Has Zimbabwe’s economy collapsed already?

Zimbabwe’s President, Robert Mugabe, once famously remarked that no country can ever get broke. Since 1997, when the first pangs of economic decline were felt in that once richly endowed country, the President appears to have made proving the veracity of that statement his sole mission in life. There is no country, in living memory, whose economy has deteriorated to an extent similar to that of Zimbabwe.

Inflation is now officially hovering around 100,000% (and unofficially, probably twice or three time that figure), the Zimbabwe dollar (ZW$) is trading on the black market at 25 million to one United States dollar (US$), the store shelves are all but empty, there is no food to feed the people and the country is now heavily reliant on food donations.

Everything else is pointing the wrong way. Unemployment levels have reached more than eighty percent, manufacturing capacity is less than 30% and the citizens have fled to all corners of the earth to escape the misery and poverty which the collapsed economy has spouted. The massive emigration of qualified and skilled people has depleted the country of its human capital and this has undermined the country’s ability to provide adequate services and infrastructure to its people.

Electricity is no longer available and people are relying more on generators (for those with the means) and candles and firewood (for the vast majority of the citizens). The roads are deteriorating at an alarming pace and water has become scarce in most urban centres. Schools and hospitals are understaffed and under-equipped and the few professional teaching and medical staff remaining are constantly on strike for one cause or another. Yet in most accounts, the country is still described as “facing” economic collapse. “Facing collapse” implies that the collapse is possible, probable or imminent but it does not reflect a fait accompli – that the economy has actually collapsed.

To all intents and purposes and other than for semantic arguments, the economy in Zimbabwe has collapsed. Take the inflation figure, for a start. A six figure inflation rate means that, at the very least, the purchasing power of Zimbabweans is being eroded by at least 270% each day. Or to put it differently, the people’s income is expected to increase by about three times each day to retain its purchasing parity. Yet, only four years ago the inflation rate was about 600% (which was quite bad, mind you!) which means that inflation has risen by more than 160 times in the short four year period. Can any economist somewhere out there tell me how a country in which the value of its cash assets are depleting more that three times daily, can be described as “facing collapse”?

Turning to the value of the national currency, the Zimbabwe dollar was trading at around ZW$10 to a US$ in 1997. There was no black market then and anyone could walk into a bank, apply for and collect foreign currency without any difficulty. Now it is virtually impossible to obtain foreign currency from any official sources, unless one is well connected to the powers that be. So all the trade of foreign currency is taking place outside the official channels in what has been termed the parallel market (or somewhat inappropriately, the black market).

On the parallel market, the ZW$ is now trading at 25 million to a single US$. If you think that is bad, wait a moment. The currency was revaluated less than two years ago and three zeros were slashed from the face value of the currency. If you add those zeros back. It means that the currency is now trading at ZW$25 billion to a US$ (or 2,5billion times what it was worth ten years ago). I must confess that I am not brilliant with figures so I desperately hope that my calculations are wrong. If they are correct, the numbers are mind boggling in a sad sort of way, to say the least.

So given all this, one should really wonder at what stage will the country’s economy be declared officially collapsed? This issue is very important to establish because it determines the legality or otherwise of the actions and activities of those in power in at the moment. Everyone knows that it is crime to trade a company that is insolvent (generally defined as the situation where the value of assets is less than the value of liabilities). Directors of insolvent companies who fail to file for bankruptcy are liable for criminal prosecution. If one takes the argument that a country is actually one very large enterprise (which is probably true), it can be argued that the leaders of government (the directors) are liable for prosecution for running a country that is insolvent.

It is also a fact that under company law, persons who have filed for bankruptcy and have not been legally rehabilitated are barred from holding directorships of other businesses. By extension, this provision would disqualify all the present leadership in the country for running for office in the forthcoming elections. The principle of “existence for the general good of the public or society” which informs such laws and practices applies to governments as much as it does to private companies. There can be no exception to that. It is not good enough to blame sanctions or the opposition or, indeed, the British government for this poor state of the economy. Rhodesia, as Zimbabwe was known before independence, was under UN sanctions for a long time yet was able to run an efficient economy to serve the needs of its people. The same can be said of Cuba today.

Another problem that has been bothering me is why those in leadership do not realise the extent of the problem faced by their own people and their (leaders’) obligation to rectify the situation. I have developed a theory on this. Question: suppose you commit a crime, what do you do to protect yourself? Answer: you destroy the evidence. Thieves will wipe off their fingerprints from surfaces they may have touched, murderers will bury the bodies where they cannot be found and throw away or hide their weapons. Given this propensity for criminals to destroy or hide evidence, is it possible that the present destruction of Zimbabwe’s economy is a deliberate ploy or effort to destroy the evidence of massive looting of national resources by those who are ruling the country?

Let me put it this way, if billions of real “dollars” have been siphoned away to Switzerland or Malaysia, it would make sense to destroy the evidence by printing huge sums of worthless paper money. With all the re-denominations and re-evaluations of the currency taking place in the country, it will be difficult if not impossible to track and account for any embezzled funds. The evidence is disappearing before our very eyes and very soon there will be nothing to pin on the offenders and transgressors. That seems to me to be a real motivation for the leaders to sustain the present unacceptable state of affairs in Zimbabwe.

If it is indeed the case that evidence of criminality is being wilfully destroyed by the present leadership in the country, then those in power now will have even more to answer for when the moment of reckoning comes. I know it will be easy to say at that time that all this was a fault of one man, Robert Mugabe, but I suspect there will be more than enough evidence to show that this was not act of one but many persons – most of whom were willing participants and direct beneficiaries of the grand theft. This includes the politicians in the ruling elite, the officials of the reserve bank, the business community, senior civil servants, the judiciary and the law enforcement agents.

Many people will be called to account for their actions or inactions in the course of the unfolding economic collapse and many will be asked to explain how they acquired their immense wealth when everyone else was becoming poorer by the day. Many questions will be asked and even more answers sought on how and why the situation deteriorated to this extent. It may very well be that the forthcoming elections will not lead to this eventuality but, sure as day follows night and night follows day, the time will come for these questions to be asked. And when that time comes, the answers had better be good - very good indeed.