Harare - 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, Zimbabwe’s largest lender, said
this month it would suspend the use of Visa Inc. cards for local transactions.
Rising unrest
The crisis has fuelled opposition to President Robert
Mugabe, who’s been in power since independence from the UK 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.
Read More: Waiting for Mugabe’s Exit, Zimbabweans Suffer
Broken Economy
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.
Read also: PICS: Zimbabwe's new currency is bright green
“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.”
Proxy currency
The scepticism 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.
Read also: Pressure mounts on Zimbabwe
Hyperinflation is “still fresh in people’s memories,”
Charles Laurie, head of African analysis at Bath, UK-based Verisk Mapelcroft,
said in an interview in Johannesburg. “They’re going to be mistrustful about
any local currency for a long time.”
Withdrawal limits
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 US 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.”
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