COUNTRY
REPORT
Konrad-Adenauer-Stiftung e.V.
ZIMBABWE
JOHN ROBERTSON
March 2015
Links
www.kas.de/Zimbabwe
Consumer Price Movements and
US Dollar Values
Lower gold and platinum prices affected the
The total import bill fell by 17%, from
Balance of Trade in 2014 and total export
US$7,7 billion in 2013 to US$6,37 billion in
values decreased by 12,7%, from US$3,5
2014, despite Zimbabwe’s continuing reli-
billion in 2013 to US$3 billion in 2014. The
ance on food imports. This reduced the defi-
export figures were also affected by lower
cit from US$4,2 billion in 2013 to US$3,3
cotton production and a fall in tobacco pric-
billion in 2014.
es.
Indications suggest that a fall in disposable
income caused the decline in demand for
consumer goods, and this belief is supported by reports from banks of an increase in
non-performing loans. As a high proportion
of these were to support commercial activities, evidence suggests that most of these
loans would have been easily repaid if expected sales volumes and revenues had
been realised.
Suggestions that buying power has fallen
are further supported by the fierce competition between retailers, the effects of which
carried price levels downwards for most of
2013 and 2014.
The above graph shows
that the Consumer Price Index at the end of
2014 was lower than at the end of 2013 and
also lower than at the end of 2012.
As a large proportion of the population now
depends upon remittances from relatives
working abroad, the movements of the rand
exchange rate against the US dollar has had
a significant impact on disposable income in
recent years. This exchange rate movement
was less dramatic in 2014, as shown in this
graph, but the weakening accelerated in the
first months of 2015.
2
The reduced US dollar values of the rand
However, laws have been passed in Parlia-
amounts received by dependants and spent
ment that permit evictions from land, con-
ZIMBABWE
on US dollar-priced goods have impacted on
fiscations of assets and forced surrenders of
JOHN ROBERTSON
spending patterns and taken many traders
shares. Zimbabwe’s government continues
by surprise. However, reduced retail sales
to believe that because the laws were
volumes were also caused by job losses that
passed in Parliament, they have the right to
followed upon some company closures and
demand that others accept such conduct to
Links
defensive moves by other companies that
be legal. Until they change this belief, and
www.kas.de/Zimbabwe
chose to reduce wage payments by adopt-
repeal laws that are in conflict with natural
ing shorter working weeks.
justice and international standards, the poli-
Konrad-Adenauer-Stiftung e.V.
March 2015
ticians will ensure that the needed investMany employers, including government, be-
ment funds will remain beyond the coun-
gan to pay wages and salaries later than
try’s reach.
usual and some went several months into
arrears. These caused significant reductions
Zimbabwe’s
in buying power as well as changes in con-
through hyperinflation. This happened very
currency
was
destroyed
sumer behaviour. Many commentators have
much as a result of government’s disrespect
noted that none of these problems have yet
for property rights, because this led directly
shown signs of easing in 2015.
to a decline in economic activity. Zimbabwe
did not need the permission of the Federal
Zimbabwe’s dependence on the use of the
Reserve Bank in the United States to make
US dollar will continue until the country has
use of the US dollar in place of the Zimba-
some prospect of building up currency re-
bwe dollar, but it should have accepted the
serves. This will first require that exports
need to use the currency in a disciplined
exceed imports for some years, after first
way that would help ensure it would retain
either settling outstanding debts or adopting
its full value in domestic as well as interna-
a re-scheduled debt payments scheme that
tional transactions.
places the obligations within the country’s
Regrettably, the authorities did not accept
means.
this responsibility very well. The Reserve
These are major steps, which will depend
Bank of Zimbabwe’s Governor has limited
upon first investing enough money to re-
influence over most aspects of Monetary
build productive capacity. To achieve that,
Policy, but his strenuous efforts to avoid
Zimbabwe
trying to influence pricing policy have been
measures
will
have
needed
to
to
adopt
restore
all
the
confidence
misplaced.
among the owners of the investment funds
that will be needed, either as loans or as
In terms of one of the Reserve Bank’s most
equity, to regenerate the output volumes
important mandates, the Governor should
from the productive sectors. To ensure the
endeavour to sustain the true value of the
success of manufacturing, mining and agri-
currencies in use and should impose his au-
cultural investments, the services will also
thority on anyone seen to be trying to de-
have to be recapitalized, in particular the
stabilise or interfere with its domestic or in-
banking, insurance, transport and construc-
ternational value.
tion sectors.
Because no attempt was made to impose
The key element for achieving investment
such disciplines, one of Zimbabwe’s many
inflows and full commitments from investors
problems today is that a US dollar buys less
in all these fields is to guarantee respect for
in Zimbabwe than it does almost anywhere
their
constitutional
else. As prices in Zimbabwe are higher than
rights, civil rights and property rights. Most
they should be, Zimbabwe has in effect de-
importantly, the definitions of these rights
valued all US dollars spent in Zimbabwe.
rights,
particularly
have to be internationally acceptable.
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Konrad-Adenauer-Stiftung e.V.
People can make US dollars in Zimbabwe,
er prices, and these wages then impact on
but if they spend them abroad, they will get
costs.
ZIMBABWE
more for their money almost anywhere they
JOHN ROBERTSON
go.
March 2015
However, any claim that the US dollar has
ployers’ rights to fire workers are seriously
been devalued breaks down when its use to
restricted and when permission is given, it
Links
pay for imports is considered. As most im-
is conditional upon generous retrenchment
www.kas.de/Zimbabwe
ports cost less than the cost of their local
packages being paid.
Zimbabwe’s labour laws also add to the
costs of doing business in Zimbabwe. Em-
equivalents, the US dollars used in those
transactions might be considered either cor-
These add to the costs of doing business
rectly valued or overvalued.
and when they can get away with it, the
employers will recover the additional provi-
However, it is the local prices that matter
sions made by charging higher prices. When
most because almost anything that Zimba-
competition prevents these costs from being
bweans can make can be imported for less.
passed on, the profitability of the business
Costs of production have been forced up
is reduced and its ability to fund measures
partly because producers have become far
to improve production efficiency, or even
less efficient and partly because, in its ef-
maintain existing production machinery, be-
forts to raise more revenue from a declining
comes more restricted by reduced incomes.
economy, government has imposed additional licence fees, registration fees, appli-
Zimbabwe’s
cation fees, permit application fees, envi-
therefore, is to bring down its local produc-
more
immediate
challenge,
ronmental management fees and
levies
tion costs, particularly wage levels, and in-
connected with personnel development, ru-
crease the capital back-up needed by the
ral electrification and AIDS.
workers to match or better the output levels
per dollar paid in wages achieved in other
Some businesses are targeted for separate
countries.
treatment. For example, maize importers
need to pay two separate registration fees,
The distortions in prices and costs dates
two inspection fees, a permit fee, port
back to events before Zimbabwe formally
health charges, a customs clearance fee, a
adopted the so-called multi-currency ex-
clearing agency fee and a fee for a National
change regime. By that date, many busi-
Biotechnology Food Permit. And those im-
nesses and individuals had already been il-
porters who want permits and licences in a
legally making use of the same currencies,
hurry have to pay an urgency fee.
but the illegality of the transactions generated conditions of considerable uncertainty,
The fact that it costs more to make the
so the scarce and highly prized foreign cur-
goods here is the problem needing atten-
rencies were traded at substantial premi-
tion, but government has sought to fix it by
ums.
putting higher duties on imports to make
them more expensive. This treats only the
When official approval had to be given for
symptoms. Consumers still have to pay
the use of these currencies, mainly the US
more, so they still get less for their US dol-
dollar, many people were in a position to
lars.
ensure that their premiums were preserved.
Many of the distortions were therefore car-
All these additional charges have to be re-
ried through into salaries and pricing formu-
covered from consumers, so the US dollar
lae and many of them are still in place.
prices paid are heavily influenced by government fees. The other big influence is
The Reserve Bank has the mandate to pro-
wages, and the fees influence these too.
tect the value of the currency and it needs
The trades unions use their bargaining pow-
to use its authority to do so.
er to argue that their members deserve
higher wages so that they can pay the high-
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Konrad-Adenauer-Stiftung e.V.
This it has to do by imposing discipline and
with political influence were able to get spe-
by bringing the issues in need of change
cial import permits, the idea has collapsed.
ZIMBABWE
into sharper focus. Such efforts will gener-
JOHN ROBERTSON
ate much more helpful responses from the
However, the US$390 a tonne price is still
Ministry of Finance and all the other eco-
the official price and the world maize price
nomic ministries. In particular, the Reserve
per tonne at the end of February was less
Bank should be able to veto any ministerial
than half that figure at US$173,7 per tonne.
March 2015
Links
decision that might have the effect of in-
www.kas.de/Zimbabwe
creasing the US dollar costs of buying any-
If Zimbabwe wishes to continue using an
thing or doing anything.
international currency, its challenge in this
regard is to respect the prices of interna-
As an example, the Reserve Bank should
tionally traded commodities and ensure that
come down heavily on any support for high-
it chooses commodities for which its produc-
er wages, if the proposals can be shown
tion methods and systems allow it to com-
likely to affect Zimbabwe’s prospects of
pete on world markets.
competing against imports, or interfere with
government’s prospects of balancing the
Zimbabwe
Budget.
manipulating decisions if the country had its
could
get
away
with
price-
own currency. But imposing an inappropriGovernment wages require special atten-
ate idea would soon cause the currency to
tion. As a percentage of Gross Domestic
automatically depreciate and the devalua-
Product, Zimbabwe’s public sector wage bill
tions would then make imports more expen-
is twice the size of the average for Africa.
sive. Local producers might then see im-
Again, the claims that the US dollar is not
provements in their chances of survival,
worth very much are translated into claims
provided subsidies could be met and im-
that twice as many are needed to pay for
ports were prohibited, but these restrictions
anything, but the real problem is that prices
would impose serious handicaps on the
are too high.
country’s growth prospects.
Factory wages in Zimbabwe are about twice
Zimbabwe’s officials might appear to be
as high as those in countries with which
right in thinking that, by effectively devalu-
Zimbabwean factories have to compete.
ing the US dollars used to pay for maize,
This imbalance has forced many businesses
they will have improved inefficient maize
to close, so most Zimbabwean technicians
growers’ viability. However, they are forget-
have had to seek employment in other
ting that by promoting inefficient producers,
countries. The skills shortage is another
they are adding further to local cost pres-
cost.
sures and that the same US dollars are still
retaining their value beyond Zimbabwe’s
Zimbabwe is presently on the brink of a
borders. As a result, Zimbabwe’s liquidity
very disappointing maize harvesting season
problems are being worsened by decisions
because the Reserve Bank did nothing to
to spend domestic earnings in foreign mar-
stop the Ministry of Agriculture from decid-
kets.
ing that the maize price to local growers
should be twice as much as the price paid to
Zimbabwean came close to being able to
import it.
import cheaper dairy, poultry and pork
products from countries that feed these an-
The Ministry of Agriculture tried to ban
imals at much lower cost. However, many
maize imports to force millers and stock-
Zimbabweans who work in those sectors
feed producers to buy the local growers’
faced job cuts. Labour in particular might
output after, it had first been sold to the
soon be paying a very high price for gov-
marketing authority, the Grain Marketing
ernment’s belief that they are free to ma-
Board. However, as the GMB did not have
nipulate the prices of internationally traded
the cash to pay growers and certain people
commodities.
5
Konrad-Adenauer-Stiftung e.V.
The fact that the country could previously
produce most of its requirements was not
ZIMBABWE
an accident. It was the result of levels of
JOHN ROBERTSON
commitment that were voluntarily made by
talented business people who derived con-
March 2015
siderable encouragement from secure institutional business structures.
Links
www.kas.de/Zimbabwe
These structures were as ready to impose
requirements as they were to ensure the
delivery of rewards to those who met market standards. Support as well as discipline
was forthcoming from successions of government officials, who were as eager to exercise their own talents for public administration as were the industrialists to take
on the business challenges.
Zimbabwe’s use of an international reserve
currency does place its economy at risk,
simply because it is now a developing country in which traders can earn hard currency.
The means whereby the money can be
earned and manipulated are less restricted
than in other developing countries because
exchange controls are less easily applied
when everyone deals only in foreign exchange. Money laundering becomes easier,
capital transfers are almost unrestricted and
various scarcities and market distortions
offer opportunities to those who can profit
from the same scarcities and distortions.
Zimbabwe’s major challenge today is to restore a functional economic system that will
deserve investor support, permit the coun-
Imprint
try to earn its way out of debt, generate a
trade surplus and accumulate foreign re-
Konrad-Adenauer Stiftung
serves. Backed by these achievements, a
26 Sandringham Drive
new Zimbabwe currency would be worthy of
Alexandra Park
respect.
P.O Box 4325
Harare/ Zimbabwe
Tel: +263 4 74 46 02 or
+263 4 74 45 53
John Robertson is a renown economic
writer and analyst.
The opinions and views expressed in
this article are the responsibility of the
author. The Konrad-Adenauer-Stiftung
does not necessarily subscribe to the
opinions and views.