Economy nears Bermuda Triangle


The Brett Chulu Column

THE current economic turmoil is concerning. We know the socio-economic indicators of this turmoil well. Broad money supply is increasing — in the official books, at least ZW$5 billion was poured into the economy, taking our broad money supply to at least ZW$15 billion. We have every reason to suspect that broad money supply is currently far more than what is reported — the recent sharp rise in the Zimbabwe dollar:United States dollar exchange rate seems to indicate significant swelling of money zero maturity money supply. It is a bad omen — the days of fiscal impunity could be on their way back.

Our authorities divined that the banning of multi-currencies would halt re-dollarisation. I knew from the classic grounded model of invisible entrepreneuring I came up with after a four-year formal research that re-dollarisation could not be stopped under the poor economic circumstances. What the model of invisible entrepreneuring taught me is that when people are hard-pressed to meet their socio-economic obligations, they will always find ways to out-manoeuvre those who control assets. People are thinking in dollar terms while transacting in the Zimdollar. Dollarisation has mutated to a covert form — it cannot be banned.

We will unfurl a selected web of behaviours people at the receiving end of a fast-deteriorating economic policy environment are resorting to to keep their heads above the water.

The behaviours of micro-margin sensitivity and calculated bets will be explored in the context of our current economic woes.
Micro-margin sensitivity

Micro-margin sensitivity is the application of entrepreneurial licence by invisible entrepreneurs to deliberately avoid the smallest of personal economic losses and to leverage on the smallest of opportunities. Micro-margin sensitivity is an invisible entrepreneur’s strategic response to the pressure wrought by targetising (drive by an asset user/asset steward to meet personal private economic gain from an asset entrusted them).

Micro-margin sensitivity has temporal, spatial and monetary dimensions. These three sub-patterns of micro-margin sensitivity represent the outcomes of an invisible entrepreneur’s omnipresent quest to increase the probability of stretching personal economic gain. The last two patterns are relevant to our current economic environment.

By applying spatial micro-margin sensitivity, an invisible entrepreneur is intentionally exploiting unutilised spaces to engineer opportunities to stretch or defend personal income margins.

You only need to look at our pavements and parking lots to see spatial micro-margin sensitivity in action. Desperate Zimbabweans have turned their vehicles into mobile retail shops — using parking lots in streets with large numbers of pedestrians.
Micro-margin monetary sensitivity exploits small windows of opportunity to either extract opportunistic monetary gains or insure against incidental or foreseeable monetary losses.

Last week, when the Zimdollar was depreciating at a frenetic pace, retailers were changing prices as much as twice a day, slightly above the prevailing black market rates, adding a margin of safety to insure against loss of ability to restock. When rates softened following the probe into the bank accounts of suspected cash barons, most retail shops have not changed the implied ZW$:US$ exchange rate — which is still elevated within the 20-20,5 range. It is a mixture of a fear of losing money and exploiting extra micro-margins.

The calculated bets pattern entails the exercise of entrepreneurial licence by invisible entrepreneurs to profit from risk-reward management. Calculated bets is hired as one strategic option to increase the probability of targetising optimally.

When invisible entrepreneurs embrace a loss of marginal income in anticipation of an opportunity to compensate for the loss and gain, an even bigger income they are engaging in strategic loss-acceptance.

At times, invisible entrepreneurs are compelled to accept losses emanating from an uncontrollable event or circumstance, but where the probability of reversing the marginal income loss is high. When they do this, they are engaging in forced loss-acceptance. The reason invisible entrepreneurs embrace forced loss-acceptance is that a refusal results in an even bigger loss. Forced loss-acceptance is, therefore, a resolution of a catch-22 situation by accepting a lesser evil.

Some retailers are leasing the forced-loss acceptance behaviour — they have inhouse bureaux de change — they peg their retail prices at black market rates for those paying in ZW$ and purportedly offer a huge discount as high as 90% if one transacts through their in-store bureaux de change. Other retailers are openly accepting US dollars in violation of the ban on forex for local transactions, but invoicing the amounts in ZW$.

The term windfall bets denotes the tendency by invisible entrepreneurs to exploit opportunities that promise to enhance personal marginal incomes by relatively huge amounts. Gains accruing from windfall bets are not shared with the asset owner/asset controller.

Windfall bets in some instances enable the invisible entrepreneur to generate income that is far in excess of the asset owner’s or asset controller’s normative share target (the economic benefit an informal grouping of invisible entrepreneurs decide must accrue to the asset owner they are planning to cream off).

Windfall bets are of two types: engineered and unanticipated. Engineered windfall bets connote the practice by invisible entrepreneurs to deliberately create opportunities to generate income outside the accepted operational rules. Invisible entrepreneurs call engineered windfall bets into service to enhance personal marginal income. The issue of EcoCash agents who have hiked premiums for accessing cash to a high of 60% is a perfect example of engineered windfall bets.

Unanticipated windfall bets arise from the practice of exploiting incidental opportunities outside operational rules to enhance personal marginal income beyond normative levels. Enterprising people in Zimbabwe are buying goods from wholesalers who accept electronic payments — they simply sell the goods at the same price, but accepting cash only, which cash they can sell at huge premiums for EcoCash — get their 40-60% windfall and offload the electronic money with wholesalers.

Formal retailers, in reaction to informal traders charging goods at wholesale price, have responded by offering discounts for cash purchases — they have just found a way to run rings around the US dollar retail ban. It is a perfect 2% intermediate tax avoidance strategy.

Another example of unanticipated windfall bets is exporters and gold producers who have significantly reduced forex earnings flowing to the central bank. The forex retention thresholds and a weak interbank market have created room for unanticipated windfall bets — gold deliveries have reduced significantly (40,6% as reported in the Monetary Policy Statement (MPS)) — that margin is extremely huge; it is almost certain that the gold producers are side-selling to avoid the central bank retention and offloading the forex in the parallel market.

Other exporters could be under-invoicing exports to create huge margins of export earnings that are not declared to the country. Imports could be increasingly smuggled and large importers under-declaring imports to create forex windfalls.

When we hear Treasury and monetary authorities crowing that the trade deficit is narrowing significantly, it could be just that importers exercising invisible entrepreneuring are outsmarting them.

The central bank headlined its MPS “to Normalcy.” It would appear this prophesied normalcy is still far off.

Chulu is a management consultant and a classic grounded theory researcher who has published research in an academic peer-reviewed international journal. —