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How the Zimbabwe dollar was destroyed

By Francis Harawa

Money has no problem with people. It is people who have problems with money. Money does not spend itself. It is people who spend it, wisely or foolishly — the proper word is squander.

Zimbabweans protesting the hyper-inflation that turned them into "starving billionaires"
Zimbabweans protesting the hyper-inflation that turned them into “starving billionaires”

So, if the country is broke today, it is because the ruling elite has squandered the money, or has not had the discipline to adhere to one of the fundamental rules pertaining to borrowed money ­— pay back, with interest.

There was nothing wrong with the “late” Zimbabwe dollar, which ZANU-PF politicians seek to resurrect. It did not commit suicide. They killed it. How?

When Zimbabwe became independent in 1980, it inherited a strong currency from the colonial regime, despite the Smith regime having been under United Nations sanctions.

Politicians did not complain about the strength of the Zimbabwe dollar then.

The country inherited Smith’s import substitution industries, which worked well that time, but needed revamping by the newly independent nation.

Nothing much was done to modernise the machinery until the country woke up to the fact that it was running a multi-billion dollar trade deficits.

Locally manufactured goods could no longer compete with cheap Chinese goods, Japanese grey imports and goods from the country’s biggest trading partner, South Africa.

But it became too late; vast sums of money were now needed to modernise industrial machinery and cash was not available because of a crippling liquidity crunch triggered by ill-advised policies such as the Indigenisation and Economic Empowerment Act, which caused capital fright and flight, severely curtailing foreign direct investment.

Industries were closing left, right and centre, throwing thousands of workers into the streets.
They turned up on the pavements as vendors, and elites do not want them there. The friends we chose, the Chinese, have no appetite to open factories here. They have them galore at home.

Instead, they have an appetite for raw materials to feed their huge manufacturing machines and need a market for their cheap goods. A UN Economic Commission for Africa (Uneca) study says the Chinese have strangled the continent’s industrialisation progress. Well, Zimbabwe is no exception.

Spending spree 1982 to 2003

At independence in 1980, after 16 years of a guerrilla war in which the rural population bore the brunt of the fighting, the euphoria was palpable. Peace had come at last but at a heavy cost — 20 000 lives, mostly blacks, had been lost.

With a per capita income of US$500, rich mineral resources and a “good” industrial base, there was a crisis of expectations among the country’s then eight million citizens. Many dreamed of a Zimbabwe with endless opportunities and unimaginable wealth. The possibilities seemed boundless.

But two years after independence, mutual suspicion between the two guerrilla armies broke into a full scale war which lasted five years after an arms cache was said to have been found on a PF-ZAPU farm.
Mugabe went for the jugular, deploying the North Korean-trained Five Brigade to comb the Matabeleland and Midlands countryside for PF-ZAPU rebels.

Another 20 000 Zimbabweans were killed in the five years described by Mugabe as “a moment of madness”. He has steadfastly refused to apologise for the massacres.

While the Fifth Brigade was bearing down on the Matabeleland and Midlands countryside, Mugabe sent the army into Mozambique to fight the Mozambique Resistance (Renamo) rebels who were wreaking havoc in Zimbabwe’s eastern neighbour’s countryside, leaving Samora Machel clinging to urban centres.

The late Machel had decided to go back to the bush to seize back control of Mozambique’s countryside from Renamo when Mugabe lent a helping hand to a colleague who had provided the Zimbabwe African Liberation Army (Zanla) forces sanctuary during the last four years of the independence war.

Mugabe also wanted to secure a corridor to the port of Beira because he felt uncomfortable relying on South Africa, which was still under the apartheid regime and was aggressively destabilising its independent southern African neighbours in order to force them to be economically dependent on the regime.

Renamo had been set up by Smith as a pin prick for Machel for hosting the Zanla guerrillas. At independence in 1980, they were handed over to South Africa.

In 1983, Maputo and Pretoria signed the Mkomati Agreement in which South Africa would stop supporting the Renamo insurgents, while Maputo would stop providing sanctuary to the ANC. The accord did not stop Renamo activities, which seemed to get worse when Mugabe intervened.

Samora Machel later died in a plane crash in South Africa after his plane was lured by a beacon set up by the apartheid regime near the Mozambique border.

IMF, World Bank conditionality

But wars are expensive and economically debilitating affairs. 

After fighting in Mozambique for 12 years, at an estimated cost of $1 million a day, Zimbabwe was forced to borrow money from the Bretton Woods institutions for balance of payment support because it could not continue to live beyond its means.

Borrowing money from the Bretton Woods institutions came with its own conditions: food subsidies had to be dropped, and education and health had to be paid for. The urban population felt the heat and promptly rioted. Government swiftly brought its foot down and subdued the urbanites.

The country’s former freedom fighters were also reeling from the IMF Economic Structural Adjustment Programme (Esap) reforms and demanded financial assistance from the government.
They discovered a $5 billion War Veterans Compensation Fund set up for them had been looted by their “chefs”, some of whom had claimed 90 percent disability. They demanded to be paid too.

Unable to pacify the restive veterans after a four-year campaign, Mugabe decided to print $5 billion to pay 50 000 former freedom fighters $50 000 each, although the number of fighters was disputed, 17 years after the war. This amount was looted, too.

Body blow for Zim dollar

On the day the war veterans were paid, on November 11, 1997, the value of the Zimbabwe dollar fell by 50 percent, the bourse buckled, and the electricity grid collapsed, (although unrelated to the monetary woes) plunging the nation into darkness. The day has come to be known as “Black Friday.”

A year after the war veterans were paid, Zimbabwe went to war again. This time in the Democratic Republic of the Congo, to help Laurent Kabila, who was being invaded by the Banyamulenge after he had reneged on a promise to include them in his government.

For the next five years, Mugabe kept Zimbabwean troops in the DRC after the economy had tanked, at an estimated cost of US$1,4 million a day. The Zimbabwe army was later fingered by the UN in diamond looting in Mbujimayi.

Some say as Zimbabwean troops were fighting in the DRC, they were also dispatched to Angola to help Eduardo Santos’ troops hunt down Jonas Savimbi. He was later killed.

After fighting in all the regional wars, Zimbabwe had nothing to show for the effort. South Africa moved into the countries — Mozambique, the DRC and Angola — as Zimbabwe withdrew, investing and expanding its market. This bolstered its position as the regional industrial giant.

Looking back at 37 years of the country’s independence, Zimbabwe has been fighting wars for 22 years ­— five years of an internal war, which over-lapped with a 12-year war in Mozambique then a five- year war in the DRC. If we take into account the farm invasions, euphemistically christened Hondo yeMinda (the land war), which lasted from 2000 to 2006 and has continued to simmer, the country seems to have been perpetually at war.

In 1997, Mugabe sent then chairman of ZANU-PF John Nkomo and then agriculture minister Kumbirai Kangai to Britain to ask for funds to buy land from white farmers for redistribution to land-starved blacks.

They came back empty handed, infuriating Mugabe who accused the British of going back on a promise made during negotiations for an independence constitution at Lancaster House in the British capital back in 1979. Two years later in 1999, a chaotic land grab, which has lingered on until now, broke the backbone of the economy: Agriculture.

The ZANU-PF government stopped payments to the Bretton Woods institutions the same year the farm invasions started, resulting in debt arrears now estimated at over $5 billion. 

The interest burden on the arrears has been unbearable. International creditors have stopped lending to Zimbabwe until the arrears are paid. With the country barely meeting its budget commitments, it has no capacity to pay back foreign debts, severely curtailing options.

Fatal blow to the Zim dollar

After the initial experience of printing money, government seemed to have found a way out of its lack of cash. When Gideon Gono became the Reserve Bank of Zimbabwe governor in 2003, the printing press never stopped as he implemented his quasi-fiscal policies, driving the inflation rate to a record 500 million percent, a dubious record for a country not at war.

Money printing killed the Zim dollar.

It was certified dead at one US$ to Z$64 trillion, at the tender age of 29, after Zimbabweans rejected the 100 trillion dollar note and resorted to using the rand. There was no post mortem, no death certificate, and no requiem mass, despite the fact the dollar did not die of natural causes.

Diamonds are not forever

After discovering what was said to be the richest diamond find in the region at Chiadzwa in the country’s east, Zimbabweans thought at last they would not need to borrow money from foreign governments and multilateral organisations.

But alas, government mismanaged the mining of the precious stones. 

With the money seemingly disappearing into a bottomless pit, because of smuggling, rampant corruption, and looting by the elites, the ZANU-PF government was warned by the UN against mortgaging the country’s minerals to borrow money.

After the alluvial diamonds “ran out”, Mugabe admitted $15 billion of the proceeds could not be accounted for — the second $15 billion to go up in smoke.

When the country moved from the worthless Zim dollar to the US dollar in 2009, Zimbabweans woke up one day to find what they had worked for — savings, insurance policies, school fees funds and pension funds since independence and beyond had evaporated. Everything came to zero.

They cannot be blamed for being jittery over the introduction of the bond note. The plot looks unmistakably familiar.

In the 37 years that Zimbabwe has been independent, China has risen to be a world economic power.
China has led the world in bringing its people out of poverty, while Zimbabwe has sent millions of its people to grinding poverty, despite its “Look east” policy.

Whatever currency the country decides to use — the greenback, the rand, the Australian dollar, the Chinese Yuan, the British pound, or the Nigerian Naira ­­will sooner or later be abandoned as long there is no financial discipline and the government continues to spend beyond its means printing money without following the basic principles of economics. The Financial Gazette