Economics and Politics in Zimbabwe: Zim government logic--and why it is convoluted.
Michael Wines of the New York Times takes a different but certainly worthwhile view of last weekend's events in Zimbabwe's cities. When I reported on the chaos, my take was that, "The government thinks they can will a cheaper cost of living into being by beating out the black market, but they can't" This from their long running trend of pegging "official" commodity and foreign exchange prices well below real market values.
At such prices, they--the government cannot afford to procure any imports so they "deregulated" key industries. They set up the foreign currency acquisition auction system where companies that import essential commodities were to source forex to pay for such imports as oil, mechanical parts e.t.c The auction rate for the greenback; an undervalued 1:ZW$6,200 when the parallel market rate eclipsed US$1:ZW$20,000.
There's incentive right there for people/businesses to turn the cheap--auction earned forex-- into fortunes on the black market, and they did. And at those rates, there's no one to shore up foreign currency for the auction system not even Mugabe's beloved Chinese. Somehow, it all finds its way onto the lucrative black market. Finding ways to channel foreign currency to this defunct auction system has become the Zimbabwe Reserve Bank govenor's holy grail. See this.
Worse still, this attempted scapegoat use of the market did not address real problem; i.e. the global market does not offer any goods or services for the pittance Mugaber & Co. wanted to sell the products for on the Zim market. If the government could not source fuel and other essentials for sale at the ridiculously low prices they wanted to provide them to their beloved Zimbabwean, how were private companies with little or no global clout meant to do this?
Rather than solve the problem, ZANU-PF is committed to making this sham of a sytem work. So they sent their police dogs on rampage over the weekend. It might slow down the black market, it won't kill the black market though.
Even worse is the fact that most of the so called "companies" the government has granted access to the limited funds on the auction floor are owned by Mugabe's ZANU cronies. Much of the decay has come from within.
Is there a solution this connudrum? The solution is fairly simple as current govenor Gideon Gono, and former finance minister Simba Makoni, have tried to convince Mugabe & Co; allow market forces to set the prices. Mugabe will have none of this. The reason: allowing real prices on the market would invalidate the government's charade that they are the source of cheap bounty which, by the way is the only reason why they remain popular to with non tax paying rural Zimbabweans. So macroeconomic policymakers in Zimbabwe find themselves in limbo.
How all this will culminate is yet to be seen. One things for sure the charade is over. Zimbabwe today looks a lot like Europe in 1847.
Zimbabwe, Zimbabwe Revolution, Zimbabwe Economy, Zimbabwe Government, ZANU-PF,
At such prices, they--the government cannot afford to procure any imports so they "deregulated" key industries. They set up the foreign currency acquisition auction system where companies that import essential commodities were to source forex to pay for such imports as oil, mechanical parts e.t.c The auction rate for the greenback; an undervalued 1:ZW$6,200 when the parallel market rate eclipsed US$1:ZW$20,000.
There's incentive right there for people/businesses to turn the cheap--auction earned forex-- into fortunes on the black market, and they did. And at those rates, there's no one to shore up foreign currency for the auction system not even Mugabe's beloved Chinese. Somehow, it all finds its way onto the lucrative black market. Finding ways to channel foreign currency to this defunct auction system has become the Zimbabwe Reserve Bank govenor's holy grail. See this.
Worse still, this attempted scapegoat use of the market did not address real problem; i.e. the global market does not offer any goods or services for the pittance Mugaber & Co. wanted to sell the products for on the Zim market. If the government could not source fuel and other essentials for sale at the ridiculously low prices they wanted to provide them to their beloved Zimbabwean, how were private companies with little or no global clout meant to do this?
Rather than solve the problem, ZANU-PF is committed to making this sham of a sytem work. So they sent their police dogs on rampage over the weekend. It might slow down the black market, it won't kill the black market though.
Even worse is the fact that most of the so called "companies" the government has granted access to the limited funds on the auction floor are owned by Mugabe's ZANU cronies. Much of the decay has come from within.
Is there a solution this connudrum? The solution is fairly simple as current govenor Gideon Gono, and former finance minister Simba Makoni, have tried to convince Mugabe & Co; allow market forces to set the prices. Mugabe will have none of this. The reason: allowing real prices on the market would invalidate the government's charade that they are the source of cheap bounty which, by the way is the only reason why they remain popular to with non tax paying rural Zimbabweans. So macroeconomic policymakers in Zimbabwe find themselves in limbo.
How all this will culminate is yet to be seen. One things for sure the charade is over. Zimbabwe today looks a lot like Europe in 1847.
Zimbabwe, Zimbabwe Revolution, Zimbabwe Economy, Zimbabwe Government, ZANU-PF,
