Waiting for the hammer to fall

24 09 2017

A very expensive hammer – or is it?

Just a pretty average ball pein hammer with an expensive price tag. I’ve just looked on Amazon and one can get a set of three for about £10 and the most expensive one in this style, also with a genuine hickory handle, is £15. Of course we expect to pay more but nearly double? Well that’s the way of Zimbabwe at the moment, that’s right folks, inflation is back!

Zimbabwe produces little these days and imports a lot. Along with a bloated civil service whose wage bill gobbles 80% of the budget and rampant corruption we are in deep trouble. We have a three tier monetary system which in theory is all US dollars but in practice has three different values; money in the bank which is labelled US dollars but will buy the money version, referred to as “cash” at a rate of 1.6 to 1. Then there are bond notes, a local substitute for “cash” which are pegged at the same value as the “cash” but trade at around 1.2 to the dollar. These bond notes are in theory backed by a bond from the Cairo based Afrexim Bank but it was recently revealed that the bond never existed so they are valueless but preferable to having money in the bank. A case of a bird in the hand being worth more than what’s in the bank.

Most outlets have a 3 tier pricing system to reflect the various value rates. For the moment my business doesn’t but that will change tomorrow. In the time that I’ve been writing this blog (about 4 days) Harare fuel pumps have run dry. It’s not surprising as the price for diesel has been hovering around $1.20 per litre for quite a few months now – completely unrealistic considering that they have had to buy the real US$ at a premium of 1.2 during most of that time. Yes, I guess the price is controlled somewhere along the line.

I was, by chance, chatting to a farmer at an agricultural supplies outlet on Friday. He asked if I could grow him some paprika as he was looking for an export crop to stay viable. He mentioned that he’d been pricing steel that morning and by the time he’d gone back to place the order 2 hours later the price had gone up 15%. We are talking a bank transfer price of course. That evening I went to a talk on Bitcoins and how to use them and what the investment opportunities and pitfalls are. The speaker referred to the day as Black Friday in reference to the galloping exchange rate.

A while ago I called my local service manager at the bank. On asking if I could pay for an import of the coir pith we use to propagate seedlings he asked me if we exported anything. No, I replied. Had I deposited any US$ cash recently? No of course I hadn’t – was this really a serious question? Well then, he said, bring in the cash and we can do the transfer. Guaranteed? Yes, guaranteed. This raised the obvious question of how far to trust the banking system. All external payments have to go through the Reserve Bank of Zimbabwe, the very instrument who in no small way has landed us in this mess. To be fair there has been a lot of greed and incompetence driven political pressure on them to just add zeroes to the value of the currency though, with the exception of the governor, a lot of the senior staff were there for the meltdown of the Zimbabwe dollar in 2008 – 9 and one must wonder what their influence is.

It should be evident by now that the USD price tag on the handle of the hammer is not United States Dollars at all but a proxy currency probably better named (nearly) Useless Substitute Dollars and the price of 39.00 is probably quite cheap. The Zimbabwe dollar is back under another name as a lot of people feared when the bond notes were first introduced.

When I started this post on Thursday I thought the title was appropriate. After reading a WhatsApp message this morning from a friend (the full text by Matt Matigari can be read here http://source.co.zw/2017/09/opinion-currency-crisis-art-deception/) I realized that it had been looking decidedly unstable as far back as 2013. The hammer most definitely has already fallen and we have only now heard the sound of the impact.

There are going to be casualties during the course of this next meltdown. An old friend has already lost his job and has no alternative income. He and his wifer may well end up renting our cottage and hopefully renting out their house. We have advised them most definitely NOT to sell as they will likely lose a lot of money in the time it would take to find a smaller property. They have several dogs most of which will have to be euthanized. Those who can will emigrate. Those who cannot will once again be destitute. Companies that depend on imports will likely fold. Money changers will prosper and just maybe, we will pay off the bond on our house for the equivalent of a few dollars – cash. Tighten your seat-belts folks, there’s rough weather ahead.

 

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Loadsa funny money

1 02 2017
Funny money and the real stuff

Funny money and the real stuff

 

Ok,  I wasn’t quite truthful, there’s not LOTS of funny money – there’s just more than we’ve had in the past.

Once upon a time there was just Zimbabwe dollars and we got by. Then they crashed, and people were sad, so we got US dollars because that’s how economics works and everyone was happy again. Now there are not so many US dollars (as notes but there’s plenty in accounts which we can’t use to import anything) because lots, really lots, have been stolen.

So when things started to change again the Zimbabwe Reserve Bank in its unfathomable wisdom saw fit to introduce Bond Notes and everyone panicked and withdrew their cash and mobile (phone) cash became king, dominated by one Ecocash who saw fit to charge extortionate fees so banks saw fit to introduce their version of mobile cash. These are debit cards that can be managed on phones and we got a swipe card machine and people were happy again (but only sort of).

Not many bond notes came across my desk and I was happy too (again only sort of). I did get lots of text messages on my cellphone confirming that people had used their cards to pay direct to my bank so I don’t check messages that much and miss the important ones. Now the funny money (top of the pile in the photo) is coming across my desk in much larger quantities as people try to get rid of it, pass the hot potato if you like. The government has decided to tax potatoes, before they can even get hot, and other basic foodstuffs too so everyone is unhappy again. But nobody is going to do anything about it.

Banks have said that if we deposit cash (the real thing in the photo – not the funny money) then we can import stuff to keep going but I haven’t found out if my cash, assuming I have it, is going to be flown to India to buy more raw materials or it’s just a ruse by the Reserve Bank, that in it’s wisdom (again), wants to mop up all the real money for the government to spend on paying employees or, more likely, on itself (which some people might be suspicious of).

It’s not looking good. Not at all.





A Brexit. If only…

12 11 2016

Saturday midday we like to gather at the Gallery Delta in town. It’s Robert Paul’s old house, one of the oldest still standing in Harare and thus is listed. It also has good contemporary art but we like to sit and discuss politics, finance and generally anything of interest. Interesting people come through – it can attract diplomats and others but today it was the turn of local financial wiz Melissa. Married to a local Zimbabwean she has consulted to all manner of financial institutions both local and international and always has something of interest to contribute. The conversation inevitably turned towards Zimbabwe’s impending financial implosion and, of course, bond notes.

Background
In October 2008 the Zimbabwe dollar became worthless. Having been revalued three times and had 18 zeros removed over the period of 18 months (not of course in linear fashion) it really was worth less than toilet paper and also less effective. In the previous month my company went broke despite being  busy and after much soul-searching I brought in US$2000 of my own money which covered my expenses for the following month when customers started to ask if they could pay in US dollars.  The Zimbabwe dollar was officially abandoned at the beginning of February 2009 and the US dollar became the de facto currency in this part of the country. In the southern regions the South African rand and Botswana pula became more accepted due to the proximity of these countries. Change was initially an issue and supermarkets gave out sweets and ballpoint pens in lieu but come 2013 -2014 the South African rand was valued at close to 10 to the US dollar (2013 – 2014) so it made for useful change. We also had our first brush with bond coins (valued in USc but not exchangeable outside the country). Initially ridiculed they gained acceptance once the rand drifted above 11 to the US dollar. Currently there are a number of currencies that are officially trade-able; UK pound, US dollar, Australian dollar, euro, yen, Chinese yuan, Botswana pula and of course the rand.

As Melissa explained adapting the US dollar was a mistake. Zimbabwe became a magnet for criminals and money launderers the world over as there was little control over the use of hard cash – if you had it in the bank you could withdraw it as cash. Millions of dollars in cash were taken out through our extremely porous borders. The start of the rot was nearly instantaneous.

The rest of us were too enamoured with the new freedom to do just about anything we liked with our money to notice. You could travel unfettered by the need for endless currency applications; real VISA cards worked anywhere! South African supermarkets moved into the country and bought out the local chains and imported goods flooded the shelves at vastly inflated prices. But hey, we had choice.

The economy expanded due largely to the mining sector and high prices of gold and other minerals. Agriculture, once the mainstay of the economy, continued to flounder on the back of the land redistribution exercise though there were a few years when tobacco enjoyed a resurgence, driven by buoyant prices. Attempts to get external investors interested were hamstrung by the contradictory message; invest with us but the majority of the shares must be held by a Zimbabwean.

Corruption and nepotism have gone from strength to strength. Perhaps a new word should be coined here – nepotist + kleptocrat = neptokrat. Readers are welcome to make suggestions. It seems that every day there are new revelations of squandered, stolen and diverted funds. The most famous is the fifteen billion dollars that was unaccounted for from the Chiadzwa diamond fields in the east of the country, alluded to by none other than President Mugabe himself. Now $15bn is a lot of money for a small country like Zimbabwe, a bit more than the GDP in 2014, which could have wiped out our external debts and left a sizeable chunk to get things going again but nothing appears to have happened to those responsible.

As the economy founders so the tax base shrinks and there is little wonder that lower ranking civil servants have not been paid for months (civil service salaries gobble 97% of the cash budget). The military of course do get paid – the police have been told to raise their own wages and do so by the myriad road blocks and spot fines throughout the country that have left them thoroughly discredited and despised.

It’s all about trust
In May this year the Reserve Bank of Zimbabwe (RBZ) governor announced the introduction of the bond notes and the run on the banks began. The proposal was to ensure the value of the bond notes at an equivalent to the US dollar but they would be for internal use only so no good to those who would seek to externalize them. The public saw it as a ruse to bring back the Zimbabwe dollar in another guise. The restrictions on withdrawing cash soon followed and served to fuel the panic. It didn’t help that the bond from the Afreximbank that serves to support the value of the bond notes is veiled in secrecy and ignorance. Unexplained delays in releasing the notes and the refusal of a German company to print them haven’t helped.  Some banks are allowing more cash to be withdrawn than others but reports abound of clients queuing overnight to withdraw as little as $20 a day.

Zimbabwe has been slow to adapt to the plastic money found elsewhere. ATM and debit cards have been around for years and mobile banking has seen a major increase with the rise of smart phones which are ubiquitous even among the poor. The RBZ has been pushing the plastic money hard and most outlets now have POS (swipe card machines as they are known locally) machines and accept mobile banking. While unemployment is difficult to quantify (there haven’t been any recent surveys) it is undoubtedly high and a substantial proportion are informal traders who have to pay for the goods they bring across the South African border in hard cash. No small wonder they are suspicious of bond notes and local plastic money.

Cash is now commanding a premium of some 15% and I’m told traders abound at the local Roadport (bus terminus) in town and they have lots of $100 notes that cannot be found in banks. Likely they are in the employ of the neptokrats. I can now only buy the low sulphur diesel for my pickup with cash and some filling stations restrict the amount of fuel that can be bought with a card. Most businesses will give a discount for cash.

Legal challenges to the introduction of the bond notes have followed but on the 1st November Robert Mugabe signed the notes into law. Fait accompli.

Imports and nostro accounts
Nostro accounts (the money banks use to pay for imports) are heavily depleted due to our massive trade deficit. A friend who imports agrochemicals cannot pay his external suppliers despite having the money in the bank. VISA cards, which also depend on nostro accounts, work anywhere in the world for the moment and the crippling power shedding of last year and earlier this year have not reappeared largely due to the pay-as-you-go metering installed by the national power provider but I for one don’t expect this to continue. Greenhouse plastic, considered an essential import, is no longer available and this week when buying some basic pharmaceuticals I was informed that the calcium tablets had to be paid for in cash!

Smoke and mirrors
The people behind the bond note issue are not stupid – they must have known what the reaction would be. Why did they do it? I think it’s all a red herring to force us into the digital money arena where zeros are easily added with a few computer key strokes. After all, only $75m bond notes will initially be introduced in the form of $5 and $2 denominations. This is very small money though few actually believe that the neptokrats will be able to resist printing more, which may or may not be backed by a bond. The bulk of the cash in circulation is in US$100 and US$50 notes so the bond notes will have minimal effect on the nation’s liquidity. The various protest movements that sprung up this year, over various other social issues, including #thisFlag and #tajamuka were instrumental in sparking the riots that rocked Harare and Bulawayo, the second city, in July and August this year but it’s been quiet over the last 2 months as people’s attention is diverted into getting their cash out of the banks. Was this intentional or just fortuitous from the authorities’ point of view?

It's not looking good (Chatham House report)

It’s not looking good (Chatham House report)

We may yet be bailed out by the IMF Melissa suggested. Mozambique is also in dire financial straights as are Angola and Malawi. Zimbabwe imploding might well drag down the whole sub-region –  propping up the current regime would be preferable. Zimbabwe has cleared its debt with the IMF so this is possible.

And last but not least
As with any crisis of this proportion there are those who will find the humorous angle. “With the tumble of the English pound, the waver of the US dollar, the volatility of the rand at least the bond notes are stable” is a popular social network joke. When Harare’s main rubbish tip mysteriously caught alight a week ago, and dumped noxious fumes over the northern suburbs, there were those who postulated it was being fueled by bond notes!

20161107_082741

Pomona rubbish tip burning – bond notes the fuel?

Ah the Brexit, if only our problems were so small.

 

 





“Bob” notes

14 10 2016
Any currency will do (almost)

Any currency will do (almost)

Here in Zimbabwe we have no currency of our own. It was finally discarded in February 2009 along with all 12 zeros that were commonly attached. Notes are now collected by curious collectors. The US dollar is the currency of choice but even that is running out, hoarded away from banks by a public terrified of the introduction of Bob notes. Oops, I meant BOND notes.

Bond notes you ask? Yup, notes with a US dollar value printed on them but no actual value outside Zimbabwe. An awful lot of people think that they will not have any value inside Zimbabwe too so are hoarding the real currency away from the banks.

So whose bright idea was this? Well, maybe I should explain what a Bob note, sorry it just seems to slip out, I mean BOND note, actually is. Earlier this year, as it became apparent that the government was running out of cash to pay its employees (some 80% of the budget goes on paying wages – the rest is siphoned by other means but maybe the figures are the wrong way around), the Reserve Bank of Zimbabwe (RBZ) came up with this workaround. They would get a bond of $200 million from a reputable external bank and print notes amounting to the same value for use solely in Zimbabwe. They were at pains to point out the last condition. After all, we already had bond coins which had been initially rejected by the public but had become accepted as a means of supplying change once the South African rand had ceased to have a convenient exchange rate of 10:1 to the US dollar. So why not have bond NOTES? Surely the public would understand and anyway, with parity to the dollar and no mention of bond notes being deposited into one’s account the cash crisis would be solved?

Right. Like there is any trust at all for anything this government suggests. Panic ensued. There was a run on the banks which was exacerbated by the restrictions that were imposed on drawing cash and promises from sources that it was NOT a reintroduction of the Zimbabwe dollar just made things worse. Riots ensued and now diesel is short. Point-of-sale (card swipe) machine supplies ran dry and banks couldn’t install what stocks they had fast enough. Predictions of food shortages proved false (well not in the supermarkets) and cash money now commands a premium of up to 15% over transfers and card swipes.

So we’ll accept just about any currency. The bond notes were due to be introduced this month but have now been deferred to next month. Maybe it will be added to the list on the bottom of the till slip but I’m willing to be there will be a few zeros too. Oh, I paid in cash. US dollars.

The term Bob note is a reference to the name of the Zimbabwean president – Robert Mugabe. It’s not my creation but has appeared on the social media recently.