Zimbabwe officially uses US dollars as the legal tender. Therefore prices are denominated in US dollars. However, there is a surrogate currency called bond note which is officially pegged at $1:1b. The parallel market determined exchange rate ranges between usd$1: 250-300b depending on the mode of exchange ( RTGS, BOND CASH OR ECOCASH).
This distortion has been transferred to general dealers and supermarkets where prices of goods and services are differentiated depending on the mode of payment. What is shocking are levels of prices in our shops. Its crazy. Example is 2 litre cooking oil that costs anything between usd8 -usd 25. Previously it used to cost usd2.90. In other words prices of many commodities imported from South Africa have risen by more 1000 percent in a period of 2 months (September and October).
The main cause of price hikes is the shortage of foreign currency. Zimbabwe’s foreign currency demand by far outstrips its supply. This has created a breeding ground for corruption whereby some importers connected to corridors of power get forex at the official rate while other importers have to resort to parallel market rates, in the same country.
The recent exposure of the parallel market forex trading involving the Reserve Bank goes to show that the ruling party and its government diployees are solely to blame for the current economic hardships Zimbabweans are facing. The economic crisis is self-inflicted. Yet wages and salaries are fixed. An ordinary civil servant earns and average salary of 300 bonds in form of RTGS or virtual money which by the way now attracts 2 cents charge for every dollar. This means that wage earners, the majority of whom.are civil servants, are now sinking in poverty. From a disposable income point of view wage earners are trapped in poverty and are on the verge of starvation. Households are resorting to one meal per day. Its like fiction but this is happening in Zimbabwe. Juxtapose this poverty against a new breed on politically connected money barons who are known and are involved in money laundering and illicit financial flows. These are not arrested and they import luxury goods including state of the art vehicles under the watch of monetary authorities.
This is called state capture by all measures. Therefore, the current economic crisis has been fuelled by corruption and avarice. Its roots of course is a confidence and legitimacy crisis caused by the contested harmonized elections of July 31. Economists know very well that Capital is a coward. The implosion in Zanu PF does not help things. It is now very clear that there is no cohesion withing the top echelons of Zanu PF. There is a leadership crisis which eating Zanu PF from inside like a cancer. Its a fierce contestation about controlling the soul of Zanu PF. Its again a factional fight. On the other hand, there is a strong bourgeois class that curries favours from politicians and survives of rent seeking, clientilism, arbitrage and tenderprenuership.
In order for Zimbabwe to move on again, we must go back to the drawing back and address the following:
1. Decommissioning the bond note and arrest parallel market arbitrage
2. Adopt the Rand as dominant or proxy currency and denominate prices in Rands
3. If the above cannot be done then gvt has no choice but to involuntarily introduce local currency
4. Dissolve cabinet and enter into negotiations on a “Political-Economy Accord”. The Political Economy Accord will address the following
1. National Convergence
2. Political legitimacy
3. Emergency Economic recovery measures based on Currency reforms
4. Emergency Humanitarian intervention
5. Replacement of broadbased government (Transitional Authority) to vaccinate against an indecisive government that is dysfunctional due to factionalism based on the race to control the key economic pillars. This is quite different from the factionalism under the Mugabe regime which was about political hegemony. This time the factionalism under President Mnangagwa is all about economic hegemony. Who gets what and who controls what, is the question.
The economic hardships can be sorted out if Zimbabweans are galvalized and corruption is dealt with. But the question is: who is going to guard the guard? In the meantime its suffer continue for ordinary people as the whole country is already re-dollarizing. The market is always ahead of government and this is dangerous.
DR Tapiwa Mashakada is a former Minister of Economic Planning and Investment Promotion.