HomeBusiness DigestUS Dollars In Zimbabwe: Greenback Or Gloom Back?

US Dollars In Zimbabwe: Greenback Or Gloom Back?

MANY will remember how before 2004 people working abroad were a respected elite in Zimbabwe. So valuable were the remittances they sent back home, that recipients could afford lavish lifestyles.

 

The transferred funds were largely responsible for the sprouting of new suburbs, increased demand for infill stands and refurbishment of existing properties.  A good number of families moved from township to stay in affluent suburbs where they would have bought houses using proceeds from abroad. For the younger recipients money was being largely spent on imported cars, trendy clothes and other “bling bling”.
In an apparent acknowledgement of the significance of the forex inflows from Zimbabweans working in other countries, the central bank founded Homelink. The entity was mandated to facilitate the repatriation of funds from the people working outside to their beloved ones back in the country. It was believed at the time and indeed now that if harnessed properly the forex remittances could go a long way in alleviating the shortages of hard currency.
Over the years the purchasing power of transmittals has gradually been eroded as Zimbabwe increasingly becomes expensive relative to other countries. The people outside the country are still sending out similar amounts, which in their host countries are worth a lot, but are buying less in Zimbabwe. What used to be a lot of money has in no time become a pittance forcing, many to re-adjust their styles. There are many housing projects which lie uncompleted as building costs continue to rise.
Local prices have become increasingly dearer when compared to those in the region. According to figures released by the Consumer Council of Zimbabwe the monthly consumer basket for a family of six costs US$280 compared to South Africa’s US$79, 97. This is not because on average a Zimbabwean family consumes more products than their South African counterparts but that goods in Zimbabwe although being of a much inferior quality are more expensive.
In response to my question on why their margins were three times the region, an executive at Innscor said it is because of high cost of transporting the goods. He revealed that it costs US$4 000 to transport a Spar container with goods valued at between US$25 000-US$50 000 out of the North Rand distribution centre to Harare. This translates to only 8% to 16% of value of the goods. Surely even after loading the maximum profit mark ups of 30% and the 15% the merchants remit to RBZ the margins made by the retailers are still obscene.
The mystery is how, despite a meltdown characterised by foreign currency shortages and hyperinflation that is eroding incomes, the country has managed to sustain growing demand at such lofty hard currency prices. Elementary economics define inflation as “too much money chasing too few goods”. However, the US dollar inflation in Zimbabwe cannot be a result of too much greenbacks bidding for limited supplies. Granted, everything is in short supply in Zimbabwe, but so are dollars. In fact it is the shortage of foreign currency that has forced companies to close; mining houses to go “care and maintenance”; people to succumb to cholera as they consume untreated water; and many skills to emigrate.
What is apparent though is that the economy is suffering from a hyperinflation hangover. People have become accustomed to rising prices on the local currency such that they cannot “stand” stable prices, even in hard currency. This explains why, for instance, property owners hike rentals even without any improvements on the property.
For some suppliers the US dollar inflation is a result of blatant profiteering. Businesses which under normal circumstances are volume driven have largely become margin driven. When charging in Zim dollars a margin driven strategy is understandable because the currency keeps losing value. Now that they are charging US dollar, margins above 50% are unacceptable. Unfortunately business in Zimbabwe today is motivated by the get rich quickly mentality but this is surely not sustainable.
Another problem that might be stoking hard currency inflation is the emergence of effortless money. There are lots of arbitrage transactions taking place in which a purse can walk away with say US$2 000 for doing nothing. Notable examples include people with access to subsidized products such as fuel, grains and cheap foreign currency obtainable at the official rate of $30 000 (old value) or the interbank market rates. These products can be sold on the open market for much higher US dollar prices.
At the peak of “kupisa mari” — literally translated as burning money or simply forex trading, the middlemen would make more money than their principals. Many would take their “margin”, after intermediating for the buyer and seller, in hard currency. Besides forex trading, effortless money was until recently also coming from the infamous Chiadzwa diamond fields. Both middlemen and illegal miners would receive large sums of foreign currency giving them almost unlimited purchasing power. Because they get this money easily they tended to spend it extravagantly. Prices of most commodities would ordinarily follow their buying patterns.
Through these activities windfall gains have been and continue to be realised. Many who accumulated huge piles of hard currency have joined the fray of glamour. Unlike their predecessors in the diaspora the “dealers” have so much at their disposal. Armed with unfathomable purchasing power which they hardly sweat to acquire, they are willing to buy anything at any price. The avalanche of foreign currency thus generated has seen serious hard currency inflation over the years.

Recent Posts

Stories you will enjoy

Recommended reading