This morning, I am at home, and Zimbabwe is in civil shutdown. There are (apparently) police and army personnel patrolling the suburbs; the streets are deserted; there are no commuter omnibuses ferrying people to and from work; and people are suddenly becoming proficient at establishing VPNs to circumvent rumoured government blocks on Whatsapp and Facebook.
You might think that these are the sanctions that I’m talking about. But they’re not.
Here is the Wikipedia definition of economic sanctions:
“Trade barriers, tariffs, and restrictions on financial transactions” – Zimbabwe has all of those, even if no other country is imposing them.
Two weeks ago, the Minister of Commerce and Industry published Statutory instrument 64 of 2016. In terms of that announcement, people would no longer be able to freely import anything that had been added to the list of restricted products. Instead, people would have to obtain import permits to bring them in – ostensibly in order to prop up local manufacturing. This list included:
- Camphor creams, white petroleum jellies, and body creams;
- Plastic pipes and fittings;
- Building materials;
- Baked beans;
- Potato crisps;
- Bottled water;
- Peanut Butter;
- Tinned fruits and vegetables;
- Ice cream;
- Secondhand tyres;
- <the list goes on>
The announcement was made and the implementation of that restriction began on the same Saturday. It was also the day that people first started protesting at the border posts.
The point of a sanction tariff is to make the exports of the targeted country uncompetitive, and to compel market demand toward other, cheaper, producers.
Well, Zimbabwe effectively has its own internal tariffs:
- Because it cannot trust a local currency, the Zimbabwean economy uses a US dollar that immediately renders it uncompetitive: all its costs are dollar-based while all its regional competitors have their costs priced in devaluing currencies.
- The instability of the regulatory environment has borrowing costs for businesses floating anywhere between 15% and 25% in a near zero-interest world, if those businesses can even get debt financing at all.
- A lack of investment in infrastructure for the last few decades has meant that the basic costs of running a business must now include the private sector supply of what would normally be public goods (electricity from generators, water from boreholes, etc).
All this means that most of the former-exporting industries are out-priced off the bat.
And the few that are still profitable enough to have kept going are now sinking under a wave of fiscal desperation – as tax authorities frantically scramble for money to pay civil servants. And because their desperation has turned into “assess now, refund later”: in all but name, those businesses are being forced to invest their working capital in government bonds that are never going to be repaid.
“Restrictions on Financial Transactions”
Zimbabwe does not have a cash crisis: it has a fully-fledged financial sector collapse.
Her banks have effectively been cut-off from the international banking system – because what else would you call it when your bank cannot just take the money that is in your account and transfer it to the account of a foreign supplier? And we are not talking about a simple exchange control issue – this is a practical inability to move money.
For some time now, the banks have been compelled to invest their banking reserves in government treasury bills. That money has been used to finance the overspending on civil servant salaries, meaning that depositor money, people’s bank balances, have been invested in government treasury bills that are never going to be repaid.
Those bank balances, those unexpected rights to government refunds, now circulate from local bank account to local bank account in a game of hot potato – waiting for that inevitable moment when someone is left holding numbers on a statement that cannot be spent or cashed or transferred – hoping against hope that somehow, before we reach that point, an IMF loan will arrive to clear the debt, recapitalise the banking sector and usher in a new era of just-a-little-bit-of-normality-and-predictability-that’s-all-we-want-please.
The Spiralling End-Game
There have been a lot of supposed ‘end-games’ since Zimbabwe’s economic decline first began in the late 90s, and there have been many “this time is different” declarations. So it’s easy to be skeptical.
But whatever your skepticism, this is now knife-edge territory. We have exhausted two currencies, run out of money to pay doctors and nurses and the rest of the civil servant wage bill, run out of banks and pension funds to flood with government bonds, run out of bank accounts to confiscate because there is no cash to make that money real, run out of jobs to lose because no one can access the salaries in their bank accounts, and the informal economy is now having its goods confiscated at border posts.
Where to from here? There is nowhere to go.
But in that typical Zimbabwean way, there has not been violent protest against all that is so negative. Instead, for almost all this time, there has just been the long and torturous demonstration of patience.
And then in the space of a few weeks, at the request of a Pastor posting homemade videos on Facebook, clutching a flag around his shoulders, pleading for peace, an entire nation of people has decided to stay home. Today. In a unilateral demonstration of a patience that is exhausted and fatigued.
This was not a stay-away encouraged by union leaders, or angry business executives, or opposition politicians. There were no real threats of violence against those who didn’t comply with it. Instead, workers requested a day of their leave, street vendors decided to stay home, and the taxi drivers parked their buses.
It all just happened. Without force.
Autonomous, unanimous, unity.
Could anything be more powerful?
Rolling Alpha posts about finance, economics, and sometimes stuff that is only quite loosely related. Follow me on Twitter @RollingAlpha, or like my page on Facebook at www.facebook.com/rollingalpha. Or both.