It's Happening Again

It's Happening Again

"Zimbabwe’s US dollar bond notes have lost value and encouraged value arbitrage,” reads the headlines.

We’ve been through this before. And businesses everywhere are bracing for 2008 again. It’s been slow like the water boiling with the frogs inside. But ever so slowly, it’s creeping up. 2.1% inflation is the official number that seems to get some discussion. But the informal market always tells the truth (read more about that hereWhen the Illegitimate Becomes the Legitimate). End of last week, we received reports that the value of a Zimbabwean bond note was 50% of a US Dollar. Today it’s 2 to 1. Double inflation in less than a week.

The feelings are surfacing again. Anxious discussions and questions are all around. But the intriguing thing is because the entire system was moved to e-currency last year, we’re not feeling it like we did then. We can’t get access to cash anyway, most of the banks we work with are offering $20 cash per week on a corporate account. Per week!

Everything is transferred cash. E-currency. It props up balances of banks accounts that the owners know are all a facade. The money isn’t really there. It’s like a game of Monopoly where the players leverage hotels and houses on their properties, but don’t have enough cash to pay rent on their own homes.

Arbitrage creates mis-pricing and mis-pricing allows some people to make a lot of money while the greater majority generally get poorer.

We’ve spoken to a number of foreign investors who are watching Zim carefully. Their money is on the sidelines for the time being because they can see the results of poor fiscal management. There’s much opportunity, great investments to be made, but in a climate where the value is warped and manipulated out of every dollar, it’s hard to make profit guarantees.

It’s not all bleak. There are some brilliant teams continuing to keep their ships afloat. But they have immense courage and great faith. It’s not for the weak minded nor the faint of heart. And we’re proud of these teams. The amazing thing they’re doing is that they are operating in reality. They tell the truth on their financials because they have nothing to hide.

If you’re a business owner who continues to roll your assets forward and make it look like you’re having your best year yet (especially banks with their profits from their ridiculous fees), you have a hard reality awaiting you soon. Those that have been transparent and honest from the get go can show that if they survive and thrive in this harsh environment, they can do so anywhere.

And what good does profit do you if you can’t get it out of the banks nor out of the country?

This is why it’s so important to know the goal of your organization/team/project in this climate. Know it, agree up on it, state it clearly, and go for it. If you don’t have a clear vision now, you won’t last (more about that here).

(photo via rod waddington)