Cash Is King in Mugabe’s Zimbabwe as Dollar Supply Dries Upby
Some retailers limit payments with debit, credit cards
New dollar-linked bond notes fail to ease cash crunch
Walk into Pedzai Nyika’s furniture factory in Zimbabwe’s capital and he’ll offer a 20 percent discount straight away -- provided you pay in cash.
He’s not alone. A shortage of banknotes gripping the southern African nation has become so dire that business are offering huge discounts to cash-paying customers and limiting the amounts they can charge on credit cards or refusing to accept them altogether.
“I am desperate. Business is very slow, so really I need to do anything I can to retain cash flow,” Nyika, 46, said by phone from his office in Harare. Most fabric suppliers “only accept dollar notes, nothing else and certainly not cards.”
The nation has mainly used the dollar since economic mismanagement and runaway inflation rendered its own currency worthless eight years ago. A liquidity squeeze ensued as growth faltered and a strong dollar eroded the competitiveness of Zimbabwe’s exports. The cash crunch has become so severe that banks are now capping customer withdrawals at $150 a week, a limit set by the central bank, while CBZ Holdings Ltd., Zimbabwe’s largest lender, said this month it would suspend the use of Visa Inc. cards for local transactions.
The crisis has fueled opposition to President Robert Mugabe, who’s been in power since since independence from the U.K. in 1980 and overseen an economic decline that’s given rise to food shortages, an unemployment rate of more than 90 percent and the collapse of basic services. Even as 92-year-old Mugabe’s health falters, the ruling Zimbabwe African National Union-Patriotic Front, or Zanu-PF, has nominated him as its presidential candidate in the next elections in 2018.
In a bid to address the banknote shortage, the government began distributing so-called bond notes in November, with about $73 million of the dollar-linked securities issued to date. While the introduction of the notes was met with protests, initial predictions that they would be universally rejected haven’t materialized with banks and most large retailers recognizing them as legal tender. Many small stores, informal traders and taxi drivers won’t accept them, however, or price them at as little as 70 percent of their dollar face value.
“The dollar is real money. Dollars work everywhere,” said Mike Mawere, 54, who sells tools and building supplies from a stall in Harare. The bond notes “are paper, so I suppose they’re worth what the paper and ink are worth, but no more.”
The skepticism over whether the new proxy currency will retain its value is a hangover from the days when the central bank printed money to enable the government to pay its bills, after the seizure of white-owned land by state-backed militants slashed farm output, exports and tax revenue. Steve Hanke, professor of applied economics at Johns Hopkins University, and research associate Alex Kwok calculated that prices were doubling every 24 hours at the peak of hyperinflation in late 2008. The central bank ended up printing a note of 100 trillion Zimbabwe dollars.
Hyperinflation is “still fresh in people’s memories,” Charles Laurie, head of African analysis at Bath, U.K.-based Verisk Mapelcroft, said in an interview in Johannesburg. “They’re going to be mistrustful about any local currency for a long time.”
The supply of the bond notes is also limited for those willing to accept them, with banks restricting withdrawals to the equivalent of $150 a week in addition to their allocations of U.S. dollars. Zimbabwe has among the lowest levels of foreign-exchange reserves relative to its external debt in Africa, International Monetary Fund data show.
The Finance Ministry anticipates that the economy will grow just 1.7 percent this year, after halving in size since 2000, and the dollar will remain Zimbabwe’s main currency for the foreseeable future. That means the government’s options for addressing the dearth of banknotes and rejuvenating the banking system is limited.
“Nowadays cash is short everywhere,” said Garisai Chimombe, an attendant at a Zuva Service Station in northern Harare. “If you’re using a card, we can only sell $20 of diesel or petrol because the company needs cash to pay wages and other suppliers, but if you’re paying cash, we can fill you up.”