As policy failure becomes perennial, the nightmare is with future generations.
By and by, Zimbabweans are good natured with an acute sense of right and wrong. Take political affiliations aside, in toto strive generally to become better. It is this strive to be better, that education — western education for that matter, found fertile ground on this land. Unlike any other land in Africa.
This education has made us reach the ends of the world earning a living. I got a job once in a western capital, on part, because of my Zimbabwean heritage and predecessor’s reputation. It is without question our good nature that lands itself in us punching above our weight. Diaspora remittances, is in itself a proof of employment or our suitableness in markets. To this end, remittances is the largest industry in Zimbabwe.
I speak of this good naturedness because it is precisely what has been taken advantage of. Ordinarily our Protestant upbringing and work ethic lends itself in us, as a people to be savers, risk averse and bequeathing an inheritance to our children. It is oft the case with our fathers and mothers even before retirement, hold no debt, funeral policy in toe, invested in property (rural & urban) and keep a princely amount for any emergency.
The savings industry in Zimbabwe was second only to South Africa with deep financial markets at times better than SA. Most of Africa’s financial markets and institutions used Zimbabwe as a case study. A tradition of saving became a culture.
Development of a country only occurs because of a high savings rate. As I have intimated before in these essays, ideas, no matter how brilliant, are useless without capital. Funding is purely a function of savings. The development of Zimbabwe can be traced to this savings culture. Certainly so, when one reads the history of the savings industry in Zimbabwe and South Africa.
However, what has occurred over the last five years is a group of men have without scruple taken advantage of the good naturedness of Zimbabweans.
Zimbabwe woke up this week to the news that RBZ had taken over private debt or obligation from foreign creditors as legacy debt. Nearly $500m has been approved and acquired by the RBZ at a rate of 1:1. In two years, since November 2017 the RBZ accumulated short term debt of $2bn USD, that they have struggled to pay. Added to the farm mechanisation debt of $1.3bn assumed in 2015, in total the RBZ has passed to the tax payer $3.8bn USD.
By the time the legacy/Blocked funds exercise is done, it will be $4.5bnUSD debt from RBZ activities in 5 years.
By end of 2015 the money supply was $5bn. While we can argue about the vulnerability of the system, this was a dollarised system. Again, the savers and depositors of Zimbabwe lost their savings as $5bn USD has been wiped off the Zimbabwean balance sheet and replaced with a vulnerable currency.
No consultation and explanation has been given to Zimbabweans at large, to whom I begun this essay in attesting their good pious nature. Yet here we are in a debt trap with no means of curtailing or stopping the rulers from burdening the citizens and future citizens.
If one is wont to blame the RBZ for all our rot, it is worse within Government.
The Mnangagwa administration has an incredible penchant for raking up debt. What Mugabe borrowed in five years, they equaled in a year. The level of subsidies today is unparalleled. Even against 80’s Zimbabwe. They’ve turned the mixed economy to Soviet style, Stalin command economy. From Command Agriculture to subsidies in fuel, electricity, maize and all else, we find ourselves accumulating debt with no recourse. While money supply is $34bn ZWL, the net domestic assets created by end of 2019 is $74bn ZWL.
The new Amendment to the constitution will make it legal for the government to sign new debt without citizens or constitutional limits.
Furtherance, is the sheer debt accumulation by quasi-government entities to foreign entities. From oil to electricity, transport, airlines. There is no recourse within government and civic society in general. Trafigura and other foreign buccaneers have been given carte blanche debt terms without the public scrutiny.
Zimbabweans need to be reminded, that even great empires fell on the back of profligacy and corrupt ruling class. Rome is a good example.
The first hyperinflation to be recorded was a ploy played by the mischievous Roman Emperors of around 235–270AD. They started minting Gold and Silver coins mixed with bronze — this fooled the people. After getting away with it, they could not help themselves until “gold” and silver coins were more than 90% bronze. The bronze in “gold coins” increased until the gold lustre waded. J. Desjardines a scholar of this period argues, “By 265 AD, when there was only 0.5% silver left in a denarius ( roman money) prices skyrocketed 1,000% across the Roman Empire. Only barbarian mercenaries (soldiers) were to be paid in gold.” The people caught on, and rioted. The empire fell.
From this period of Roman History we can establish three periods. A period of (1) 100% Gold , (2) A period of two currencies in existence — pure Gold and fake Gold ( bronze in Gold) and finally (3) the collapse of fake Gold when coins were 90% bronze.
This happened as well with King Henry VIII who minted silver shilling laced with cheaper base metals. There was a time when the public could not tell the difference, a time when a dual monetary currency existed and it ended with currency collapse.
Carrying on from my last essay, Zimbabwe has entered the period 2 of a dual monetary system of USD and ZWL.
A dual monetary system entails massive arbitrage opportunities for the ruling class. With unlimited borrowing capacity they will rake up more debt and buy currency in the open market. Lets keep in mind, that a rate of 40ZWL to 1USD is cheap. Malawi, Nigeria with much stronger fundamentals have worse exchange rates. Zimbabwe has a worse terms of trade, no reserves and lack international support than these countries. The interest rate regime encourages government to continue on the consumptive borrowing streak.
The burden of the current crisis will be on future generations. I wish, for the public to be aware of certain realities.
The debt trap means no matter what happens politically, even under the best political settlement taxes will be extraordinarily high. The debt must be paid back. With the high interest rates on this debt it may take 100 years to fulfil our obligations. While America and the rest of the world is lowering taxes significantly it will become difficult to attract foreign investment when taxes are high.
Argentina, just before the first world war had an economy as large as America. When America was the largest economy in the world. Today, Argentina with an economy less than 3% of the USA is only famous for its bygone civilisation. This is the consequences of a debt trap and continuously falling into hyper inflationary cycles.
Secondly, while Zimbabwe enjoys the remittance industry purely as a result of stronger family bonds and affinity between those in country and diaspora, at some point this bond will wane. The diaspora will forget Zimbabwe and build their lives in the new societies. This is the evidence of countries that have had a long history of emigration like south America. Eventually the Latino diaspora becomes American and stops sending money back home.
Finally after the devastation of the local savings through hyperinflation it becomes impossible to imagine citizens regaining trust in the system. The false bravado by the authorities whenever they speak, reminds one of the fall of the Roman Empire. Instead of engaging fully with the citizens, the ruinous policies are shoved down our throats as if its medicine. When its cement.
