Politics
The Return of the Zimbabwean Dollar
The benchmark consumer price index declined by 0.91 per cent year-on-year during March from February’s dip of 0.48 per cent year-on-year. The Zimbabwean economy started the year off with an acute shortage of paper money after urbanites during 2010 to 2013 became accustomed to the reasonable availability of cash. The country experienced a shortage of money at bank branches and automatic teller machines, resulting in violence linked to consumer frustration.
The February edition of the Treasury’s ‘State of the Economy Report’ stated that sales of consumer goods were reported to have fallen by up to 30 per cent month-on-month during February, “reflecting intensification of the liquidity crisis in the economy.” This is a massive drop in household expenditure and can partly be explained by 1) a disappointing start to the tobacco auction season; 2) some banks not having enough hard cash to service customers wanting to withdraw salaries; 3) some seasonal factors after holidays ended and schools started during January; and 4) February having three days less than January.
From a financial markets perspective, Zimbabwe does not have government debt instruments, credit default swaps, or a sovereign currency to measure financial markets’ changing opinion of the country, leaving the local stock market as the best alternative for gauging investor views on the outlook for local businesses. The Zimbabwe Stock Exchange’s Industrial Index declined to a 15-month low during mid-April and has closed higher in only one out of three trading sessions in 2014 so far, as investors lost faith in the local economy. Shares in OK Zimbabwe (the largest consumer goods stock listed on the bourse) are down 25 per cent since late-November.
Minister of Finance and Economic Development Patrick Chinamasa said on April 16 that the country was ready for a major shift in policy to arrest an economic decline that appeared terminal. However, the fundamental problem in rebuilding Zimbabwe’s economy is overtly political and resides almost exclusively in ZANU-PF and President Mugabe. What the ruling party will attempt to do is tinker with the system (e.g. reintroduce the Zimbabwean dollar) and hope it produces results. Unfortunately, it will not and the real issue is how far ZANU-PF and President Mugabe are prepared to go to rescue the economy. I fear the signs are that they will not go far enough.
Source: CNBC Africa
