Tony Hawkins on Zimbabwe’s “collapse”
Posted by CM on June 29, 2007
I am often disheartened by the perhaps understandably strongly ideology-tinged analysis that one increasingly is confronted with about Zimbabwean issues. There are many times I have longed for a little more dispassionate analysis of the issues from various experts and opinion makers. But as things deteriorate and the pressures mount, I often get the impression that there is now far more posturing than analysis that is taking place.
A refreshing exception is the recent interview between SW Radio Africa’s Violet Gonda and University of Zimbabwe economist Tony Hawkins. Though a long-time critic of the Mugabe government’s economic policies, here he answers the questions posed to him in a straightforward, clear way that leaves you more informed even if you don’t agree with everything he is saying.
Economist Tony Hawkins gives journalist Violet Gonda his assessment on the economic situation in Zimbabwe. US ambassador Christopher Dell predicts inflation will have reached 1.5 million percent by year-end and that it may result in an early exit for Robert Mugabe. Did the diplomat’s remarks spark the crisis last week? And while the political parties are talking about talks, observers say there is a real risk that the talks will be eclipsed by the economic collapse.
Violet Gonda: Last week the world’s press described the Zimbabwe dollar as collapsed, crashed, and plummeted. Is this true? What does this mean in practice?Tony Hawkins: Essentially it means that trade in the so called parallel market which is allegedly legal, I say allegedly because the Reserve Bank is the main dealer in this market and therefore it can hardly be illegal. But in that parallel market the exchange rate did dive last week, very sharply from about Z$200 000 to the United States dollars to various numbers as high as Z$ 400/450 000. However since that event we are told that the rate has stabilized somewhat and in fact even strengthened. So it appears there was a bit of over reaction or over shooting as we call it in the business.
Violet: But what caused that in the first place. What really is causing the crash?
Tony Hawkins: Well essentially it’s being caused by there being more sellers than buyers (of Zimdollars) . Nobody really wants to hold Zimbabwe dollars because Zimbabwe dollars are increasingly worthless as a result of the very high rates of inflation. We have inflation of – at the last count which was in May, of 4500% a year – and going up very sharply. Clearly nobody wants to hold the currency like that which is losing its value by the day by the hour and in that situation there has been a scramble for anything else.
Violet: What happens when retailers refuse to accept local currency, as is happening right now, you know even though there is a black market exchange rate of $420 000 to the pound?Tony Hawkins: Well I think that the story there is that if you are a retailer and you sell a product – let’s say you sell a box of cereal, bran flakes or something – for ZW$200 000, and you do not know when you sell it what it is going to cost you to buy a replacement box of cornflakes. It might be $400 000, it might be $500 000 and so on. So retailers are in this very difficult position of being concerned that they are going to sell what product they’ve got and end up with increasingly worthless dollars that they then have to use to try and buy a replacement 2,3,4 times the price at which they sold their product for.
Violet: How long the country can continue to run on these levels, especially when you hear that inflation is between 4500% and 9000%, and probably more?Tony Hawkins: There are countries that have gone on for a long time with hyperinflation on these sorts of levels and I think it is impossible for anybody to stand up and say it’s going to be three weeks or three months or three years or whatever figure you’d like to say. I think that the people who are making these kinds of statements – and we have had the outgoing United States Ambassador, we have had various Aid Agencies and NGOs talking about six months and so on. Why six months and not two months? Who knows?
But you have to ask the question. How do you define collapse? When does the economy collapse? What examples do we have of a collapsed economy? Did the DRC economy ever collapse? Did the economy of Somalia ever collapse and so on? The answer is that African economies tend to grind on at very low levels of activity – subsistence levels of activity for long periods of time. It’s only when you get civil unrest or some kind of move of that kind or the government itself decides to change, either because the president or the cabinet or whatever loses the support of their followers or because there is some kind of radical shift in policy. It’s only when those things happen that you get a change in the situation otherwise it can drag on.
While there is nothing new or earth-shaking in Hawkins’ answers, even their common-sense reasonableness has unfortunately become an endangered commodity in Zimbabwe’s heated atmosphere.
Predictions of “collapse”, what wild number to peg onto inflation or how many (or how few!) months Mugabe can hang on are simply a waste of time that either needlessly stress an already embattled population or raise cruelly unrealistic expectations. As Hawkins rightly asks, “who knows?”
We should save ourselves the extra stress of speculative games which do nothing for us and use the energy for more productive things.