Zimbabwe’s economy – history rhymes again

HARARE,– In Zimbabwe, history does not necessarily repeat itself, but it often rhymes. The headwinds facing the Zimbabwean economy are not new.

By Perry Munzwembiri

In fact, that they are happening again in almost perfect congruence to the hyperinflation period is a very strong indictment on the political in particular and both the monetary and fiscal actors in general. Cash shortages, a vibrant parallel market for foreign currency, long winding queues for fuel are a feature again. Heck, phrases like “price controls” and “profiteering retailers” are coming back into vogue.

Zimbabwe has been here before, and the current sequence of events reads like a script from the same old playbook.

ZSE rally – what fundamentals?

As a rule of thumb, whenever the Zimbabwe Stock Exchange goes on supernova, as if on steroids, all is not well in the motherland. The local bourse has been rising, as pension funds, insurance companies and retail investors alike, scurry toward equities as a hedge against both inflation and the potential risk of their bank balances, commonly referred to as “RTGS”, becoming worthless.

Forget about fundamentals, as long as the company is listed, then it will preserve value somewhat. Except of course for the black sheep, manifesting themselves in the form of entities like Zeco Holdings and Medtech, which justifiably garner very little interest. This past week saw the stock exchange rose to its highest levels ever, achieving a market capitalization of $23.2 billion last Thursday, about 90 percent of Zimbabwe’s newly calculated GDP of $25,8 billion.

Just as was the case during the pre-dollarisation era when the stock market defied all convention, registering earth-shattering price increases, history does indeed rhyme. In much of 2003-2005, the Zimbabwe Stock Exchange was a speculator’s paradise. In February 2005 in particular, the stock exchange gained by 34% to record a market capitalization of ZW$21 trillion (US$3 billion at the time). In fact, in that very week, at least ZW$1 trillion (circa US$142,8 million) was added on the stock market every day.

These numbers, much like the ones witnessed last week when in a panic gripped buying spree, share prices soared to astronomical levels, leading circuit breaker regulations to be enforced as several stocks breached the 20% single daily gain limit. Again, just like during the Zim dollar stock market mirage, much of this value, not backed by fundamentals will disappear as the market self-corrects at some point.

‘Those saboteurs!’

Officially, there are no price controls in Zimbabwe. Price controls are bad, and in a new administration that is supposedly trying to disentangle itself from yesteryear-economic blunders, talk of any sort of price fixing should be unfathomable. Yet, it appears Zimbabwe is headed back to the heady days of price controls. In the face of what are deemed “economic saboteurs” and “unscrupulous profiteers,” Zanu PF has in the past not hesitated to wield its power on the said “truant” businesses through such measures as threatening to revoke operating licenses and even outright arrests.

Toward the end of 2007, faced with inflation hovering around the 20,000 percent mark, government simply decreed that prices revert to June 18 levels. Such was the unbridled manner the price controls were effected that, a reported 1,768 business people were arrested and arraigned before the courts for non-compliance with the price controls. This exercise will no doubt be most remembered for the arrest of then OK Zimbabwe chief executive, Willard Zireva who faced 41 counts of overcharging, allegedly done by  some of the retailer’s branches. To top it off, shortages of basic commodities witnessed at the time in shops, due to the shortage of foreign currency to restock were blamed at “saboteurs.”

Then minister of Trade, Obert Mpofu, reportedly blamed the food shortages on Non-Governmental Organizations, which he accused of “hoarding food so they can distribute it at election time in an effort to topple the government.” Recently, talk of ‘price monitors’ and ‘revoking of licenses’ has become normal Zimbabwean parlance. Vice President Kembo Mohadi warned that fuel retailers risked having their licenses revoked for selling fuel above the gazetted price recently.

Backed into a corner, government has often favored the stick as opposed to the carrot. Mangaliso Ndlovu the current minister of Industry and Commerce was quoted in the state media as saying, “We will be able to track where the sources of price increases are. We want to urge those who are profiteering that we will take measures against them.” By measures, he means withdrawal of RBZ foreign currency allocations. Nothing new!

Once bitten…

The Zimbabwean experience shows perhaps how our national psyche and response to issues has become secular. After all, the economy faces the same problems repeatedly.  When the market fundamentals start shifting, and prices rise, government’s natural response is to label retailers as “saboteurs” and “profiteers.” Faced with uncertainty, – and cannot blame them – consumers rush to hoard essential supplies in anticipation of empty shelves, only to seek to de-stock days later as other pressing needs demand the cash locked up in hoarded goods.

If anything, the recent spike, plunge and spike again in both the stock market liquidity and  especially the parallel market rates point to the short-termism that has gripped Zimbabwe. It’s almost as if people live with just a 2-week outlook on anything, and no one sees anything beyond that length of time.

Not government, not businesses and most certainly not the individual consumers. This has sadly been the case for the past 2 decades and a half. History certainly rhymes in Zimbabwe!