SHORT VIEW by BATANAI MATSIKA
An interesting thing that comes up when studying Zimbabwe’s history is in the meaning of the word; “Zimbabwe”. It is derived from the Shona words dzimba dza mabwe, meaning “house of stone”. A number of archaeologists and historians also believe that from the 13th to 15th centuries, Great Zimbabwe was the capital of a large area in southern Africa. This is an ancient city in the southeastern hills of Zimbabwe near Lake Mutirikwe and the town of Masvingo. The construction of the Great Zimbabwe monument began in the 11th century and continued until the 14th century. It is a striking feature that has walls as high as 11metres extending approximately 250 metres. It is one of the largest ancient structures south of the Sahara Desert and it is built purely on stones with no mortar joining them.
When we consider developments on the ground, we see a huge paradox given the fragile state of the Zimbabwean economy that does not in any way symbolise the strong foundation of a “house of stone”. Our concerns revolve around three things at this point in time; a real US dollar, a litre of fuel and a loaf of bread.
Regarding the foreign currency shortages and liquidity issues, we have written extensively on this and have illustrated how “Chitty Chitty Bang Bang” has emerged as a winner, literally succeeding in making a dollar out of fifteen cents. The problem is that shortages in any economy tend to fuel speculative behaviours and the net effect is that prices will continue skyrocketing. We recall that one of the major cause of the banking crisis in Zimbabwe between 2003 and 2005 was speculation which was also partly a result of inflationary pressures. Given the need to maintain value, banking institutions deviated for core banking business and this later on sparked a liquidity crisis. We recall the Trust Bank/Willdale Bricks Saga as well as instances where some financial institutions parked funds in movable assets such as motor vehicles. Inflation pressures have surfaced and recent economic statistics indicate that the country’s inflation (understated in our view) for August increased to 4,83 percent from 4,29 percent in July 2018.
Meanwhile, there has been an emergence of long-winding queues at pump stations in and around the major cities while others have completely run dry.
The shortage of fuel which has been caused by high demand of the commodity and is also putting pressure on prices. There have also been reports that motor ists in Beitbridge have been sourcing fuel from the black market as the major stations in the border town had run dry. Fuel vendors in Beitbridge have been cashing in on the shortage, with most of them getting supplies from South Africa’s border town (Musina) selling two litres for at least USD3.The price of petrol is currently at around USD1,40 per litre while diesel is retailing at around USD1,31/litre. According to Energy and Power Development Ministry, the local pricing of fuel is determined by international trends. The ministry has called for the Reserve Bank of Zimbabwe (RBZ) to increase the weekly forex allocation for fuel from the current USD20m per week to USD25m- USD30m so as to ensure sufficient fuel.
The foreign currency shortages have also affected the wheat or flour industry in Zimbabwe. We note that the price of bread has increased by c10 percent on the back of an increase in the price of wheat. According to the Grain Millers Association, the price of wheat rose from USD375 to USD415 per tonne. The country requires 350 000-400 000MT of wheat each year to meet daily bread demand of 950 000 loaves but only produces c100 000MT. This means Zimbabwe relies largely on imports for the staple cereal.
Overall, in the absence of foreign currency inflows into Zimbabwe, the looming shortages and run-away parallel market exchange rate premiums are expected to continue. But here is the point; I recently received my monthly pay-slip for the month of September a few days ago as is the norm. While I will not disclose the amount for obvious reasons, the payslip was in US dollars. The good thing is that I now understand that I earn FX– RTGS and not FX–Nostro (after the monetary policy announcement). With the US2,0c per dollar transacted now on stream, my worry is that I might have just struck a better deal by negotiating a salary in “litres of fuel” or “loaves of bread” in this House of Stone Cards!
Batanai Matsika is Head of Research at Akribos Research Services. He can be contacted on +263783584745 or batanai@akriboscapital.com
