Zimbabwe: On the soaring inflation

Zimbabwe, that was once one of the richest countries in Africa, at present finds itself falling into economic chaos with inflation reaching record levels, and with zeroes being regularly added to the currency.

Ghanaian economist George Ayittey wrote the following about the economic situation:

Nothing coming out of Zimbabwe makes sense. The country is now a certified “coconut republic,” where common sense has been butchered and arrogant insanity rampages with impunity. A loaf of bread costs 6 billion Zimbabwean dollars and one U.S. dollar exchanges for one trillion Zim dollars. […]
The rate of inflation is over 3 million percent – whatever that means.

Photo of a Fifty billion note by ZeroOne, used under a Creative Commons License.

Codrin Arsene of the African Politics blog offered a list of causes of the political failure in the country, which are the root reasons why “Zimbabwe is in such a terrible economic situation”. Here are a couple of them as an example:

5. The international sanctions imposed on Zimbabwe were not carefully planned; some of them affected regular Zimbabweans more than it affected Zanu-PM politicians and members of the government.
7. None of the alternative sources of financing in Zimbabwe (China, India or the Arab League) put any pressure on Mugabe’s regime to redress economic problems or assure free and democratic elections.

Eddie Cross wrote about the consequences of the rampant inflation:

The inflation spiral we are in is being fed by a massive budget deficit – funded by printing money mainly, and by the abuse of the foreign exchange system.
One immediate consequence of this situation is a critical shortage of all basic foods. What little is available is now priced at levels significantly above those prevailing in South Africa – a reversal of the historical relationship. This situation is so serious that it is likely to result in mass starvation if it is not attended to soon. Political controls over the supply and sales of food are now universal and seriously affecting the welfare of those in the cities and in the rural areas who supported the MDC.
One of the new consequences of this state of affairs is the inability of staff in all State controlled institutions to cope with the situation. Poorly paid at best and with salaries that simply cannot keep up with the inflation, they are unable to maintain their standard of living. Many State departments and services are collapsing. How the PTC and ZESA are maintaining their activities is anyone’s guess.

With the introduction of the 100 billion Zimbabwean dollar note just a few days ago, the nightmare of counting the zeros has increased for bankers and shoppers -who are having to get used to talking about their daily expenses in trillions (one trillion has 12 zeros). Chipo of the blog This is Zimbabwe, illustrated these difficulties with the following story:

Earlier this week I instructed my bank to transfer funds to the value of $45 trillion into my current account. They made an error and transferred $45 billion. Ooops! They left off three zeros.
Interest on an overdraft is in the region of 6000% and now my account is overdrawn. It took me hours yesterday morning to get this sorted out. I am angry, but I also understand how easily an error like this can occur; nobody can keep up with the zeros and for anyone working with figures or cash, its just one big headache!

Robb WJ Ellis of the blog The bearded man commented on what can be bought with the new 10 billion bill. Either three eggs, according to Reuters, or a carton of ten boxes of matches according to an email from a friend. He went on to calculate the price of each match:

The cost of a carton (10 boxes) of matches was ZW$ 210 billion.
Therefore each box was ZW$ 21 billion.
Each box, on the label, states that one can get, on average, 45 matchsticks per box.
Therefore each match costs 466.66 dollars.
Normally about 5 don’t work, so each successful light probably costs in excess of half a billion dollars.

Zimbabwe Metro has now reported that the Reserve Bank of Zimbabwe (RBZ) “will early next week slash at least six zeros from the local currency as it grapples to fight hyperinflation”. The blog quotes the Bank Governor Gideon Gono as saying:

Accordingly, the next few days will see the Reserve Bank unveiling measures that would address concerns on the current minimum cash withdrawal limits, as well as with the IT systems digit handling constraints.

Yesterday, Sokwanele's This is Zimbabwe, published a letter sent by the Zimbabwe Congress of Trade Unions to Gono asking to remove that cash withdrawal limit currently in place, so that ordinary people in Zimbabwe can be given increased access to their own money. The letter highlighted the fact that:

… the military get preferential treatment when it comes to withdrawing cash: soldiers are allowed to withdraw Z$1.5 trillion and above per day, while ordinary civilians were only allowed to withdraw Z$100 billion.

Sokwanele's This is Zimbabwe have also just started a campaign to pressure the Austrio-Hungarian company Jura JSP who has been supplying the licences and software used to design and print the Zimbabwe dollar, as all banking software applications in Zimbabwe cannot support a $100 000 000 000 (12 digits) figure and fail at $1 trillion (15 digits):

We are calling on all our supporters and subscribers today to phone, email and write to Jura JSP and ask them to withdraw the software licence from the Zimbabwean government on the grounds that the cash they print has been used to primarily support a campaign of terror, and on the grounds that preferential treatment is given to the armed forces when it comes to accessing cash. Both these facts show that the Zanu PF regime is using money to buy the loyality and support of the armed forces. It clearly shows that this is a government that prioritises power and control over the people, more than it is concerned with the fact that ordinary people are struggling to survive.

This campaign follows another one they did last month calling the German company Giesecke & Devrient to stop supplying the Zanu PF regime with banknotes. A few days later the company decided to stop printing bank notes for the Zimbabwe regime.

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