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| A Zimbabwean purchases bread with the Zimbabwe dollar equivalent to $2 in 2008. Zimbabweans were now facing a new scourge: Deflation, which economists say is worse than hyperinflation. |
Mujuru was admired in the neighbourhood. But not any more.
“Things are not working out the way they used to,” said Mujuru, who used the proceeds from the street sales to pay school fees for his three children. “The situation seems to be getting worse.”
Two weeks ago, he said the municipal police came around and took away all his wares.
“They said we are not allowed to sell second-hand clothes, something that I have been doing for the past 20 years.”
Besides the battles with the law enforcement officers, it has become harder for Mujuru to sell his wares, because his longtime customers can no longer afford them.
“I used to sell merchandise worth at least $50 a day at the beginning of the year, but these days I would be very lucky to get $10,” he said.
People do not have money, he said, adding that some of his regular customers have been retrenched from employment while others go for several months without receiving their salaries.
With hundreds of workers losing their jobs every day, the informal sector had become a reliable alternative for Mujuru and thousands of other Zimbabweans.
The government in July banned the importation of secondhand clothes, citing health concerns, and throwing the future of thousands of informal traders into doubt.
The government was under pressure to contain the ballooning import bill, blamed on the collapse of local industries.
Around the same time, an onslaught was launched against informal traders like Mujuru, who had flocked to the central business districts of towns across the country because of the rampant unemployment.
Now, millions of Zimbabweans are disillusioned by the economic crisis, which reached its peak in 2008 with hyperinflation topping 500 billion per cent.
Basket of currencies
There was a brief reprieve in 2009, when the country abandoned its battered dollar and adopted a basket of currencies, which included the US dollar, the South African rand and the Botswana pula.
But the wheels began to come off again in 2013, when the country held another round of controversial elections.
The economy stagnated, companies closed shop and a landmark Supreme Court labour ruling last July saw companies shedding a staggering 20,000 jobs in three weeks.
Zimbabweans were now facing a new scourge: Deflation, which economists say is worse than hyperinflation.
Consumer prices have been falling every month since the beginning of 2014, but this has not been any reason to celebrate for crisis-weary Zimbabweans.
Analysts say deflation has discouraged spending, leading to falling wages, rising unemployment and stagnation in economic growth. The competitiveness of local industries has also been eroded, as imports ranging from clothes to food have become cheaper.
John Robertson, an independent economist, in one of his publications, said that deflation was as bad as hyperinflation, if not worse.
Eroding capital
“The issue here is that people and companies with savings that are earning low rates of interest now are too well aware that if they were to increase consumption, their spending would so quickly exceed their interest earnings that they would have to start eroding capital,” he said.
“In more normal times, that would not be of concern, but today, their prospects of restoring capital may look too uncertain. As a result, those with options are currently choosing not to spend anything.”
Mr Robertson added: “Every affected individual is trying to make their existing clothes, shoes and motorcars last a little bit longer, but when a million consumers stop buying such things, a recession is born. When companies respond by reducing output and suspending investment plans, the recession deepens.”
The Zimbabwean economy came out of recession in 2009, with average growth rates of between 8 per cent and 9 per cent. But the rebound stopped in 2012.
This year, the government reduced its growth forecast from 3.2 per cent to 1.5 per cent, citing drought and weak commodity prices.
The government has announced a relaxation of a tough indigenisation policy blamed for the drying up of foreign investments, but economists believe more needs to be done to pull Zimbabwe back from the abyss.
Durban Marukutira, a Zimbabwean economist based in Germany, said dollarisation had become a double-edged sword for the Southern African country.
Very volatile
“It has also not helped things that the South African rand, which is the second most popular currency in our basket of currencies, has always been very volatile and losing value over the duration of our tenure with a dollarised economy,” Mr Marukutira wrote in the privately owned NewsDay newspaper.
“This development has been sweet and sour news for the Zimbabwean economy. It’s sweet in the sense of the rational consumer, who is always bent on getting maximum level of satisfaction from every dollar that they consume.
“With a tumbling rand, Zimbabwean consumers who earn in dollars have more purchasing power (in rands) for every percentage drop in value of the rand against the dollar.”
Mr Marukutira said the effects of dollarisation on the wider economy had, however, been devastating.
“This has, as a result, turned the Zimbabwean economy into a ‘consumption district of South Africa’. It is then no surprise that Zimbabwe’s total terms of trade have remained north of $3 billion with South African imports containing the bulk of that figure.
The consequence of a negative balance of trade is that, in real terms, we are exporting jobs from Zimbabwe to South Africa.”
He believes that Zimbabwe has to solve its currency dilemma if it is to revive its economy.
The Reserve Bank of Zimbabwe (RBZ) is expected to complete the demonitisation of the local currency soon, with zimdollar account holders receiving modest compensation for their lost savings. RBZ is keen to banish the ghost of the zimdollar through demonetisation, as fears of the return of the battered currency continue to spook investors.
“It is my considered view that if Zimbabwe is to register any meaningful changes in its effort to revive the economy, then it should at least have a commitment to solve the currency dilemma,” Mr Marukutira said.
“Considering the fears the general population has over the return to the Zimbabwe dollar, it will be a worthwhile option to join the Rand Monetary Union so that at least our monetary authorities have some autonomy in setting and shaping our monetary policy. Otherwise, as we stand, the use of the US dollar is nota sustainable option for the long term.”
And the options seem to be getting fewer for the authorities, with unemployment believed to be now hovering around 90 per cent.
Economic problems
The economic problems have been worsened by a poor 2014/15 agricultural season that saw Zimbabwe write off half of its staple maize crop.
According to the US-based Famine Early Warning System Network (FEWSNet), the majority of households do not have enough to eat and there are signs of donor fatigue.
“In southern provinces, some households are selling livestock earlier than usual in order to purchase maize meal, and people are seeking more work in petty trading and informal gold panning/mining,” FEWSNet said in its August report.
“Maize meal availability and prices may be affected by the recent government ban on lower priced maize meal imports. For the consumption year, safety-net interventions by the government and partners are expected to be limited.”
At least half of Zimbabwe’s population has been relying on food hand-outs from donors since the country embarked on a controversial land reform programme that precipitated the collapse of the agro-based economy.
FEWSNet said: “Lean season humanitarian assistance is expected to be lower than normal, due to a challenging funding situation.
The East African
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