HARARE: Zimbabwe freed its economy from the nightmare of hyperinflation by dumping its currency and adopting mainly the U.S. dollar. Six years on the economy is back in crisis. Deflation is hindering spending and investment, factories are closing and the government is struggling to find money to pay its workers.
The dollar’s appreciation has made imports cheaper, exports more expensive and fuelled a cash crunch, said Mark Ellyne, an economics professor at the University of Cape Town. Laws adopted in 2008 that compel foreign- and white-owned companies to sell at least 51 percent of their shares to local black investors have compounded the problem by deterring investment, he said.
“The dollar strength really works against them,” Ellyne, who worked at the International Monetary Fund for 25 years, said by phone. “They’ve made a wrong choice about the currency and they’ve not opened up enough. They should have tried to do a deal with South Africa to use the rand.”
Zimbabwe imported $2.5 billion worth of goods from neighbouring South Africa last year, more than from all its other trading partners combined, according to data compiled by Bloomberg. The two countries’ economies are further entwined by the estimated 2 million Zimbabweans who migrate to find jobs in Africa’s most industrialised economy, according to United Nations estimates.
Zimbabwe’s currency regime means its factories can’t compete with their South African and Zambian counterparts, according to Busisa Moyo, president of the Confederation of Zimbabwe Industries, who has called on the government to enact laws to cut salaries and utility prices.
The rand has slid 25 percent against the dollar since the start of last year, while the kwacha has dived 57 percent. Zimbabwe’s economic meltdown dates back to 2000 when militants backed by President Robert Mugabe’s government began seizing white-owned commercial farms, slashing tobacco exports.
Inflation soared as the central bank printed money to enable the government to pay its bills, reaching a high of 500 billion percent in 2008, according to IMF estimates. The Zimbabwe dollar was scrapped in early 2009 and a basket of currencies, including the dollar and rand, became legal tender. Today all pricing and about 90 percent of trade is in dollars.
