Nyasha Mutseyekwa, a minivan transporter in Zimbabwe’s capital Harare, cannot afford new tyres for his ramshackle kombi, selling at US$45 for a good second hand.
Whether he opted to pay in US currency or in the devalued local bond notes at the equivalent black market price, Mutseyekwa would have to save up for months to get the US$90 for the two tyres — that have been punctured by potholed roads.
Used to pumping his flat tyres for ZW$5 each, this replacement is just too much and risks pushing him out of business.
The mechanic has told him the tyres are so much damaged and patched through vulcanised adhesive “plaster” on previously punctured holes that they will simply need a replacement, not plugs.
“Replacing tyres is damn expensive my brother,” said the 44-year-old Mutseyekwa, who has two vehicles on the road, a wife and two children to support in the working class surburb of Sunningdale.
“The bond notes are now worthless, and these mechanics don’t want them anymore. They want US dollars, for their labour and all motor spares.”
Even though the government banned the use of US dollars last year, the greenback has become the most widely used currency in the country, with many preferring it as an accepted alternative to the worthless bond note currency.
Many Zimbabweans have simply adopted the greenback as their own, notes and all, in what is known as “dollarisation.”
For almost a year, strict exchange controls have severely limited access to dollars.
A black market in hard currency has spread in response, and as once-sky-high revenue runs dry, Zimbabwe’s economy is in free-fall.
The issue of foreign currency shortages persists despite the re-introduction of the Zimbabwean dollar last year. The cash shortage remains one of the most pressing economic issues.
US dollar hoarding has not ceased and confidence in the local currency continues to erode. Though a weaker currency should make Zimbabwean exports more attractive, primary sector production is undermined by tough operating conditions.
The practice adopted by minibuses, vendors, supermarkets and small stores in Harare over the last couple of months to charge in US dollars to Zimbabweans with access to greenbacks is fast spreading.
Food sellers, dental and medical clinics, and others are starting to charge strictly in US dollars or their black market equivalent — putting many basic goods and services out of reach for a large number of Zimbabweans.
The latest rise in prices, underlined with a sharp $20 hike last week in the price of mealie meal —which is in short supply — topped academics’ traditional benchmark for hyperinflation. The government has not published inflation data for almost a year.
“I can’t talk of bond notes anymore, because in that currency you have to quote different prices every hour,” said Muchaneta Moyo, 26, who sells ladies clothes in the Old Mutual flea market next to East-gate mall, and has recently pegged her prices to the dollar.
“You have no choice but to charge in US dollars.”
The government of President Emmerson Mnangagwa brought in the strict controls in the forex regime when it banned use of the US dollar, but has given mixed signals, giving some sections of industry and commerce exemptions and exceptions in charging in US dollars although it has become illegal for certain segments of the economy, particularly industry, to charge in foreign currency.
The Confederation of Zimbabwe Industries (CZI) has urged the government to demonstrate clarity on the currency position on whether the country is still under the multi-currency environment.
In a report titled “Synopsis of Currency Developments In The Past Year And Recommendations On Way Forward”, CZI highlighted how the government is contradicting itself over the enforcement of SI 142 by coming up with all manner of exemptions and exceptions enabled by licence or legislation, varying with the legal instrument.
“It can be argued that government has to a certain extent initiated the re-dollarisation mode and undermining the local currency by demanding payment of certain fiscal obligations and services in foreign currency through exemptions, exceptions and exclusions,” CZI said in the damning synopsis.
Among the causes of this uncertainty as noted by CZI are cases where government agencies are legally allowed to charge in US$ thereby undermining SI 142.
Government still requires certain duties and fees in US$ and government has licensed other operators and traders in the economy to charge in foreign currency.
Financial research firm Equity Axis said the “currency saga has created a dislocation in the economy and it is threatening any efforts for economic rebound.”
“The re-introduction of the local currency has failed to wield confidence, and its continuous depreciation in value has become a strong variable to inflationary pressures,” the leading financial research firm said.
Oil revenue was initially able to bolster artificial exchange rates, though the black market grew and now is becoming unmanageable for the government.
As the country experiences one of its worst economic slowdown characterised by high inflation and a GDP contraction in 2019, the net fuel import bill registered a 20 percent decline in 2019 compared to the previous year.
While Zimbabwe is a net importer of both diesel and petroleum blend, depressed demand pushing consumption downwards combined with foreign currency shortages have seen the fuel import bill plummeting, noted Equity Axis.
Data from the Zimbabwe National Statistics Agency (Zimstat) show that diesel imports decreased by 16 percent to $861,2 million in 2019 from $1,0 billion in 2018. During the same period, petrol imports recorded a 27 percent decline to $361,3 compared to $494,7 million in 2018.
Cumulative diesel and petrol import bill in 2019 slipped to $1,2 billion from $1,5 billion in 2018, representing a difference of 20 percent.
Economists said global oil prices remained largely stable in 2019, thus, the decline in Zimbabwe’s fuel imports is largely reflective of the country’s own economic woes where foreign currency shortages has made it difficult for government to secure enough fuel from regional suppliers, the research firm noted.
“The fuel sector has been feeling the pain of economic slowdown that several other sectors including electricity sector are already reeling under,” the report said.
Mnangagwa has maintained his predecessor’s policies on capital controls.
Yet, the spread between the strongest official rate, of some 17 bond notes per dollar, and the black market rate, of around 250 per bond note, is now huge. While sellers see a shift to hard currency as necessary, buyers sometimes blame them for speculating.
Ronald Mutepfa, a bicycle repair man, needed a medical operation priced at US$350.
“The bicycles I fix, I don’t charge in US dollars. Its unbelievable that they want all that money in US dollars for my treatment,” said Mutepfa, who had to borrow from a clothing shop at exorbitant interest rates to pay for the surgery.
In just one year, Zimbabwe’s currency has weakened markedly against the greenback, and official real GDP growth was since lowered by 9,6 pts to -6,5 percent.
Mnangagwa seem to have no solution to black market traders, he blames for inflating the numbers.
“You have mentioned the issue of money changers selling our money to the people; yes, we see that on TV and we are still asking ourselves what we can do to deal with that. It is something that we are still looking at,” Mnangagwa told the party supporters recently at the Zanu PF women’s league national assembly at the party’s Shake-Shake headquarters.
Economists said the economy faces persistent headwinds.
Zimbabwe’s ever-positive Finance minister Mthuli Ncube sees the economy expanding by three percent this year despite the country experiencing its worst economic crisis in a decade.
“We have our own projection of three percent, so you can see that generally there is a feeling that this will be a better year. So, we are sticking to our three percent rate of growth,” Ncube said following a meeting with Chinese officials who arrived in Zimbabwe on January 11 as part of a five-nation tour of the continent.
Authorities believe there will be a rebound in 2020 thanks to improved agriculture and mining output — arguably the pillars of the fragmented economy.
But NKC African Economics analyst Jee-A Van Der Linde said unfortunately, this is unlikely to happen, as the country faces a second successive poor harvest season in 2020.
“Zimbabwe finds itself in a region that is in the grips of the worst drought in four decades — the reservoir at Lake Kariba was recorded as 8,4 percent full by December 27 compared to 52,4 percent full the previous year and down from 11,1 percent on December 1, 2019.
“Patchy rainfall thus far has meant that local maize producers have mostly missed their window for planting — usually during November and December. Moreover, drier conditions should lead to poor yields in cereal crops later this year,” Linde said.
The UN has warned that up to eight million Zimbabweans will require food aid in 2020.
Tobacco harvesting is currently underway and the cash crop — a top foreign currency earner — is also likely to under-perform this year.
The Tobacco Industry and Marketing Board (Timb) has stated that crops which were planted in September 2019 were heat stressed and have been subject to severe moisture deprivation.
Timb statistics paint a gloomy picture of the planted hectarage this season — suggesting significantly reduced yields, especially in areas with limited or no irrigation facilities.
“Things are not looking any brighter for mining,” Linde said.
“Shortages in fuel and electricity have led to considerable downtime at mines and industrial operations. The latest data shows that third-quarter mining output declined by more than 20 percent on an annual basis in 2019, as prolonged power outages affected an estimated 80 percent of Zimbabwe’s miners. Gold was one of the main laggards, down 23 percent (year-on-year) (y-o-y) in Q3. Moreover, as palladium and platinum prices roared higher in 2019, local production in Q3 tanked by 13 percent y-o-y and 17 percent y-o-y, respectively. It is inconceivable that foreign investors would want to enter such an inhospitable business environment.”
Linde said an economic rebound in 2020 is far-fetched.
“The reality is that economic conditions are extraordinarily tough and external factors have flung the economy into disarray. The protracted drought means agriculture will more than likely suffer even more in 2020, making it unlikely that growth will emanate from this sector.
“Electricity and fuel shortages are set to weigh heavily on mining, which means growth must come from somewhere else.
‘The government is broke and will not be able to stimulate the economy through fiscal spending. Moreover, a deepening food shortage suggests that Zimbabwe could be headed for a humanitarian crisis, which will entail devastating consequences. We do not expect to see any meaningful economic growth in 2020, and the situation, both economically and socially, is expected to deteriorate further before improving,” Linde said.
In an upscale Five Avenue shopping centre, bread, the traditional breakfast meal, increased to $18, from $14, and eggs have jumped to $100 for a tray of 36 up from $80 in the past month, according to tracking by Daily News on Sunday reporters. In the same period, a 10 kgs pocket of potatoes jumped a whopping 80 percent. The runaway prices have dampened Valentine celebrations this weekend.
Most Zimbabweans, earning just US$15 a month at the black market rate, are nowhere near being able to save hard currency.
“My salary is in bond notes, where do I get the US dollars? Who don’t they just dollarise, so that we all earn in US dollars, and goods and services are just sold in US dollars officially? Like what happened in 2009. We used to sing dollar-for-two yakauya naTsvangirai. They must return the US dollar. Bond notes have dismally failed,” said Charity Murerwa, a 37-year-old teacher who, like many, was seeking a worker to do vending jobs for her at
Mupedzanhamo flea market, to bring in some hard currency.
Mnangagwa has vowed never to adopt the United States dollar as the major instrument of trade in Zimbabwe despite the bond notes plunging against the greenback since its introduction last year, fuelling inflation and worsening economic turmoil.
“No progressive nation can progress without its own currency. However, we have so many among our people who fight this decision. We will not revert back to a basket of currencies, never, never, never,” Mnangagwa told Zanu PF members at an annual party conference outside the capital.