Will Zimbabwe survive?
For our friends and supporters outside of Zimbabwe, many of you have asked us this question over the past weeks. In an attempt to answer you, we’ll point to a few links and share a little bit of the struggle of what’s happening on the ground in Zimbabwe.
This is a simplified overview for brevity sake. If you want the full story, read about the historical context here.
A decade ago, Zimbabwe experienced extreme inflation of their currency (it reached hyperinflation status). This caused the economy to collapse. It’s said that prices doubled every 25 hours, the largest bill in world monetary economics was printed (100 Trillion Dollar Note) and the country’s economy came to a standstill. There was no food on the shelves and all of the formal business trading took to the informal markets.
Then, Zimbabwe began to accept many legal tenders, the US Dollar being the preferred currency of choice. This stabilized things for a few years, but cash was still tight on a macro level in the country.
Over the past couple of years, this illiquidity in the markets began to be felt increasingly. The cash that was in the country was over circulated. Dirty money had a new meaning. It was filthy, there wasn't enough of it, and business was constricted.
With all of the natural resources in the nation, there should have been the ability to generate more capital influx, however, with the farms suffering, a large drought taking place, and a mysterious $15 billion dollars missing from the economy, you could literally feel the tightness in the system.
Earlier this year, a few international debt payments came due for the nation. So the Reserve Bank took cash from the system to make payments. That caused a run on the banks that took more cash out of the system. So then there was a freeze on banking activity internationally, as well as a limit set at most banks of withdrawing $500 USD per day maximum on the local level. If you have friends in the banks, you might be able to get more.
Two weeks ago, the Reserve Bank declared that they are going to issue $200 million in Zimbabwe Bond Notes. They will convert all currency deposited into Bond Notes at a 1 to 1 value.
They’re manufacturing money out of thin air, assessing a value to it, then expecting their citizens and trade partners to accept it.
It’s a short-sighted and unjust thing to do. The money will be traded and its value will plummet—just like last time. It's a cold and bitter nightmare that the citizens remember all too well.
“They’re saying it is a U.S. dollar, or it is worth a U.S. dollar, but how?” he said. “A U.S. dollar must be printed in America, not in Harare. If it is printed in Harare, it is a piece of paper, ghost money, worthless unless Obama tells me it is a proper dollar.” [source]
So everyone is wondering and waiting while going to the bank every day to try and get what little cash they have left. Our businesses are still trading on paper and doing work, but the question is how long can the system sustain the pythonic strain?
Business owners are de-incentivized to build any sort of long term momentum and wealth. Entrepreneurs are up against policies that are near impossible to survive. And the common citizen is stuck hoping for rain so that the crops will grow again.
It’s a sad and frustrating situation. The phrase that our hope-filled friends and business owners continue to say is that it can’t get much worse than this. In some way, this provides a sliver of hope and opportunity in these eternal optimist’s eyes.
This very well may the bottom of the long decline of Zimbabwe’s economy. There are still great opportunities here, but it will take the ingenuity and creativity of our resilient Zimbabwe entrepreneurs to keep their businesses afloat without true cash and hold down the fort until this storm exhausts.
Zim doesn't get tornadoes, earthquakes, snow storms or hurricanes. But it does get hit with broken systems that deeply wound the morale fabric of its society.
(photo via clint budd)
Posted on May 23, 2016
by Tim & Tommy filed under