Addressing members of the Zanu-PF politburo last week on Wednesday, the embattled Mnangagwa lashed out at what he called attempts to frustrate his administration’s efforts to revive the economy.
He did not mention his administration’s failures such as ill-thought-out and ineffective measures, policy inconsistency and a rise in high-level corruption.
“We are witnessing a relentless attack on our currency and the economy in general through exorbitant pricing models by the private sector,” Mnangagwa said.
“We are fully cognisant that this is a battle being fuelled by our political detractors, elite opportunists and malcontents who are bent on pushing a nefarious agenda which they will never win.”
Two days later, while announcing measures to relax the Covid-19 lockdown put in place to contain the pandemic, the President conceded that the economy is in terrible shape. He did not shoulder blame for the accelerated economic decline.
However, policies that the Mnangagwa administration has put in place since coming into power on the back of a coup in 2017 have undoubtedly contributed to the crisis, characterised by a debilitating liquidity crunch, fuel and cash shortages, low capacity utilisation, declining investment inflows and runaway inflation which stood at 765,57% for the month of April.
The government’s decision to ban the use of the multi-currency regime and make the Zimbabwean dollar the sole legal tender through Statutory Instrument 142 of 2019 in June last year is probably the most damaging policy. It has resulted in quickening inflation which has not only decimated incomes and pensions but has also crippled companies which have incurred huge losses as a result.
The Zimdollar was trading at US$1:ZW$83 at the beginning of this week. The local unit’s loss of value unit has resulted in prices of basic commodities skyrocketing at a time the incomes of most workers have been ravaged by inflation. The increase in prices has shredded the moratorium on the cost of basic commodities put in place by the government in March this year with Industry minister Sekai Nzenza admitting failure to contain the prices.
The introduction of higher-denomination ZW$10 and ZW$20 bank notes have only worsened the haemorrhaging of the local unit. To put it into perspective, the country’s two highest-value denominations combined are not enough to buy a loaf of bread which is now retailing above ZW$50.
Companies have also felt the devastating impact of the depreciation of the country’s currency with financial giant Old Mutual and cigarette manufacturer BAT Zimbabwe suffering massive losses as a result of the weakening currency.
The free-fall of the Zimdollar is hardly a surprise. The local unit was introduced without vital benchmarks to sustain a currency being met.
The conditions needed for de-dollarisation and use of a fully-fledged currency include attaining sustainable gross domestic product (GDP) growth rate of at least 7%; low and stable inflation; reducing the high debt ratios to very low and sustainable levels; increasing the level of savings and investments to at least 25% of GDP; reducing the balance of payments and at least six months import cover.
Former Employers’ Confederation of Zimbabwe executive director and labour market analyst John Mufukare said the decision to re-introduce the local currency is among the worst moves the government has ever taken.
“The government has allowed the economy to go belly up; the decision to use the local currency is one of the worst the government has ever made. The country is not yet ready to support a local currency. You cannot legislate a currency. All the laws in the world will not create a feasible currency without market confidence,” Mufukare said.
He said the “malcontents and elite opportunists” which Mnangagwa is bemoaning are the logical result of a government that has created a dysfunctional economy in which rent-seeking activity thrives.
Among the unworkable policies is the fixing of the exchange rate at US$1:ZW$25, a far cry from the rates on the parallel market, creating massive arbitrage opportunities in the market. This is despite government having announced that it would introduce a floated exchange rate, which has not materialised.
Reserve Bank of Zimbabwe governor John Mangudya said the central bank will abandon the fixed exchange rate on Tuesday next week and replace it with a floated forex exchange rate system.
“If the economy was functioning normally, the greedy people would be out of business and the rent-seeking behaviour will stop,” Mufukare said.
Economist and CEO Africa Roundtable chairperson Oswell Binha said the crisis is borne out of a state which has been wrongly founded.
“The Zimbabwe state has been founded on wrong tenets. They have been founded on the concept of the strong man and strong woman, on the concept of power residing in one person, on the concept of primitive accumulation of wealth and concept of impunity,” Binha said.
He said unless the government starts practicing servant leadership, the country’s economic malaise will persist.
In April this year, Finance minister Mthuli Ncube admitted to international financial institutions that the government has made “policy missteps” and promised reforms to secure debt rescheduling or cancellation.
The missteps Ncube mentioned in the letter include unbudgeted spending and failure to adhere to the reform agenda spelt out in the IMF Staff-Monitored Programme (SMP). This has put the SMP in limbo, amid fears the whole programme could be abandoned, leaving the government in the lurch. This clearly shows how Mnangagwa’s administration has contributed to economic collapse.