by David Pilling and Andrew England
Zimbabwe, a country once so gripped by the madness of hyperinflation that the central bank could no longer afford paper on which to print practically worthless Z$1 trillion notes, now has an altogether more modern problem: it is stuck in deflation.
Like Britain, Japan, the US and other nations dealing with the consequences of weak demand and cheap oil, Zimbabwe is menaced more by the prospect of falling prices than by rising ones.
According to the best estimates of an economy where statistics are about as murky as the goings-on inside Robert Mugabe’s ruling Zanu-PF party, consumer prices fell between 2 per cent and 4 per cent last year.
Many economists believe deflation could persist in 2016 as demand shrinks and cash-strapped companies lay off staff or stop paying wages.
Authorities in the southern African country of 14 million people quit printing the Zimbabwe dollar in 2009 and moved to a hard-currency regime now dominated by the US greenback. Having swapped the world’s weakest currency for its strongest, Zimbabwe has begun to import deflation. The prices of goods transported across the border from South Africa, where the rand has plunged nearly a third against the dollar in a year, have swooned.
In the centre of Harare, where not long ago a meal could rise in price while you were eating it, menus have been clipped of their multiple zeros. At the garishly yellow Chicken Inn, two pieces of deep-fried poultry cost $3, with an extra piece thrown in for free in a concession to deflationary momentum.
By the roadside, hawkers, operating in a country where only about 750,000 people outside the farming sector have formal jobs, thrust bunches of bananas ($US1) and grapes ($US2) through car windows. Packets of cigarettes cost $US1, with specially designed sachets for two – tailored to Zimbabwe’s harder-up smokers – going for 10 US cents. A canister of cooking gas fetches $US1.50. Not long ago it was $US1.80.
Falling prices are a novelty. Back in 2008, when annual inflation peaked at 89.7 sextillion per cent – roughly 9 followed by 22 zeros – a single egg could cost well over a Z$1bn, assuming you could find one.
For some, the loss of Zimbabwe’s currency is an acceptable blow to national pride. “It’s wonderful,” says Patrick Zhuwao, the nephew of Mr Mugabe and minister in charge of a government scheme to “indigenise” foreign-controlled industries. “We have the only stable currency in the region.”
Mr Zhuwao, who sports dreadlocks and a natty pinstriped suit, says there is far more economic vibrancy in Zimbabwe than is captured in official statistics.
Yet deflation is also a sign of deep malaise that could send the country into a tailspin of shrinking demand and falling production. Use of industrial capacity has already fallen from 57 per cent in 2011 to a meagre 34 per cent, according to the Confederation of Zimbabwe Industries.
Nor does the government have tools to activate the economy, which relies wholly on an inflow of dollars from exports and Zimbabweans repatriating money from overseas. Unable to print US dollars, the central bank has virtually no independent monetary policy. The government, which spends nearly 90 per cent of revenues on salaries, has scant fiscal space.
“For the man in the street, deflation looks good,” says a local banker. “But the economist will tell you that the economy is stagnating . . .[that]the country is going through a period of deindustrialisation.”
In Mbare Musika, a sprawling informal market of stalls selling goods from medicinal elephant dung to second-hand clothes, even the man on the street is not impressed. A man who gives his name as Dr B Sithole, perched amid an array of traditional medicine, including animal horns and shrubs, complains of sluggish business. “There’s no money so prices are going down,” he says.
Ranga, the manager of a nearby mini-mart who is reluctant to give his surname after criticising government policies, concurs. He recalls with a shudder the “crazy” years of hyperinflation. Yet, he adds, casting his eye over half-empty shelves, the price stability that has come with dollarisation has done his business little good.
People have less money, whether denominated in vanishing Zimbabwe dollars or rock-solid American ones, he says. “As long as there’s no production in the economy, it doesn’t matter what currency you use.”-Financial Times