Harare—John Robertson, a Zimbabwean economist, went to the dentist yesterday with a painful tooth that needed urgent work, but before he could get it done, he had to arrange payment. His choices were these: Either he could pay in Zim dollars, in which case he'd need a bag of them, because the bill for his dentistry was $1.3 trillion, plus the limit for cash withdrawals from his bank account was only $25 billion daily. Or he could pay by check on his Zimbabwean bank account, in which case, since it takes a week to clear the check and the Zim dollar is plummeting in value, he'd have to write the check for double the amount, $2.6 trillion. Or he could just go out and find foreign exchange, either South African rand or U.S. dollars, about $50. "My only choice was to go out and find some foreign exchange."
"The figures for this economy are just unbelievable," says Robertson. He reckons the current inflation rate, comparing this June to last June, at somewhere between 8 million and 10 million percent. Others, such as the Financial Gazette, a Harare newspaper, have put currency inflation at 32 million percent—at the current rate of increase. Regardless, the numbers are so astronomical that it's hard to imagine just how Zimbabweans manage to cope. With commercial agriculture in collapse since the nationalization of white-owned farms, 40 percent of the economy is down the tubes. In addition, harvests this year were only 10 percent of what was expected, due to drought and lack of inputs; the Food and Agriculture Organization expects that 5 million people will need food aid by September. The mining sector is similarly troubled, particularly gold, and its biggest platinum mine—the largest in the world—has voluntarily stopped production due to the unrest surrounding the election. Shelves in the stores and markets are nearly empty, particularly of foodstuffs, but of nearly all goods. "It's very odd," says Jonathan Moyo, an independent MP and Mugabe's former information minister. "The shops are empty but fridges and pantries are not empty."
Somehow, at least in the capital and other urban areas, people do seem to manage. Largely this is because of the 4 million people who have fled to neighboring countries, 3 million to South Africa, the remainder to Botswana and others. "Zimbabwe no longer has any exports except its most valuable product, its people," says a Western diplomat. "This has become a remittance economy and a barter economy." Foreign workers send hard currency home, and many Zimbabweans travel to places like Botswana to do their shopping—in bulk. The government doesn't try to stop that, because it collects duties in the form of hard currency, which it desperately needs, on items they bring back. "The entire economy of cities like Bulawayo has just been shifted across the border, to places like Francistown," said the diplomat. "This is lunacy that passes for policy."
Meanwhile the government just keeps cranking out currency in greater and greater quantities, meaning it simply keeps decreasing in value. The Reserve Bank of Zimbabwe's solely owned subsidiary, Fidelity Printing and Refining Limited, now works 24 hours a day, seven days a week, churning out bills of up to $50 billion. In addition, according to diplomats here, a German company, Giesecke and Devrient GmbH, prints about half of the government's currency and also supplies all of its banknote paper. "Stop the supply of money, and it will stop this government in its tracks," said another Western diplomat. Actually, that just happened today. A spokesman for Giesecke and Devrient, Hieko Witzke, contacted by telephone at the company's offices in Munich, Germany, said the company had decided to immediately stop supplying Zimbabwe as the result of a recent request by the German government. "We decided to cease deliveries to the Reserve Bank of Zimbabwe yesterday," he said. "We have taken the decision in response to an official German government request and international calls for sanctions from the European Union and United Nations." He refused to comment on reports here that the Zimbabwean government had not yet paid the company for the paper and banknotes it has been supplying.
The Zimbabwe government was alarmed enough by the pressure on its currency that it announced today that it would allow depositors to withdraw $100 billion a day from their accounts, and added that it was taking measures to reduce the supply of money. It may not have much choice. Robertson, the economist, says the Reserve Bank has plates for a new currency, without all the zeroes, which it could issue—but it's an open question whether it could print the replacement bills quickly enough to do a massive devaluation, especially without the German company's help.
"You can rig an election," says political scientist John Makumbe of the University of Zimbabwe, "but you can't rig an economy, which will say, ah-ha, the holes are still leaking. How long can they go on? I don't think they can survive very long, lop off all the zeroes, the zeroes would crawl right back in. They're trading in fiction, anyone can see that."
For years now, observers of the Zimbabwe scene have been talking about reaching the tipping point when the economy just collapses entirely and the currency becomes as worthless as Weimar Republic paper—they were saying that back in the late '90s, when inflation was "only" 40,000 percent a year. "I don't think in Africa you get a tipping point," said an economist at a Western embassy. "The formal sector just slides into the informal sector, but what happens is the government loses its ability to raise revenue." Robertson takes the view that sooner or later it has to come to an end. "The tipping point will come when the people with the guns say don't even think of paying us in Zimbabwean dollars, we want foreign exchange. We want something we can actually spend."
In the meantime, though, the government goes to extreme measures to make sure that won't happen. Favored government officials and ruling party members are given the right to import cars and other goods duty-free, and to buy foreign currency at the government's official rate—now less than half of the street or black-market rate. Fuel, too, prohibitively expensive here now, is also sold to government officials at concessionary prices, a fraction of the market value. "It's a form of asset stripping," says Makumbe. "They're looting the country." So in Harare, there are, considering the economic crisis, an astonishing number of late model SUVs and luxury cars.
Over at Fidelity Printing and Refining, on George Drive in the Msala Industrial Area in Harare, the unmarked plant had a line of such cars out the gates and a quarter-mile down the road—to buy subsidized fuel from the Reserve Bank's pumps.
Another move the government has made to try to raise hard cash has been to monopolize gold production, requiring all gold miners, big firms and individual panners to sell their gold to the government at rates far below world prices. That gold is either refined at Fidelity or, more recently, diverted to another Reserve Bank-owned company, Aurex, where it is made into jewelry in order to maximize the return from it. But the result of this policy has been a catastrophic fall in gold production, from a ton a month to only 350 kilograms (about 770 pounds) a month now, according to Robertson, which he says is the lowest level since 1907.
A visit today to Aurex's plant and its retail gold outlet store in the village of Ruwa, about 20 miles east of Harare, was instructive. Entry to the gold store is by invitation only, but wrangling one isn't that difficult for buyers with foreign exchange. Aurex is on a road in an isolated industrial estate, the turn indicated only by a signpost reading "Liquorland." Behind high walls and double electronic gates, the buildings sprawl over a large compound. But inside the gold store, there's an astonishing paucity of gold on sale, mostly a few thin chains and slight rings, all only 9 karats. "It's the situation," a clerk said. The only other customers were two Reserve Bank employees, who explained they were taking advantage of the 10 percent discount they get for buying gold. "It sounds like people are hedging their bets by getting in first," says Robertson.
Moyo says it's unsurprising that Zimbabwe is wildly printing paper. "It's fire-fighting, what anyone else in a similar situation would do." Such moves have been made necessary, in his view, by the sanctions on Zimbabwe and by denial of credit facilities to it by international institutions. "No one wants to lend money to this country," he says. "I don't know any third-world country that would survive this kind of pressure." Just possibly, it won't.