Extreme Deflation :: 2015 in Review (Part 1)

Extreme Deflation :: 2015 in Review (Part 1)

To give you an accurate viewpoint of life and the business environment in the nation, we wanted to give you background. We will do our 2015 Review in two parts. This first part will be background on the economics behind what’s happening in Zimbabwe today. And part 2 will pick up with our list of projects and where we’re heading in 2016.


 

The hyperinflation of 2008 in Zimbabwe brought with it immediate ramifications that have been well documented. A few examples to jog your memory for those of you who didn’t live through it:

  • No goods or inventory in stores.
  • Caravanning to border nations to load up as much food and basic needs.
  • Failure of infrastructure. Power cuts, water shortages, disease outbreaks became commonplace.
  • Mass exodus out of the nation. Millions of Zimbabweans now live all over the world.

The hyperinflation was the 30th instance of hyperinflation in world economics. However, it was the first in the modern 21st century. For more background info on this read this informative study of hyperinflation chocked full of data on Zimbabwe’s economy.

Over the course of the next few years, things were tight. With no national currency or regional standing, things were tough. It was hard to start a business and scale it. We know because we did and we struggled and many of our ventures and investments failed.

Then in 2012, things began to feel lighter and more open. With the wave of stabilization, dollarization, and China’s new trade deals—goods began arriving and things seemed on the up and up. You could buy a cheap basketball—life doesn’t get much better than that.

But not so fast.

With great hyperinflation comes immense deflation. Those trade deals had ramifications unbeknownst to the common man.

Enter a massive wave of Deflation

Why are things so tough in Zimbabwe?

Things are so tough in Zim currently because of the extreme pendulum swing from hyperinflation. It's taken 8 years to get to this point, but now things are so deflated that there's no money in the economy. If you live here, you understand this. If you don’t, I actually mean, there’s no money in the system.

With the bolster of US markets on the 17th of December (the interest rate was raised), the Euro markets were expected to rise, but have remained stagnant. The US congress's vote on exports of oil—there's been a 40 year ban on it in the States. If that opens up, we'll see a bull market flood into the global markets. This will trickle over to China and will affect Africa positively. So far it’s been at a standstill. [For more info on the global economy leading into 2016, read this.]

The key is still to invest locally with people you trust.

But the point drives home: to see longterm and sustainable projects built in this region, you can't play the market and be a "trader"—you have to invest in quality people with solid plans and ideas for longterm success and gains. There's no shortcut to investing in Africa.

We need the regional governments to help maintain steady investment and positively reinforce local development. And as so eloquently stated here, Weak States, Poor Countries by Angus Deaton - Project Syndicate (last 3 paragraphs), we need government.

Here are a few tangible things we’re living through that showcase business decisions made during extreme Deflation:

  • Reduced the retail price of beer by 15% yet sales have continued to decline 11-20% nationally (according to our source at the company).
  • There’s now talk that if you install solar on your home or business to utilize Africa’s best resource, the sun, you are taxed for using the sun. (The logic on this one is mind boggling)
  • The largest company in the nation, Econet, slashed 35% from their employee’s salaries and have been forced to fire thousands in 2015.

When there’s no trust in the policy—you must invest in necessary goods. And beer is not necessary.

Stay tuned for Part 2 later this week...

(photo via joe)