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GEOFFREY YORK
From Monday's Globe and Mail
March 23, 2009 at 3:53 AM EDT
HARARE Zimbabwe's wily street hawkers have finally found a use for the worthless 100-trillion-dollar banknotes that were issued here in January. They sell the bizarre banknotes as souvenirs to foreign tourists for $2 each.
The currency with the never-ending string of zeroes is quickly fading into history, just two months after the latest notes were printed by the inexhaustible central bank. Also disappearing is Zimbabwe's phenomenal level of hyperinflation, which last year reached a stunning 89.7 sextillion per cent (a number expressed with 21 zeroes), making it the most extreme hyperinflation crisis of any country in modern times.
Zimbabwe's new coalition government has cracked both problems with an absurdly simple solution: It has abruptly switched to foreign currencies, allowing customers to pay for products with U.S. dollars or South African rand or Botswana pula.
The entire economy, almost overnight, has switched to a unique system of multiple foreign currencies.
Equally swiftly, hundreds of Zimbabwe's long-closed shops and groceries have reopened, retail licence fees have been slashed, and the new competition has reduced prices to stable levels.
The dollarization (and rand-ization and pula-ization) of the Zimbabwean economy has finally slain the dragon of hyperinflation, providing the first fragile signs of hope for a devastated country. While the junking of the Zimbabwean dollar was a blow to the ego and power of Zimbabwe's bloated central bank, the radical move to adopt foreign currencies is still one of the fastest ways to kick-start any economy that is ruined by inflation and money-printing excesses.
Empty shelves have been filled. Prices of staples such as milk and eggs are still twice as expensive as in neighbouring South Africa, but they are half as expensive as they were in January. People are shopping again, and merchants are stocking their inventories again.
Those goods are still unaffordable for many people, of course. The unemployment rate is estimated at 94 per cent, wages are often unpaid, and the vast majority of people are dependent on donated food rations.
Not surprisingly, there is a severe shortage of the foreign money. Shops don't have enough foreign cash to provide change to customers, so they issue "credit notes" on little bits of paper - or persuade their customers to accept change in candies.
Investors, including Canadians, are watching closely. Toronto-based Caledonia Mining Corp., which suspended production at its Blanket gold mine in Zimbabwe last October, is considering a reopening of the mine within the next few weeks because the new government is promising that producers can export a much higher percentage of their production. The mine could produce up to 40,000 ounces per year.
"We welcome the new government policies, and we're working to get the necessary approvals," said a spokesman for the Canadian company. "We remain cautious and skeptical. But it would be a shame to miss this opportunity."
The first twitches of economic recovery can already be seen on Harare's streets. In the industrial district, dozens of men and women are waiting at the gates of the factories, having heard that a few people are actually being hired on occasion.
"Before, there wasn't any hope at all," says Coffee Musiya, 37, an unemployed man who has joined a crowd of about 50 job-seekers outside the gates of the National Foods factory in Harare. The crowd has been waiting for weeks, and a few have gotten temporary jobs at the factory. "It's a little bit improved now," he says. "Maybe four or five people might get a day job."
Many factories are still operating at less than 10 per cent of capacity, despite the political agreement that led to the coalition government between President Robert Mugabe and his foes last month. The total market capitalization of the Zimbabwe Stock Exchange has dropped by more than 50 per cent in the past month, to less than $1.3-billion (U.S.), and volumes are so low that the exchange is open for only an hour per day.
But at least the stock exchange is open now. Until Feb. 19, it had been closed for three months.
As recently as the early 1990s, Zimbabwe was one of Africa's leading economies. Its decaying infrastructure could be still be revived, especially if the government is able to halt the invasions of the dwindling white-owned commercial farms that have plagued the agricultural sector for the past nine years.
One study has predicted that the country could be self-sufficient in agriculture within a year if the invasions were reversed.
The new government is seeking $5-billion (U.S.) in financing from foreign lenders to forestall another collapse in the economy. The International Monetary Fund and the World Bank are in the midst of a mission to Zimbabwe - their first since 2006 - to decide whether they might offer financing.
Western lenders have been insisting that Zimbabwe must fire the central bank governor, Gideon Gono - the man who printed all those $100-trillion (Zimbabwe) banknotes, and reputedly the personal paymaster to Mr. Mugabe himself.
So far Mr. Gono has managed to keep his job. But the new government has eliminated or reduced a host of taxes and retail licence fees that were previously funnelled to the central bank - including heavy taxes on retail turnover and export revenue.
Government elites had profited from preferential rates on foreign exchange, allowing them to obtain U.S. dollars at rates far below the street value. The dollarization of the economy has wiped out those perks as well. And the new government is working hard to separate Mr. Gono and Mr. Mugabe from their traditional control of the money flow.
"The process of change is irreversible," said John Robertson, an independent economist in Harare. "The wedge will be driven harder and harder."
