x Abu Dhabi, UAEMonday 24 July 2017

Hyperinflation crushes Zimbabwe

Rising prices and the cost of living are an issue everywhere, but nowhere more so than in Robert Mugabe's Zimbabwe.

The current rate of inflation has made Zimbabwean money worthless.
The current rate of inflation has made Zimbabwean money worthless.

JOHANNESBURG // Rising prices and the cost of living are an issue everywhere in the world, from Europe to Asia, but nowhere more so than in Robert Mugabe's Zimbabwe. In a calculation of astonishing precision, the country's Central Statistical Organisation this week revealed that inflation in the year until June stood at 11,268,758.9 per cent, with the monthly rate at 839.3 per cent, by far the highest in the world.

Independent analysts put the true figure far higher, but even at the official figures the phenomenon is in the process of making Zimbabwean money meaningless. Magodonga Mahlangu, who lives in Bulawayo and is an activist with Women of Zimbabwe Arise, a non-violent protest group, said: "Really, you never know what you are going to eat next or what you are going to buy. "I don't remember the last time I walked into a shop and bought something. You can't budget, you can't plan anything because of the inflation."

Her colleague Jenni Williams said: "You just see what you can do and do the barest minimum. We are now down to the bare necessities. Sometimes from morning to afternoon, the price of a leaf of vegetable goes up." The dramatic rise in the price of oil, and increasing food costs, have put inflation up worldwide, but the extra dimension in Zimbabwe, which puts it far into the realms of hyperinflation, is its plummeting exchange rate.

Three weeks ago, when the currency was revalued to knock off 10 zeroes in a cosmetic move that did nothing to address the underlying issues, the Zimbabwe dollar traded at Z$140 billion, or Z$14 in new notes, to one greenback (Dh3.67). This week it stood at Z$120 to the US dollar - or Z$1.2 trillion in old money. Much of the responsibility can be laid at the government's door. With the economy collapsing and export earnings slashed by the destruction of commercial agriculture triggered by the regime-backed invasions of white-owned land that began in 2000, the authorities have very limited foreign currency income.

As a result, and despite its regular denunciations of the black market, the government is, in fact, one of the biggest buyers in the illegal trade, printing ever more of its own currency to do so, and driving the exchange rate ever lower, and inflation ever higher. "We always know when the government is buying," one dealer said. "Then we get new notes." The authorities, however, blame supposed western sanctions - which amount only to an asset freeze and visa ban on named individuals within and connected to the regime - for the economy's travails, and say rising prices are caused by profiteering businessmen who, in league with the West, are plotting to bring down Mr Mugabe.

In keeping with the official line, the state-owned Herald newspaper said: "Prices of goods and services are going up on a daily basis due to speculation. "Others had priced their goods using the foreign exchange transfer rate, pushing prices through the roof." But no economy is an island, despite the government's Marxist-Leninist outlook, which has led it to believe that simply decreeing a price freeze or price cuts will somehow stop the forces of supply and demand.

John Robertson, an independent economist based in Harare, estimates that the true yearly inflation figure to June was more than 30 million per cent. Over the 12 months in question, he said, the US dollar had appreciated by 23m per cent in Zimbabwe dollar terms. Over the past three months, Zimbabwe's currency has gone down by a compound 13 per cent per day, he said. "It all becomes a very immediate issue; everything has an immediate impact." The money earned last week or last month is already useless.

"The price of foreign currency on the black market determines the price of goods in the shops, because the government has price controls on local manufacturers, so they can't cover their costs of production; so they have stopped producing," he said. Or the manufacturers try to sell for export, albeit often with limited success. For the privileged elite, though, a life of luxury is still available. Senior Zanu-PF figures, it has long been alleged, are allowed to buy foreign currency from the central bank at the official rate - Z$30,000 to the US dollar in pre-revaluation terms, or Z$0.0003 cents now.

"It means they are getting the money for nothing," Mr Robertson said. "I think the way they see it is, 'we deserve the money'. They believe it's their right to have as much of whatever it is they like, everything should be subservient to their whims and wishes. "We have the resurrection of a feudal structure. This country is now being run by feudal lords in a feudal system where the lords own everything, including the people. Therefore, whatever they want, they can have. If you characterise it in that way, everything else falls into place."

@Email:sberger@thenational.ae