T A SUPERMARKET in Harare, Zimbabwe’s capital, the finance minister is staring aghast at a pack of nappies. “This is absolutely ridiculous!”, exclaims Mthuli Ncube. “$49!” A manager says it cost $23 two weeks ago, before pointing out other eye-watering items such as $20 Coco Pops.
Escalating prices are all too familiar to Zimbabweans. So are shelves bereft of staples and snaking queues at petrol stations. “What we are facing now, we last faced in 2008,” says Arrison Banda, a driver waiting in line. A decade ago hyperinflation devastated Zimbabwe. The crisis this time is subtly different. But it too has the potential to shatter a fragile economy.
In 2009 hyperinflation caused by reckless government spending and money-printing forced it to abandon the Zimbabwean dollar and adopt the American greenback. That, along with the sane fiscal policies of a government of national unity, helped to stabilise the economy.
But in 2013 Zanu-PF, the party led by Robert Mugabe, took back sole charge and went on a spending spree using other people’s money. Instead of printing it, the central bank simply began seizing up to 80% of dollars from exporters and replacing them with electronic money, notionally worth the same amount. In 2016 it began printing “bond notes”, which are supposedly as good as proper dollars.
This coercive Ponzi scheme could only last if dollars kept coming in. But as soon as people realised they could not withdraw their dollar deposits, they stopped making them. There are more than $9bn of deposits in the banking system, but just $120m in hard currency underpinning them (see chart), according to Msasa Capital, a financial advisory firm. There is a thriving black market swapping “zollars”, slang for local dollars, for physical ones.
Emmerson Mnangagwa, president since toppling Mr Mugabe in a coup last year, hoped that after winning elections in July he would be able to turn to Western governments for help. But this plan was ruined when his soldiers killed six protesters soon after the vote. Without international backing, Mr Mnangagwa and Mr Ncube, his cerebral technocratic finance minister who was appointed last month, have had to go it almost alone.
On October 1st Mr Ncube announced two reforms. The first was a 2% tax on the value of electronic transactions. The second was the division of bank accounts into a “good” account for US dollars and a “bad” account for zollars. This has led to a belief, encouraged by the memories of 2008, that the local currency will be devalued.
The result has been chaos. Over the past two weeks zollars have been trading at as little as 17 cents to the dollar. The devaluation has led to a surge in prices—and not just in imported goods like nappies. Football fans attending the Zimbabwe v Democratic Republic of Congo game on October 16th were shocked to learn that ticket prices had doubled on match day.
There is a scramble to buy goods while the zollar is still worth something. Lots of shops have run out of staples, as customers rush to buy 50kg bags of sugar or maize. Others are doing a roaring trade in goods that will keep their value, such as generators or cement. Indeed, there is a building boom, as people hoover up materials.
Many businesses have stopped accepting zollars altogether. One manager of a construction company describes how a week ago he paid for 700,000 bricks in zollars to build a lodge. This week the supplier cancelled the order, demanding dollars.
The human cost is mounting, too. At the Parirenyatwa hospital in Harare, Gertrude Bhunu, 64, shows an empty packet of medicine: pharmacies want dollars. Boyfriends looking to marry have also been caught out: their future in-laws are refusing to accept the bride-price in zollars. One boss of a local company says he spends 75% of his time sourcing money. Every business is trying to maximise dollar assets and zollar liabilities on its balance-sheet.
The response from the government reflects its chaos and divisions. Ministers from the old guard are trying to bully and ban their way out of the crisis, rounding up small-scale currency traders and outlawing the use of jerry cans at petrol stations. (People are using plastic bags instead.) For his part, Mr Ncube is insisting that a zollar remains worth a dollar, imploring people to trust the dual account system, and to give him time to implement reforms.
The IMF and the World Bank will not offer support unless Zimbabwe repays its arrears to multilateral creditors. America opposes any plan to restart lending. Mr Ncube is forced to turn to outfits such as Afrexim, a pan-African bank that is mulling a $500m loan. Zimbabwe has also borrowed $250m from Gemcorp, a London-based investment fund. Not only are the terms of these loans murky, but they do not address the causes of the currency crisis—a lack of trust in a government that keeps ruining the economy and in the synthetic dollars it has effectively printed.
This article appeared in the Middle East and Africa section of the print edition under the headline “Lost in the supermarket”
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