Currency curse!!!

Way before 1965, as  UDI was declared in Rhodesia- now correctly called Zimbabwe, the country had foreign currency shortages. In another attempt to overcome the currency hoodoo, Zimbabwe adopted the US Dollar as its official monetary base in 2009.
However all that glitters is not the greenback. The US Dollar has rapidly lost its ability to to buy since 1971. From 1971, up to today, the US Dollar has fallen in value by over 80% in real buying power terms. For Zimbabweans who hold the US Dollar long term, the implication is they will buy less and less, in years to come.
This inflation will be less than hyperinflations prevalent when The Reserve Bank of Zimbabwe printed Zim Dollars. Given the US dollar is still global reserve currency, and US industry is financialized, the US escapes hyperinflation by exporting its inflation across the globe in US Dollar denominated financial assets.
Zimbabwe has structural economic weaknesses which mean the Greenback should not be the long run solution to financial problems. In fact, after sanctions were imposed after UDI , by import substitution the country managed to effectively deal with its currency problems. Zimbabwe needs to build its industrial and infrastructural capacity, as opposed to financializing its economy.
Zimbabwe is rich in precious metals and minerals which can be used to back a Zimbabwe dollar. Even a  50% partially backed Zimbabwe dollar, in a tightly regulated currency market , can out perform the US dollar long term.
To achieve long term currency and economic sovereignty the country needs technological capital, a good tax revenue collection mechanism, tax paying industry and sophisticated financial control plus governance mechanisms.
Indigenisation will worsen technological capital inflows, increase corporate tax evasion, reduce revenues overall and worsen governance in the long term. Adopting the dollar is a short term cure to a long term problem. Indigenisation is another short sighted means to dealing with long term currency issues.
Tightening currency flows is just the beginning-the journey to economic strength will be harder as more needs to be done.

Currency Curse

Way before 1965, as  UDI was declared in Rhodesia- now correctly called Zimbabwe, the country had foreign currency shortages. In another attempt to overcome the currency hoodoo, Zimbabwe adopted the US Dollar as its official monetary base in 2009.
However all that glitters is not the greenback. The US Dollar has rapidly lost its ability to to buy since 1971. From 1971, up to today, the US Dollar has fallen in value by over 80% in real buying power terms. For Zimbabweans who hold the US Dollar long term, the implication is they will buy less and less, in years to come.
This inflation will be less than hyperinflations prevalent when The Reserve Bank of Zimbabwe printed Zim Dollars. Given the US dollar is still global reserve currency, and US industry is financialized, the US escapes hyperinflation by exporting its inflation across the globe in US Dollar denominated financial assets.
Zimbabwe has structural economic weaknesses which mean the Greenback should not be the long run solution to financial problems. In fact, after sanctions were imposed after UDI , by import substitution the country managed to effectively deal with its currency problems. Zimbabwe needs to build its industrial and infrastructural capacity, as opposed to financializing its economy.
Zimbabwe is rich in precious metals and minerals which can be used to back a Zimbabwe dollar. Even a  50% partially backed Zimbabwe dollar, in a tightly regulated currency market , can out perform the US dollar long term.
To achieve long term currency and economic sovereignty the country needs technological capital, a good tax revenue collection mechanism, tax paying industry and sophisticated financial control plus governance mechanisms.
Indigenization will worsen technological capital inflows, increase corporate tax evasion, reduce revenues overall and worsen governance in the long term. Adopting the dollar is a short term cure to a long term problem. Indigenization is another short sighted means to dealing with long term currency issues.

Lords of Wars

Since the 1970’s, at least 10 different African countries were engaged in some sort of war or internal conflict at any one time. The causes of war in Africa are complex: the consequences can span generations.

International influences, and the exchange of lucrative minerals for small arms, have worsened African wars. Every war in Africa is driven by the need to either gain access to resources or protect a foreign power’s   ‘special interests’. 

In Zimbabwe’s case, wars as early as the late 1800’s were fought over land.  The denial of access to arable land by a minority group led to further wars starting in the 1970’s. Ceremonial Independence was granted to Zimbabwe in 1980. Unfortunately due to foreign interference, land could not be fairly shared between inhabitants.  Disagreements in the newly Independent Zimbabwe led to ‘civil war’ between 1982 and 1987. All around Zimbabwe; both Mozambique and Angola had their own internal wars. Zimbabwe provided military support to both.  

By 1988, Angola had managed to regain its sovereignty, however, trouble was brewing in Rwanda and the Congo. The Democratic Republic of Congo (DRC), formerly called Zaire, played host to Africa’s First World War. Different ethnic groups had engaged in battle from 1963-1966. Between 1993 and 1996 further ethnic troubles and massacres in Rwanda led to full scale war. Rwanda, Uganda, Angola and DRC were the main participants. By 1988, Zimbabwe was involved- so were Namibia and Burundi. Zambia, Eritrea, Ethiopia, Chad, Sudan and Libya played minor roles. Major countries like the USA, Britain and France, provided financial and other support.

Over 5 million died as the result of direct conflict in Africa’s First Total War. Millions of refugees were displaced. Economies ground to a standstill, in the Great Lakes Region. Up to today conflicts have become endemic in Central Africa. Small weapons are rife and infrastructure is inexistent.

Zimbabwe expended millions of dollars, it did not have, and soldiers lost their lives. Given the government was unable to explain its war funding; it ultimately lost financial support from the IMF. This precipitated the collapse of the Zimbabwe Dollar.

After Zimbabwe’s struggle for liberation, liberation fighters were not compensated for their efforts. In 1997, with Zimbabwean troops fighting in the DRC, war veterans waged demonstrations demanding compensation. The Government printed billions of dollars in paper money further weakening the declining Zimbabwe Dollar. Land which had not been distributed after the war also became a sore point. Its partial redistribution destroyed productive capacity.

Wars cost money. At one point someone has to pay the bills. For African countries, wars have meant the destruction of human and financial resources. Furthermore attrition between nations and tribal groups fosters poor trade relations. In the long term the settling of old scores implies they will be no future peace or profit. For The African they is no war with profit. Even the elites end up exporting their children to escape the general poverty and resultant instability. This is on top of millions of other refugees in Africa. Does war benefit the Lords of War? This question will be answered in my next article The War & Debt Procession.

Zimbabwe Indigenisation the Plot Thickens

The Zimbabwe Government wants to push through its Indigenisation & Economic Empowerment Act. The latter would force companies to sell 51% of their equity to local indigenous businessmen.So far, targeted mines are refusing to comply with indigenisation legislation. Surprisngly, The Reserve Bank Governor has brought forward interesting arguments against the current indigenisation strategy. The Governor identifies that equity ownership will not benefit the majority of Zimbabweans. Zimbabwe has high levels of poverty and the majority cannot buy shares in large mining concerns. Also, the Governor indentifies, The Land Reform process benefited connected cliques who are underutilizing farms.
The desire by Zim's rich ruling elites to get their hands on equity shows how disconnected they are from the needs of the masses. As these well connected elites have amassed wealth, they have egotistically reached levels of self actualization, in Maslow's Hierachy of Needs(MHoN). Dr Gono, the Central Bank Governor, advises; indigenisation should be carried out on a Supply and Distribution methodology. Such a method will require the poor and disadvantaged to be involved in the  mining and industry sectors as direct contributors to the production process. This would allow the socially excluded to cater for their basic needs(food & shelter) in MHoN, as they also take part in production. How disparate the needs of the majority have become from those of their rulers. The people need food, and the rulers promise them shares. Dr Gono even states shares will only fall into the hands of the already rich and powerful. As we all live in a world of creative accounting, share ownership does not gaurantee dividend payment.These pieces of paper are grand delusions of desire- in all cases not connected to true productivity and value.
Dr Gono has spoken like a humane economist-his analysis in this case deserves praise. However, the politically connected oligarchs will beg to differ, as the plot thickens. Soon, we will find out whether Dr Gono does have political ambitions.
For the full report by Dr Gono visit:  http://www.newzimbabwe.com/business-5710-Gono+pushes+indigenisation+re-think/business.aspx

Cultural Robbery

By JENERALI ULIMWENGU (email the author)

If there is something that has done greater damage to the African than even the most brutal forms of physical and material abuse, it is the mental enslavement, the utter psychological annihilation, the cultural strangulation and the spiritual emasculation that foreign invaders visited on us, and which we have apparently agreed to perpetuate.

The foreign marauders, whose intentions toward Africa have always been, and continue to be dishonourable, did everything they could to plunder everything of material value, employing guile and ruse, cajolery and subterfuge, but ever ready to employ massive, disproportionate force at the slightest hint of African resistance. Then they mowed down Africans as if they were flies and moved on their conquering march with clear consciences.

A few of these barbarous acts have been chronicled, and in this way we get to learn of the terrible fates of the Herero of Namibia, the Ndebele of Zimbabwe, the Gikuyu of Kenya, the Makonde of Mozambique and the Bakongo of Angola and Congo. But these were perhaps the most egregious of a generalised criminal enterprise, which spread right across the continent.

The physical brutality was real enough, and its effects in terms of people killed and material wealth destroyed, appropriated and externalised were catastrophic. But these fade in importance when considered against what the African psyche suffered. We were not the first people in history to be taken into slavery: Yarns of Ben Hur, or a gang of escapees willing the Red Sea to part, tell us that slavery was there ever since one group of men found the means of lording it over another.

That’s why the man with the ferrous filings on his head, Don King, could afford to say, “Ain’t nothing ever was wrong with slav’ry; it was a matter of eekaanamiks.” Of course it was, but the fact is we weren’t the first victims, although we seem determined to remain the only ones still around.

It’s our spiritual destruction that hurts to this day. The foreign invader extracted our spirit from our forebears and appropriated it, then made the zombies he had created work for him (which was bad) and worship him (which was calamitous). He gave us his names: Don King should probably be called Mobutu Sese Seko, a kindred spirit, and Jesse Jackson would be, say, Umfundisi Siyabonga, an African in America.

What’s in a name, you will ask, and I will tell you never to put your trust in what the English forked tongues say, for they are the same people who said something about giving a dog a bad name and hanging him. Seriously, of all the races that were kidnapped, lured, deceived, bribed or starved (remember the Irish?) into making the passage to America, only Africans shed their names. How many of them must be envying that Luo boy in 1600 Pennsylvania Avenue: Obama sounds just as good as Negroponte, MacNamara or Schwarzenegger.

The shedding of our names and the adoption of strange names goes with other attitudes, such as the feeling that we cannot do anything to better our lot without foreign assistance; the belief that even our resources can only have value if we hand them to the foreigner, who will then give us whatever he thinks we deserve.

Our self-derision has taken on drastic forms. Of course there are too many negative things that carry the adjective black, so our people want things to be white: Their skins (which they bleach at the risk of depleting the protective dermis; two African presidents in Malabo recently looked bleached); we prefer very white maize flour, which even the rats in our granaries don’t eat because it has no nutrients; we say our heart is “white” to mean we are happy or sincere.

Then in Johannesburg, a South African woman (formerly black) will swear to you she has never been to Africa. That’s what the white masters told her: Africa is north of the Limpopo, and you are lucky you don’t belong there.

Inflation A Present Danger!!

Milton Friedman famously said, “Inflation is always and everywhere a monetary phenomenon.” From mid 2005, to early 2009, as Zimbabwe printed more and more dollars; hyperinflation rallied to over 500 billion percent. (Friedman certainly seems to be on point)

However, for Zimbabwe to fully escape the scourge of inflation, one has to read through the whole picture. In 2008, before adopting the US Dollar, Zimbabwe inflation peaked at 500 Billion per cent, according to IMF figures. In 2009, the US Dollar became adopted as the medium of exchange. Hyperinflation was halted, as The Reserve Bank could no longer hyper print money.

Tendai Biti, the Minister of Finance, confirmed inflation figures of 3, 3% (year on year) in January 2011. By May 2011, the figure had risen to 2,5%.June 2011 had an inflation figure of 2,9%. Though not in the billions, inflation still persists even after dollarization. Year ending 2011, Biti estimates inflation will be higher between 4- 4, 5%.

High foreign debts plus excessive international liabilities, coupled with excessive government expenditure and a contracting productive base, forced the government to spend over a decade printing Zimbabwe dollars, before Feb 2009. The resulting hyperinflation which broke world records could not be sustained to perpetuity. In March 2009, the Zimbabwe dollar was withdrawn as acceptable currency. For Zimbabweans, dollarization to contain hyper inflation has meant they is little money on the streets. This worsens the impact of even single figure inflationary pressures-given only a limited amount of US dollars is in Zimbabwe, small rates of inflation have a heavy weighted impact on purchasing power, as poverty is rife.

To regain public confidence new monetary strategies will need to be considered for the long term.

Unfortunately even today old problems still persist. International debt stands at over $7 Billion. Zimbabwe cannot service its monthly foreign liabilities.

Tendai Biti says, “We are supposed to be collecting $230 million every month, but at the moment we are only managing to get $150 million.” In a word: government expenditure is too high. The government however cannot print money to service its expenditure as in the ‘bad’ old days. Furthermore, as foreign investors and donors worry about indigenisation, productive capacity remains small.

Given the challenges of debt, stability, growth and day to day survival, Zimbabwe still has the dreaded inflation, on top, to contend with. The IMF agrees.

Zim Green-Currency Shortages

 “Give me just a dollar? Only a dollar,” laments Dumisani as I step out of the shop.  If I had a dollar to spare, one US Dollar to be precise, I would oblige him. Unfortunately, even I need someone to hand me a couple of greenbacks, so I can service the rising cost of living. This is Zimbabwe, after dollarization and the elimination of hyperinflation, dollars are very hard to find.

Three years ago, Dumisani and myself were billionaires; no trillionaires, if I remember correctly. Times have changed. We would have both had trillions that could not purchase anything. Today we are using greenbacks and no longer ‘paper barons’.

Foreign currency shortages have been endemic since 1965. In fact Zimbabwe, which was then called Rhodesia, was the first country to be sanctioned by the United Nations. Even today after independence, which was over 31 years ago, Zimbabwe is under sanctions. The most sanctioned nation on earth I hazard to guess.

Being sanctioned by the world’s economic giants brings with it a shortage of foreign currency. Dollarization (the use of US Dollars instead of your own domestic currency) does not automatically get rid of perennial currency shortages.

During the first phase of sanctions, from 1965 to 1980, the government of that time had unilaterally declared independence from Britain. To punish the ruling regime, Western powers stopped investing directly in the country.  The government responded by investing heavily in import substitution. This worked as the economy only served to produce for the minority Rhodesian elite. The majority of inhabitants, around 96%, had to survive as subsistence farmers.

When new government came into power after Independence, an attempt to improve the standard of living for the national majority met fierce multinational resistance. Deindustrialisation, fuelled by capital flight- worsened the already prevalent currency shortages. With no discernible economic growth, and poor exports, the currency was devalued repeatedly by a struggling Central Bank. Imported inflation and money printing, to service historical debt obligations, culminated in hyperinflation; which at one point made Dumisani a billionaire.

Dumisani’s grandparents struggled to get foreign currency. Dumisani sees things priced in scarce foreign currency. The question remains:  where shall Zimbabwe, once called Rhodesia, finally get its hands on that essentially needed foreign currency?

The Zimbabwe Swiss Banking Connection

Bankers rule the financial roost. Dr Gideon Gono, the Central Bank Governor, is considering options for Zimbabwe’s currency.  Dr Gono is considering a gold backed Zim dollar. This will move the country away from its current US Dollar monetization.

3 years ago, the Zimbabwe dollar experienced hyperinflations. The Central bank of Zimbabwe or The Reserve Bank of Zimbabwe, aka Rezas, said, at the time, ‘it was copying US and UK style quantitative easing’. They were however, major structural differences between Zimbabwe style money printing and UK plus US quantitative easing.

Zimbabwe, if it were to adopt a Gold backed Zim dollar, will put a new spin on Gold Standard. The central problem for Rezas, is its guiding legislation and codes of governance. It cannot extricate itself from government and make autonomous decisions. Legally, politically and historically, the bank has been in the pocket of the ruling party.

The Swiss Franc is 40% gold backed. Switzerland has a well-run central bank. They are clear separations of authority between Swiss Central Bank and the ruling party. Switzerland is also politically stable, and the country has strong economic fundamentals. Switzerland has well-defined property rights, the rule of law and very good infrastructure. Switzerland is also uniquely financially transparent, has low levels of corruption and no Central Bank-State duopoly. Swiss bankers are highly financially literate and competent. Swiss banking is ‘gold standard’, even in the midst of current European financial crisis.

Adopting gold backed Zim dollar will be disastrous given the current state of affairs. Resaz has structural issues which need to be rectified, before complicating things further with the technicalities of gold backed Zimbabwe dollar. Furthermore, as Resaz is bankrupt, where will it get the resources to put in place gold backed currency? Swiss Central bank, The Fed and The Bank of England are all well-resourced institutions. The Fed is funded by global money into its T-bills. The Bank of England is well supported by capital flows into The Square Mile. The latter remains the currency trading capital of all nations.  Resaz has persistent solvency challenges. Zimbabwe needs to change its Central Banking legislation, supported by a more effective rule of law. That is where the problem is. Resaz then needs to build its pedigree to Swiss standards, before going gold.