11-04-17 by Spotlight Zimbabwe

Zim economy goes micro

 

 

Zimbabwe’s people are having a hard time finding jobs, cash, and basic goods. As Geoffrey York writes, their President is only making things worse

Anna Magaya measures cooking oil into perfume bottles in an outdoor market in the town of Chitungwiza, near Harare.

Anna Magaya measures cooking oil into perfume bottles in an outdoor market in the town of Chitungwiza, near Harare.

GEOFFREY YORK

She buys the bottles from rubbish recyclers, allowing her to sell her cooking oil in minuscule portions for 20 or 30 cents each – enough for a family’s needs for a day or two. That’s all her customers can afford. “People have no money,” she says.

Business is conducted on a micro scale in Zimbabwe these days. The regime of 93-year-old Robert Mugabe, preoccupied with internal power struggles, pays little attention to the deteriorating economy. Cash and jobs are increasingly scarce. So an estimated one million people have moved onto the streets to hawk whatever they can: a few shoes or books, a handful of tomatoes or cucumbers, or a perfume bottle of cooking oil.

Soap bars are chopped into slivers for cheaper sales. Sugar and salt are packaged in plastic bags of a few teaspoons each. Empty beer bottles, useful for home brew, go for 20 cents each. Small amounts of paint or glue are decanted into old plastic bottles. Even the multinational food company Nestlé has opened a new packaging plant in Zimbabwe to sell its products in 35-cent packages.

This is the harsh reality of daily survival in Zimbabwe as it awaits the long-delayed departure of the autocrat who has ruled the country for 37 years. The industrial sector has largely collapsed, unemployment is soaring, the economy suffers from a severe cash shortage and there are fears of hyperinflation as the government borrows heavily and prints unwanted “bond notes” to supplement the increasingly scarce U.S. dollars that have become the country’s main currency.

“We have doctors and engineers on the streets, selling tomatoes,” says Sten Zvorwadza, head of the National Vendors Union of Zimbabwe. “If you remove the vendors from the street, the economy will collapse. The economy is almost totally informal now.”

After a short-lived economic rebound from 2009 to 2013, when Mr. Mugabe was forced to share power with the opposition, he now has complete power again – and the economy is tumbling back into decline. Per capita GDP dropped by 1.9 per cent last year, and is projected to fall by a further 1.7 per cent next year, according to a report by the International Monetary Fund this week.

President Mugabe and his wife Grace arrive to address a gathering to mark the National Heroes Day celebrations in Harare, Zimbabwe on August 8, 2016.

President Mugabe and his wife Grace arrive to address a gathering to mark the National Heroes Day celebrations in Harare, Zimbabwe on August 8, 2016.

PHILIMON BULAWAYO/REUTERS

But Mr. Mugabe is focused on his own priorities: controlling an election in the first half of 2018 that could keep him in power until the age of 99, and maintaining his grip on the ruling ZANU-PF party, where his ambitious wife, Grace, is feuding openly with his vice-president, Emmerson Mnangagwa. The power struggle could reach a climax at a conference of the party next month.

Distracted by politics, Mr. Mugabe has done little to address the eroding economy – except to order a national crackdown on outdoor vendors, forcing many of them off the streets. He has complained that the streets are “dirty” because vendors are “everywhere.” His solution is to turn the police against them. Many vendors have been arrested or beaten.

Mr. Zvorwadza, the head of the vendors union, has himself been arrested several times for his activism. He says the police routinely brutalize the street vendors on Mr. Mugabe’s orders. “By chasing away the vendors, it only shows that he is unaware of what is happening. He presides over a failed economy and failed policies, so he is the architect of our poverty.”

In a dormitory town on Harare’s outskirts, Ms. Magaya is supporting three children and an unemployed husband by selling cooking oil. Her friends, who hawk goods on the streets of the capital, have told her of police raids. “The police are making life harder for us,” she says. “If you chase people away and call them dirty, they will become thieves.”

When Mr. Mugabe won power in 1980, Zimbabwe was one of Africa’s most developed economies, with higher average incomes than most countries in southern Africa. Its economy was twice as big as next-door Zambia, which has a similar population size. Today, its economy is smaller than Zambia’s, and life expectancy is lower than it was in 1980.

“Mugabe has taken us three generations backward,” says Tendai Biti, the finance minister in the former coalition government. “It’s a miracle of economic mismanagement.”

A customer holds a government-issued note that she received as change in a shop in Harare.

A customer holds a government-issued note that she received as change in a shop in Harare.

AFP/AFP/GETTY IMAGES

He says Zimbabwe is facing an economic paradox: rising inflation at a time of near-recession. “Our factories are shells,” he says. “There’s no demand. Our shops are full, but nobody can buy their goods.”

Foreign investors have largely abandoned Zimbabwe because they can lose half of their equity under nationalization policies. The country has become heavily dependent on imports, despite a series of import restrictions imposed by the government.

The government has propped itself up by borrowing heavily from domestic banks, but it is borrowing at an “unsustainable pace,” according to the IMF. The entire amount of its tax revenue is consumed by public-sector wages, a stunning 19 per cent of GDP.

The government cannot borrow from the IMF because it has failed to repay debts to several financial institutions. Its borrowing from domestic banks, meanwhile, has crowded out the private sector, causing further damage to investment. And to cope with the shortage of U.S. dollars, it has simply printed those bond notes – which are supposed to be equivalent to the U.S. currency, but have rapidly lost value.

Zimbabweans such as Ms. Magaya hoard their U.S. dollars at home, unwilling to use them for daily spending. In shops in Harare, prices are officially required to be posted in bond notes, but shop owners quickly offer a 20-per-cent discount if the customer is willing to pay with U.S. dollars.

Zimbabwe's official new currency, the ‘bond note,’ next to a rare U.S. two-dollar note. American currency is much preferred.

Zimbabwe’s official new currency, the ‘bond note,’ next to a rare U.S. two-dollar note. American currency is much preferred.

GEOFFREY YORK/THE GLOBE AND MAIL

On the black market, money-changers make big profits by exchanging U.S. dollars for bond notes – at a premium of 20 per cent to 30 per cent – despite a potential 10-year jail sentence if they are caught. “People need us,” says one money-changer, speaking on condition of anonymity because of the risk of arrest. “This is our time. We are making money, working day and night.”

In September, food disappeared from shop shelves in a wave of panic buying and hoarding. The shortages ended within a couple of weeks, but it was a reminder of Zimbabwe’s fragility. “It doesn’t take much to spark a panic,” says Rob Davies, an independent economist in Harare. “There’s uncertainty underlying everything.”

Another economist, John Robertson, calculates that Zimbabwe’s official money supply jumped by 36 per cent in the 12 months after August, 2016, because of heavy government borrowing from the banks. “That’s a clear warning of inflation,” he says. “Prices haven’t ballooned yet, but they could.”

The state borrowing has sucked cash out of the banks and off the streets. Banks have been forced to limit withdrawals, and pensioners can’t get access to their savings.

Some banks in recent days have halted all withdrawals because they simply have no cash. “We’ve nearly hit rock bottom,” Mr. Robertson says.

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