Currency shortages: The only thing we learn from Zimbabwe`s history is that Zimbabwe learns nothing from its history.

“The only thing we learn from history is that we learn nothing from history.” Perhaps nowhere else in the world is this statement by Friedrech Hegel more apt today than Zimbabwe, where judging by current events, not only has the proverbial wheel fallen off, but so too has the axle and the suspension. “It`s is 2008 all over again,” is the common catchphrase of late, what with, winding queues for fuel becoming common, a pyrrhic bull-run on the Zimbabwe Stock Exchange fueled by absolutely nothing but fear and uncertainty, and an unhinged parallel market for foreign currency among other things.

Heck, phrases such as “profiteering”; “illegal price-hikes;” and “unscrupulous retailers” are becoming trendy again with the state-owned media. Zimbabwe has been here before, and with the memories of the dark hyper-inflationary period still fresh in the minds of many, it seems Zimbabwe has repeated past mistakes, and is staring down the barrel.

Before the much storied 2008 meltdown however, there was the early 2000s crisis. Below are just three examples showing the likely scenarios to play out in the economy, if what we have seen in the past is anything to go by. And no, I am no prophet!

Exchange Controls

Back in the day, as Zimbabwe`s foreign currency reserves petered away, the Reserve Bank of Zimbabwe (RBZ) issued a directive essentially compelling most exporters to sell 25% of their export proceeds to the central bank, which the RBZ would then channel toward imports of fuel, electricity and various other select priority imports. In fact, by the end of September 2000, external payment arrears had reached about US$500 million, similar to the $600 million current backlog. This 25% “surrender requirement” was subsequently moved upwards to 40%, then 50% as the foreign currency crisis deteriorated.

Exporters could only access the balance under the confines of the priority list and obviously subject to RBZ approval. Of course this only accelerated the rate of the increase in the parallel market premiums charged for the US Dollar, which at the time hovered around 2,900% according to some estimates. Currently, with the mining sector for instance, 50% of all export proceeds are transferred into the RBZ`s Nostro account and the RBZ transfers the equivalent to a banks` RTGS account for the account of the exporter. This has been going in since May 2016, showing that history does indeed repeat itself.

Price Controls

“President to act on illegal price hikes,” screamed the headline in the state-owned, Herald Newspaper, quoting President Mugabe`s speech a day after his return from the United Nations General Assembly in New York. To the discerning observer, this can only mean price controls are well and truly upon us. Forget how time and time again, this strategy has proven to be futile. You can bet your bottom dollar that the suits in government will pursue this course of action. In October 2001, Zimbabwe`s government introduced price controls on basic commodities particularly key staples after unrelenting attacks on retailers and manufacturers, who were accused by government of “profiteering.” 

Effectively, the wholesale and retail prices of basic commodities and foods came under government control, resulting in immediate shortages of these commodities. Controlled prices were often way below the cost of production, something which would only serve to prop up the parallel market where these commodities were available at a price reflecting the actual production cost. This would go on until 2003, when faced with the ineffectiveness of its price control policy, government introduced a Prices and Incomes Stabilisation Protocol where negotiation of prices of crucial commodities and services such as mealie-meal, cooking oil, sugar, bread, rentals and rates, and transport fares would occur under a Tripartite Negotiation Forum. Shortages and further price increases have never been effectively dealt with using price controls, and this was to be the case in this instance.

Inflation

Officially, the latest statistics released by Zimstat say inflation is 0.14%. However, given what is happening on the local stock market, the parallel market premiums and general common sense, this 0.14% assertion is manifestly untrue. To get a more realistic picture of the inflation trends in Zimbabwe presently, one needs to look no further than the parallel exchange rate movements often used as a proxy for inflation. Like what we have become accustomed to, as the inflation rate inevitably gets out of hand in the coming months, the private sector will be chastised for its “profiteering” and “unscrupulous” practices, even in spite of the loose monetary policies we have witnessed from the RBZ.

In the 2000s, as soon as the prices began to rise, virtually no one wanted to retain cash, and everyone tried to get rid of it through investing in real estate or equity or any other physical asset, bricks included. The prices for assets such as these started to inflate, fueled on one hand by relatively low interest rates paid on money market papers in comparison to the increase of price levels, resulting in a de-facto negative interest rate. Manufacturers and producers are principal beneficiaries of the collapse of a currency: wage rates rarely keep up with the rate of inflation, taxes are eroded, the real value of mortgage debts are rapidly reduced.

In the immediate term, we will continue to see the flight from electronic currency into physical assets as people seek to preserve value. Again, history has shown that inflationary conditions such as witnessed during Zimbabwe`s hyperinflation period create opportunities for rent-seeking individuals profiting from such crises to seek to lengthen such crises for their benefit, and this will likely be the case in Zimbabwe too.

Data obtained from the IMF Staff Reports for 2000, 2001 and 2003