bank, it weighs something like 102 grams. If it’s very dirty, it weighs 106 grams. That’s the kind of economy that Gono has reduced Zimbabweans to.

But does this solve the problem? It doesn’t. But another fascinating thing, Alec, which I must share with you: Zimbabweans are fascinating in their humour. Having lopped three zeros on Monday, a lot of Zimbabweans are saying, he has decided to remove three zeros from his name. He’s got three zeros in his name. Take those zeros from his name, fascinating thing, and they say he’s changed his name into Chinese.

MONEYWEB: Well, at least they keep their sense of humour. Isn’t it interesting to note how sophisticated people in the street are — and you take the example of the lady selling vegetables to you? She might not have a university education, but she certainly knows when it comes to money. So this almost appears to be a bit of a gamble, to lop those three zeros off, but the population is saying, hang on, we don’t buy this.

TN: Alec, it comes back to one fundamental thing. You can never fool the market. It doesn’t matter whether it’s women selling vegetables, whether it’s the stock market, gold panners or whatever. You can never fool the market.

The market knows the right value of things and the market will always find its own level. So I think what Gono has done is going to buy him a bit of time because one reason why he’s done this is that banks are coming to him and saying, we cannot cope with the zeros any more. The accounting packages that we bought from South Africa, from the UK, can’t accommodate the zeros any more. We need to get rid of the zeros.

But when they went to the software suppliers to say, can you help us get rid of the zeros or adjust the accounting packages so that we accommodate the zeros, the banks were given a huge bill. They took the bill to the governor to say, for us to adjust this, to accommodate the lopping of the zeros, this is what it’s going to cost us. That’s one reason that has forced the governor to do this kind of thing. But I think the basis of it, Alec, is that this inflation is going to come back in a huge way. These zeros are not going to come back as three zeros. They’re going to be six zeros because the market has an idea of where it ought to be and how it ought to move. And this is going to come back and haunt Zimbabwe.

MONEYWEB: Trevor, I was talking to a very smart gentleman who shall remain nameless because we were talking off the record, and he said to me that he thinks now is the time to seriously start looking at Zimbabwean investments — property investments, other opportunities, because rock bottom is not too far away. And pretty much in life in countries in many areas, once you hit rock bottom, things do turn up again. Do you think he’s being optimistic?

TN: Alec, I’ve been saying that now for nine months, if not more — that if you are a serious investor and you want to buy assets on the cheap, this is the right time to get to Zimbabwe. Some people have said I’m being opportunistic that we need to wait for the economic situation to be addressed.

But speaking as a pragmatic businessman, this is the right time to go into Zimbabwe if you’ve got currency, if you’ve got hard currency, you get assets on the cheap. I believe that we are around about the bottom, as it were, that the time for the turn is around the corner, because clearly, like Bill Clinton said, the economy is stupid, and unless and until the president, Robert Mugabe and Gono are able to fix that, then that whole edifice is going to come crumbling down. Nobody has a way and a solution, as clearly shown on Monday by what Gono has done.

I think for me the fundamental thing coming out of here, Alec, is that this is the clearest admission by the Robert Mugabe regime that the situation is out of control. Desperate situations require desperate measures. But desperate measures have never been known to cure a long-term illness such as this for a long time.

MONEYWEB: And congratulations Trevor, to Ferial Haffajee, your editor of M&G, for Women in Media of the Year, MTN’s award for the year. And very, very well-deserved for Ferial and to you Trevor, for always keeping us up-to-date on not only issues like Zimbabwe, but we do hope that your country does come right in the not-too-distant future.