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A game of Hide and Seek: Review of the 2020 Zimbabwe monetary policy.

Do you remember playing hide and seek when you were young? If you were hiding, the joy was in being able to last long enough in the hidden corners. If you were chasing, the necessity was to find your playmate as soon as possible. You would think those games stopped when we were young, but not really. Dr. Mangudya has taken it to the next stage with his monetary policies. It’s a game of hide and seek with the Zimbabwean community, he hides the facts, you have to hunt for them and read in between the lines. How does he do this? I break it down below.

Inflation headaches.

Without a shadow of a doubt, the biggest concern in Zimbabwe is the high inflation conditions that we are experiencing. Currently hovering around 500%, the Governor hopes that they can bring the yearly inflation down to about 50% by end of the year and 5% for the month on month. This basically means they still expect prices to rise but at a slowing rate. There is evidence to show that in the last 3 months, inflation has slowed down compared to the crazy periods of early last year. The Governor argues that they can keep inflation low as long as there a no “speculative attacks” on the currency. Regarding these speculative attacks, the Governor conveniently neglects to mention that the so-called attacks are based on a lack of trust in the government based on their previous monetary actions. So any whisper of unclear government action will lead to the currency dropping. It happened in June 2019, September 2019 (Queen Bee fiasco) and has happened over the last two weeks again.

Inflation's best friend is government expenditure

The main key ingredient for inflation in Zimbabwe is government expenditure, officially titled the Treasury. This brings Prof. Ncube into focus. So far, Ncube has managed to keep government expenditure artificially low. They have done this by brutally paying civil servants poverty wages. This keeps the books looking balanced but for how long can they hold out? Teachers, doctors are going to need some form of reprieve sooner or later. In addition, the lack of rain and electricity demands need to be fixed. When will this happen? Your guess is as good as mine. On the other hand, a good thing that the Governor alongside his team (the Monetary Policy Committee) has done is increase the amount of physical cash in the system directly replacing RTGS (bank) amounts. 3% of the money in Zimbabwe is cash, and this will need to increase to about 10%. This might aid in limiting the three-tier pricing currently happening between foreign currency, cash, and RTGS.

Productivity headaches

Another way we can stay away from increased hyperinflation is by producing and exporting more. Although the rains have improved this season as noted by the Governor, the reality is that there is a 15% drop in hectares under cultivation for Tobacco and 25 000 fewer farmers. This is a direct result of the government changing tune last year regarding the payment of farmers. In addition, the sporadic rains will mean low electricity generation for another year which adversely affected our other key production area, mining. Only $USD54 million of Foreign Direct Investment (FDI) came in last year. No FDI means no joy. The clearest example of our productivity headaches is that we had an export surplus (our exports were more than imports). Considering that we only export about USD 6.8 billion, the best we can hope for in the case of production is more of the same in 2020 as we had in 2019.

Financial Elitism and exclusion

A shocking and saddening aspect of the monetary policy is the financial elitism and exclusion that is dominant in our financial sector. Around 50% of the money in the system (ZW$34.5 billion) is concentrated on only 200 entities. 200 companies, 200 CEOs have more direct control of the financial system collectively. Most Zimbabwean weddings have more guests at their wedding! Why is this a worry? Speculation becomes rife when few people have a large control over the financial system. It means five men can have drinks in a shadowy hotel and move the money supply enough to create huge movements in the value of the currency. This is not theoretical. Just think Queen Bee.

And I say five men because the policy revealed that women received $492 million. That sounds like a lot but it is only 6% of loans. SMEs which dominate our economy only received 2.9% of total loans, the youth only 5.5% of total loans. In other words, if you are male, over thirty-five and run a big company, 93% of the banking loans are at your disposal! It is telling that Governor did not mention the Zambezi Gas vs Barber case which effectively reduced the value of loans of any companies that had debt. You can imagine that the 200 bank accounts had substantial loans as firms and in their own personal capacity. These issues diminish the success of other inclusion issues like most adults having a bank account in Zimbabwe (which is great) and the collateral registry which will lead to SMEs having their assets registered allowing them to access more credit.

We see you

What does this all mean in the long term? The Governor is adamant that the Zimbabwe dollar for the next five years will be the main currency. They aim to ‘de-dollarize’ means that over the next five years, the RBZ aims to strangle to death the USD out of existence in Zimbabwe. The gaping hole about monetary policies is that they rarely, if ever, mention the huge role the informal financial system (black market) plays in the general economy. Governor Mangudya is playing hide and seek with thousands of money changers who roam the streets. Their influence cannot be underestimated. To win this game, he has to show that he is ready to be trustworthy, consistent and honest as Governor. Whether he is willing to do that is yet to be seen. So the game carries on. So dear reader, close your eyes and count to ten; one, two, three…

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