Monday, October 23, 2006


Arnold Kransdorff on hyperinflation in Zimbabwe:
If one disregards the recent removal of three zeroes from the local currency and its 60 per cent devaluation, it takes less than 50p to turn one of Robert Mugabe's "comrades" into a local millionaire on the country's black market.

The latest "official" rate for the pound is Z$470, with the black market figure Z$2,300. This compares with an exchange rate of Z$2 to £1 in 1980, the year Mr Mugabe assumed office. With a current inflation rate of up to almost 4 per cent a day - 1,200 per cent a year - the octogenarian nationalist leader, who has cheated his way into power in at least two elections, has vowed to keep the money presses rolling.

This will not help the inflation rate; only the volume of paper currency that individuals need to carry around. Ahead of his zero-trimming wheeze, money was mostly handled in elastic-banded "bricks" of Z$20,000 and Z$50,000 notes (the Z$11m version was about three-inches thick). On current form, the bricks will be returning soon.

Yet while everyone complains, no one begs, people are generally well dressed and mobile phones deafen the smog-filled streets when petrol is available. It is more than puzzling. How, then, are people surviving? And why is conventional economic theory not working? First, about one-quarter of Zimbabwe's population has fledMr Mugabe's administration's loose grip, with about 3m in South Africa, 1m in the UK and many of the rest in the US. Of the Zimbabweans who stay, the unemployed (80 per cent) and those infected with HIV/Aids (at least 35 per cent) have become almost invisible, most having returned to their tribal homes to live and die inexpensively. For them, inflation is not a problem so long as they can grow their own food.

The relatively small political, professional and entrepreneurial classes subsist well, many of the former on huge government salaries, perks and corruption. Most professionals charge fees at South African rates while the businessmen trade, trade and trade again. So long as they can buy and sell quickly, they can keep ahead of inflation.

For the rest - the employee middle class - life is hard, with inflation constantly eating away at earnings and savings. Into this group fall the military and the police, to whom Mr Mugabe has given regular, inflation-linked increases to buy their loyalty. Meanwhile, a combination of unrelated factors keep the economy afloat.

First and foremost is the support of Zimbabwe's neighbour, South Africa, whose president, Thabo Mbeki, cannot bring himself to disapprove of a fellow nationalist revolutionary, whateverMr Mugabe's despotic behaviour or economic mismanagement.

Second, Mr Mugabe's 5m disaffected citizens working abroad send money back to their unemployed and starving relatives and friends, a sum thought to be worth US$100m a year.

Third, shopkeepers keep going through a system of "runners", who travel with mostly black marketforeign currency to neighbouring Zambia, Botswana, South Africa and Mozambique to buy both necessities and luxuries.

Fourth, Zimbabwe is not finding it too difficult to sell its deposits of chrome, gold, silver, platinum, copper and asbestos.

Finally, while tourism is dead on its feet, game-shooting is thriving. For almost every flight from abroad several 4x4s are waiting, with padlocked lockers containing high-powered guns. In attendance are bronzed, khaki-shorted former farmers holding up name cards of wealthy Americans, Britons, Russians and Germans who have paid big bucks to shoot elephant, lion, leopard, kudu, crocodile and rhinoceros.

Realistically, there's no end in sight.

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