By Thembi Mabhula

The economic situation in Zimbabwe continues to deteriorate drastically and has been on the verge of total collapse for a long time.

The Zimbabwean dollar is now valueless and unusable as a currency. The situation has ushered the adoption of the American dollar and the South African Rand equally as legal tender. This has given rise to concepts such as “Dollarisation” or “Randisation” of the currency market in Zimbabwe.

The local currency is highly unstable, it erodes every day and changes its value almost every hour, causing prices of commodities to change frequently. If one boards a train usually the return fare is increased. A quotation for commodities in a shop is only valid for three hours. Money deposited in the bank loses value many times over before it gets to the owner. Peoples’ salaries and bonuses shrink drastically before they are withdrawn. With its value eroded daily by the world’s highest inflation of more than 231 million percent, the Zimbabwean dollar is nearly worthless and both consumers and traders are shunning the currency in favour of hard cash.

The government is absolutely failing to enforce the use of the Zimbabwean dollar as the only legal currency. Zimbabwe’s central bank has licensed at least 1000 shops to sell goods in foreign currency in a move aimed at helping businesses suffering from a chronic shortage of foreign currency to import spare parts and foreign goods. Other shops and service providers have followed suit although they have not been authorized and ignore warnings of arrest and prosecution by the government. With the local currency in a freefall, everyone from street vendors to mobile phone service providers, local and long distance taxis are pegging their prices in foreign currency to hedge against losses.

Introducing the Foreign Exchange Licensed Wholesalers and Retail Shops, Foreign Exchange License for Oil Companies, Foreign Licensed Outlet for Petrol and Diesel in September, Reserve Bank of Zimbabwe (RBZ) governor Gideon Gono said some basic commodities would not be sold in foreign currency. This was aimed at cushioning vulnerable groups. However, protecting consumers is far from what is happening on the ground.

Using the Zimbabwean dollar as a medium of exchange is risky because a dollar kept in the bank or lent to a borrower depreciates remarkably. A billion dollars easily depreciates in value to mere thousands in just a matter of days and it is wiser to keep money in the form of assets than banking it. As a result people prefer to buy cattle or land than keep their money in the banks or alternatively keep it in the form of foreign currency. The illegal use of foreign currency has spread across all sectors. 

The use of foreign currency is viewed as an inevitable necessity to survive the pressure of hyper inflation yet the side effects and consequences are far reaching. On the streets, one US dollar fetches about 18 000 Zimbabwe dollars. All consumers in general, especially the poor, find it very difficult to obtain foreign currency because it is not in full circulation as salaries are paid in Zimbabwe dollars. All basic necessities particularly food is sold in USA dollars or Rands in retail shops like Spar, Checkers and Hypermarkets. A Spar shop in Bulawayo in December was selling a loaf of bread for R10, a small packet of hot chips for R15, a can of coke for R7, 1 kg rice for R20, while a litre of diesel fuel was R10.  Shops that are permitted to use foreign currency have suddenly filled their shelves with commodities and foodstuff from South Africa and Botswana while those that are using the Zimbabwe dollar have empty shelves or have shut down. Most foodstuffs are still found in the black market at exorbitant prices where a 300ml can of coke could cost as much as R12.

Government offices are desperate to receive payments in foreign currency. In a strange twist, some municipalities have attempted to convince their communities to support the use of foreign currency to pay for services. Recently, Masvingo mayor, Femias Chakabuda called a public meeting to explain the municipality’s proposals to charge for services in foreign currency. He expected little resistance as everyone seemed to have abandoned the Zimbabwe dollar, but Chakabuda and his councillors left the meeting in a hurry after angry residents heckled them, with some even throwing missiles at them. Government institutions whose services had remained relatively affordable in the face of Zimbabwe’s world record-breaking inflation levels are now charging in foreign currency, leaving the majority of consumers in a dilemma.

On 12 January 2009, the Zimbabwe Congress of Trade Unions (ZCTU) led a strike demanding that the government pays its employees in foreign currency. “Why should workers accept payment in Zimbabwe dollars when the government itself has said it has lost confidence in the local currency and charges for every service in foreign currency?” they asked. As usual the march was met by army trucks full of soldiers to quell the strike.

It is estimated that 80 percent of the population has been driven to extreme poverty. The World Food Aid says five million people, nearly half the population are dependent on food aid. General services to the society are in shambles. The situation has severely impacted on health services with doctors and nurses just staying at home on indefinite leave because their salaries are an insult. Public clinics and hospitals have no money to buy medicine and equipment or even settle water and electricity bills.

The education system has collapsed with learners spending days and weeks without teachers. A huge number of teachers have left schools and are either sitting at home or have gone to look for greener pastures in other countries.

While the majority languishes in this ruling party-inspired economic meltdown, there are corrupt individuals who are benefiting from the crisis. Corrupt government officials and ministers allegedly own black market foreign currency exchange schemes. Government ministers and high ranking officials still buy US dollars on the official market but they quickly resell the cash at a 7,200% profit.
Their schemes are operated by their relatives and friends within the community. These schemes are central in the circulation of foreign currency, albeit illegally. The scheme operators also stock and sell foodstuff and fuel both in Zimbabwe dollars and in foreign currency. As shelves run empty in retail shops their businesses experience a boom. They also buy stocks from retailers that are closing down.

The alternative is probably for Zimbabwe to join the Southern African Customs Union (SACU) so that it can begin to circulate the Rand as legal tender and pay its civil servants in rands. This would of course be dependent on whether the current members would be willing to welcome a failed state within their ranks. Other countries in Latin America like Panama, Ecuador and EL Salvador have successfully adopted the use of the American dollar with fairly positive results to their economies.

References
Eric Bloc: Dollarisation Not the Answer – www.thezimbabweindependent.com/comment
When Something Is necessary To Implement – www.thezimbabweanindependent.com
Security Forces Gear Up For Mass Protests - allafrica.com/stories/200901160478.html
Zimbabwe Dollarisation and A Few Happy Ones – http//en.afrik.com/article15149.html
ZCTU: Pay All Zimbabweans Workers in Forex – hararetribune.com/business-a-teacher/news
Zimbabwe Unveils $100 – Trillion Note - www.iol.co.za

The Transformer Vol. 15 No. 1 / February - March 2009