Recently stakeholders in Zimbabwe’s health sector shared some concerning but not unexpected tidbits about Zimbabwe’s auction system. They said that it takes up to 10 weeks instead of the promised 24-48 hours for beneficiaries to receive their allocations. This naturally had negatively impacted their operations.
Instead of listening to these and other concerns about the way the auction is operating the government has instead come out guns blazing against the black market which they blame for everything happening in the economy. The government does acknowledge its missteps and pins all the blame on conveniently faceless and invisible saboteurs.
Blame the saboteurs and take no responsibility
I am not going to dwell on whether these said economic saboteurs exist or not. For decades state media has railed against “unscrupulous businesses and individuals” who for some unknown reason are hellbent on destroying the economy. For decades rash measures and threats have been issued in the name of thwarting and defeating these saboteurs.
Each time destabilising measures such as the debilitating price controls of yesteryears or Statutory Instrument 127 of 2021 is introduced State Media crows about how this would be the end of these saboteurs. Yet here we are:
- Inflation while having slowed down actually rose again this month
- People are not banking their money and instead entrusting it to their matresses and pillows. So banks have zero savings. These days savings accounts and current accounts are just one and the same thing
- According to the government’s own statistics, more people are living in poverty now than in 2018 and yet the Minister of Finance immodestly tweets about how great things are going
- Our hospitals lack basic equipment. I couldn’t help notice some of the curtains at Sally Mugabe hospital are tied by a piece of rusty wire
- The bulk of people cannot access foreign currency at the official rate
- Most things are now sold in US dollars
- We have a government engineered transport crisis. The government would rather have ancient trains operating than kombis or allowing people to import ex-Japs
- Our banks are not issuing loans or mortages to most people.
- Have you seen our roads. Despite valient efforts to restore them most streets and roads are in serious need of attention.
I could go on but I think most of us are familiar with the problems the country is facing. Some of those difficulties, I humbly submit, stem from the fact that our government is not being consultative when it crafts legislation. They make threats and lo and behold an SI that is based on those threats is unleashed upon the populace.
The thing is despite all these many laws being passed most of the underlying issues persist. For example take the issue of the black market, for as long as people cannot access enough foreign currency formally there will be someone willing to supply it at black market rates. It doesn’t matter what the law says. As a matter of fact, from what we have seen in the past, introducing laws and threats against the black market often leads to spikes in black market rates because:
- The risk of dealing on the black market goes up as people involved now face lengthy jail terms due to the new laws. They would want to be rewarded handsomely for their troubles and now start charging more. Countries like Indonesia with their harsh laws against drug dealers have shown that even the threat of death will not stop people from supplying a need.
- Black market operators often grease the palms of the police and other people tasked with enforcing the new laws. Those people will start demanding more as they have better leverage
- Such laws often disrupt the supply of foreign currency to the black market as some people take a wait and see approach resulting in demand outstripping supply.
- There is an information gap amidst the chaos as people try to come up with “the real rate”. Amidst this chaos you often see wild variations in rates.
- People end up distrusting the system more. Laws that expropriate people’s funds at “official rates” are hardly confidence inspiring.
All these things have an impact on people’s confidence in the government’s trustworthiness when it comes to looking after their money in banks and trust in the financial system in general. While blaming saboteurs for our woes the government itself must take responsibility in accepting how its rash flip-flopping policies have hurt people’s confidence.
The reason why people cling to the USD in their pillows is that the government’s rhetoric shows that it’s not apologetic and does not even acknowledge all the wrong it has done over the years. Threats show that they will probably pass similar laws without hesitation and so people often take steps to protect themselves including hoarding USD even at the risk of being robbed.
Because if they put money in banks or trust the system the system will find a legal way to rob them. Right now the most probable reason why the auction is failing to settle on time is that there is a supply-side shortage of USD.
That is hardly surprising for despite sharp increases in money supply as acknowledged by the central bank themselves the government’s system shows that the official rate has hardly moved from the mid-eighties in two years. I don’t have a doctorate in economics but my college economics says that doesn’t make sense.
They may claim the official rate is a market rate all they want but shortages clearly show that it isn’t. There wouldn’t be shortages if 86 ZWL was the official rate. The market rate is where supply meets demand. That’s basic economics. Shortages show that people are not willing to part with their USD at a rate of 86 ZWL because they think it’s too low. The sole purpose of the auction has been therefore to find ways to forcefully liberate these foreign currency earners of their foreign currency at this suboptimal rate.
If this continues to happen the formal auction will have more and more trouble paying beneficiaries. This is because those foreign currency earners will probably start to look for ways to make sure they lose (yes it has become a loss) money to the foreign currency auctions. Even government-affiliated entities are no longer using a rate of 86 ZWL and yet we pretend that the official rate is the right rate. The fact of the matter is no one except the foreign currency auction is using that rate.
Next time the government wants to hunt for saboteurs ruining the economy they would do well to look in the mirror.