John Robertson is the founder and managing director of the economic consultancy, Robertson Economic Information Services, which has provided statistical and economic advisory services since 1994, mainly to Zimbabwean companies. Born in Rhodesia (now Zimbabwe), Robertson went into financial journalism with The Rhodesia Herald, soon becoming Financial Editor. In 1978, he joined First Merchant Bank as their chief economist, where he spent the next sixteen years.
Zimbabwe's unprecedented rate of inflation has led to unprecendented currency notes. Photo courtesy of flickr.
An African Story
Zimbabwe’s fall from being Africa’s second-most developed country to one of the world’s most spectacular failures was very much a politically-driven process. The highly visible event that caused the crash was a Land Reform Program, but its underlying objective was redistributing wealth and a strong desire to ensure that this was carried out at the expense of the non-indigenous, or colonial, population.
The government’s belief was that, as so many indigenous Zimbabweans had mastered the financial and technological concepts that formed the foundation of the economy, the transfers of ownership of productive assets to their targeted beneficiaries would in no way slow production. However, when he encountered opposition from people other than “colonials,” President Mugabe expanded his target list. In addition to his plan to replace white farmers with black Zimbabweans, he decided that properties targeted for acquisition should include those owned by black Zimbabweans who had shown any reluctance to accept his policies.
These policy choices had profound effects. Zimbabwe’s economic successes had been made possible by the enormous leverage of property rights, which gave owners access to capital through the collateral value of their land. Government’s demands rendered all agricultural land invalid as security for loans by destroying the validity of title deeds as well as the property market itself. In effect, Mugabe’s policies broke the back of the economic system.
By including unsupportive black Zimbabweans in the target group, Mugabe extended the political net to include the dispossession of all farm employees, most of whom were resident on the farms. The harsh treatment targeted at these employees as well as the farmers reached the international press. This treatment led to accusations of human rights abuses, and when decisions were made to impose sanctions, they were imposed on the individual politicians and security personnel identified as the perpetrators.
Sanctions and Their Consequences
The policy decisions taken to permit the violent evictions of thousands of farmers and hundreds of thousands of farm employees started after the electorate voted down a proposed new constitution in 2000. That document would have legalized the farm acquisition process, but President Mugabe was able to achieve the same end he desired by authorizing war veterans to simply take the land by amending the existing constitution.
The violent evictions that followed led to a great many accusations of human rights abuses. However, the withdrawal of assistance from international development institutions, aid organizations, and donor countries followed upon Zimbabwe’s failure to service its existing debts and from the very obvious inability of the country to pay back new loans.
The government of Zimbabwe has defined the withdrawal of international support as sanctions. However, the aforementioned banks, organizations, and countries claim that Zimbabwe disqualified itself from access to their funding, and therefore these measures do not amount to sanctions.
Nonetheless, actual sanctions have been applied against government-controlled companies and against individuals who can be tied directly to human rights abuses, including direct beneficiaries of the misuse of authority. These individuals cannot obtain travel visas to the countries imposing sanctions and they cannot take advantage of banking or other services, neither for themselves nor their families.
The consequences for these individuals have been serious, but they have had very little impact on Zimbabwe’s economy as a whole. If they have the money or the demanded goods, Zimbabweans can trade openly with any country in the world.
For the country as a whole, the only real consequence has been the political capital, in the form of support from the electorate, that the government has been able to generate by saturating local media with claims that sanctions are entirely responsible for everything that has gone wrong.
The refusals of visas to senior officials wishing to travel abroad for leisure and the denial of study visas to ministers’ children are thus blamed for ten years of crop failures, fuel shortages, and money scarcities. Sanctions are also said to be responsible for the lack of equipment and medicines in the hospitals, the lack of equipment and textbooks in the schools, and the government’s inability to pay the salaries needed to retain doctors, nurses, teachers, and qualified professionals and technicians in the civil service.
However, the government media never points out that nearly half of Zimbabwe’s population is now being fed by international aid organizations, nor does it mention that the regular replacement of luxury vehicles for government officials has made Zimbabwe one of the world’s biggest importers of such motorcars. Also omitted is the thought that the money spent on Hollywood-style mansions built by many of these officials would have easily been enough to equip many schools and hospitals.
Responding to the Hyperinflationary Crisis
In the early stages of Zimbabwe’s decline, some effort was put into managing money supply growth and trying to restrain the growth of the domestic debt. Extremely detailed monetary policy statements were issued nearly every three months, laying down policies on exchange rates and percentages of export revenues that exporters would be allowed to use. Any unused revenue, usually within a month, was taken by the Reserve Bank in exchange for Zimbabwe dollars.
With domestic debt being forced up by falling tax revenues and the government’s subsidies as well as loss-making parastatal bodies, the Reserve Bank cut the rates of return on Treasury Bills to figures well below the rising rate of inflation and moved the Statutory Reserve Ratio upwards. By July 2006, Treasury Bill rates were 510 percent, compared to an annual inflation rate of 1200 percent, and the Statutory Reserve Ratio was 60 percent of demand deposits. By July 2008, the Treasury Bill rate was 66 percent, the inflation rate was 231 million percent, but the Statutory Reserve Ratio had been reduced to 45 percent of demand deposits to help reduce the lengthy queues in the banks.
However, statistics on these measures have become too erratic to permit proper analysis of recent developments. Normal central banking disciplines broke down completely, particularly at the end result of the complete collapse of the Zimbabwe dollar.
Government ministries appear to have participated in the inflation crisis more as spectators than as perpetrators. Much of their demand for funds was not met and most ministries could not carry out their basic functions. Sums allocated to capital expenditures were raided for consumption spending and the delivery of most government services virtually stopped.
