Zimbabwe's economic crisis, the looming shadow of 2008

 

By Youngerson Matete 

The historical background of Zimbabwe's economic crisis 

The looming economic crisis has gotten many Zimbabweans extremely worried. This is largely because Zimbabwe has experienced economic and political crisis before.  

The crisis was underpinned by hyperinflation, lack of basic commodities in shops, prolonged water and electricity cuts, hunger, and outbreak of water borne diseases.

Fifteen years ago, during a financial crisis, Zimbabwe recorded the second highest incidence of hyperinflation in history – the country’s inflation rate for November 2008 was a staggering 79,600,000,000% (essentially a daily inflation rate of 98%).

Prices for basic commodities were increasing more than twice every day – goods and services would cost twice as much each following day. With the unemployment rate exceeding 70%, economic activities in Zimbabwe virtually shut down and turned the domestic economy into a barter trade economy.

The cause of Zimbabwe’s hyperinflation was attributed to numerous economic shocks. The national government increased the money supply in response to rising national debt, there were significant declines in economic output and exports, and political crisis as well corruption coupled with a fundamentally weak economy.

Hyperinflation in Zimbabwe spiraled out of control, causing a foreign currency (such as the South African rand, Botswana pula, United States dollar, etc.) to be used as a medium of exchange instead of the Zimbabwean dollar.

The looming shadow of 2008

In the past days, weeks and months, the country has seen an increase in prices of basic commodities and a rapid increase of the exchange rate of the Zimbabwean dollar to the United states dollar. There has also been an increase in water and electricity cuts worsened by the outbreak of cholera. This has sparked new fears of the return if not the arrival of the 2008 era. 

There has been panick across the country, with the government introducing a raft of measures aimed at stabilising the exchange rate and reducing inflation to no avail as the Zimbabwean dollar continues to fall drastically and prices continue rising in supermarkets. Government has since returned to default settings, attributing the economic crisis to sabotage. In typical fashion, the government is blaming everything and everyone except itself for the economic woes facing the country.

Hyperinflation and increase of prices of basic commodities.

According to Professor Steve Hanke, professor of applied economics at Johns Hopkins University. Zimbabwe's inflation has soared to the moon measuring at the rate of 717% per year, an indication of tougher times ahead. The prices of basic commodities have more than doubled in the last days or so with the Trading economics indicating that the cost of basic food items in Zimbabwe increased 101.60 percent in April of 2023 over the same month in the previous year.

 Wages of workers have been eroded and people are now struggling to put food on the table, pay rentals, afford clothes, medical treatment and tuition fees for their children. The government ended up banning the issuance of Inflation numbers in February in preference for blended inflation.

The collapse of the Zimbabwean dollar. 

The government, through the reserve Bank of Zimbabwe has increased money supply by printing more Zimbabwean dollars to pay contractors and to subsidise some economic sectors such as agriculture. In March,2023 the money supply increased by 322% and is now estimated to have increased to between 400% to 600% by the time of writing. This has led to the Zimbabwean dollar losing value drastically at the black market that it is now measuring USD$1=4000RTGS$ in some instances. A tin of backed beans cost USD$1 or ZWL4000 a record high since the reintroduction of the Zimbabwean dollar in 2016. 

The Foreign Exchange Auction Trading System introduced by government in June, 2020 to stabilise the exchange rate and increase the supply of foreign currency at the height of the Covid-19 pandemic is failing to either stabilise the exchange rate or improve the supply of foreign currency in the country. As most goods and services are now pegged in USD value, wages of workers have been rendered valueless as many earn wages in RTGS$ which they will need to go to the black market to buy foreign currency to pay rentals, fees and hospital bills among a host of goods and services which require USD payments now.

20-hour daily loadsheddings.

Zimbabweans are now going for at least 20hours without power a day, because there is insufficient water in the Kariba dam to drive the nation’s main hydropower plant and other power generating plants ceased to work a long time ago due to delabidated infrastructure. 

The worst outages since 2019 are wreaking havoc, causing snarl-ups in Harare, the capital, where most traffic lights are no longer working, and interrupting mobile phone services because batteries used to run base stations don’t have time to recharge. Supermarkets, restaurants and some other businesses rely on generators to keep operating, but they are unable to run them perpetually for an extended period.  

Prolonged daily power cuts are now taking a toll on businesses and consumers. The cost of production for basic commodities has significantly increased as production is now being sustained by generators which consumes expensive fuel in the region. This has resulted in the increase of prices of basic goods imparting on consumer spending for example a crate of eggs went from $USD4 to $USD11.50 in local supermarkets. 

Water cuts and outbreak of cholera.

 Over the last two decades, rainfall variability has intensified in Zimbabwe due to climate change. In rural Zimbabwe, rain-fed agriculture supports four out of every five people, and from increasingly variable rainfall to economic volatility, complex and interconnected shocks and stresses have been devastating for communities, undermining their ability to care for and invest in their families. Zimbabwe’s water woes have affected both urban and rural areas, leaving a vast majority vulnerable to a lack of access to clean water and waterborne diseases.

Urban families now go for days, weeks and even months without tape water. Urbanites now rely on boreholes and unsafe shallow wells to use for day to day upkeep. This has led to an outbreak of cholera which was first recorded on the 12th of February 2023 with cases now reported in eight out of the ten provinces. As at 13 April 2023, 436 suspected cholera cases had been reported, two (2) laboratory confirmed deaths, seven (7) suspected deaths and 88 confirmed cases.

Conclusion 

In conclusion, Since the beginning of this century, Zimbabwe seems to have been immersed in a never-ending crisis. With a brief exception under the Government of National Union (2009-2013), when there were some signs of economic recovery, the past two decades have been marked by inflation and hyperinflation, unemployment, “informalization” of the economy and the exodus of young Zimbabweans. Remittances remain a lifeline for many households and small businesses across the country; they reached $1.4 billion in 2021

Zimbabwe is facing an "economic and humanitarian crisis" amid a lethal cocktail of micro and macroeconomic instability, climate shocks and policy missteps, according to the International Monetary Fund (IMF). 

Whilst the government refuses to take responsibility for its failures prefering instead to heap the blame on businesses on the other side propagating propaganda of economic growth but the truth of the matter is that the economy of Zimbabwe is on a nose dive because of micro and macro economic environment that is not suitable for business and worsened by global challenges. News that Europe's biggest economy (Germany) is now officially in a recession adding to that of USA and Britain is not good news for a country with almost half of its GDP sustained by diaspora remittances.

To those who were young or not yet born in 2008, welcome! The signs and symptoms tell us that we have indeed arrived back. The only thing that is still yet a difference currently is that we still have goods in supermarkets but that can change anytime as the prices continue to rise and the government is tempted to impose price controls which will be a final nail on the coffin.

 

Youngerson Matete is a pro-democracy and Human Rights activist, a student of Political Science. He is the founder of Project Vote 263, a youth-led initiative to foster inclusive participatory democracy in Zimbabwe. He writes in his own capacity. His views doesn't not represents any organisation.

Cell : +263 773 622 044

Email: youngmatete0@gmail.com/ director@projectvote263.org.zw