Zudha in the Rhodesian days was corrupted Shona for South African coins. Because they were useless to Zimbabweans, the word was transformed to mean anything useless including people. But South Africans coins, which people in Rhodesia used to throw away, have become gold.

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Zudha in the Rhodesian days was corrupted Shona for South African coins. Because they were useless to Zimbabweans, the word was transformed to mean anything useless including people. It was derived from the Afrikaans words Suid Afrika (South Africa).

 

But South Africans coins, which people in Rhodesia used to throw away, have become gold. The power of the South African rand has seen more than three million people fleeing economic hardships in Zimbabwe to neighbouring South Africa, most of them illegally.

 

Some 3 900 a deported each week but they keep going back. They have to brave crocodiles in the Limpopo River which borders the two countries. Some are smuggled by couriers known as omalayitsha who can dump them if they sense trouble or bribe their way up to Johannesburg, the common destination for most people.

 

Life has become unbearable in Zimbabwe as inflation continues to soar. Outgoing United States ambassador to Zimbabwe Christopher Dell says inflation has been doubling every month since February and could reach a record 1.5 million percent by the end of the year.

 

The Consumer Council of Zimbabwe says the breadbasket for a low income family shot up from $3.3 million in April to $5.5 million in May. Most workers earn a tenth of this. June is likely to be worse. The price of petrol was $42 000 a litre at the beginning of this month. It is now $165 000 a litre. Sometimes it goes up three times a day.

 

The price of fuel is being pushed by the fall of the Zimbabwean dollar on the parallel market. Officially the United States dollar is only Z$250. Central bank governor Gideon Gono introduced incentives in April for people in the diaspora and business to get a rate of $15 000. Today, the greenback was trading at $165 000.The rand was going for $21 000.

 

These rates only apply to small operators known in Bulawayo as osipatheleni – what do you have for me. International news agencies reported last week that the dollar had crashed to its worst level on Thursday. It had plunged to $300 000 to the greenback “in large offshore deals” and was likely to fall to $400 000 on Friday.

 

"It's gone crazy. People are holding out for the highest bidder and mentioning as much as $400 000:1 which could be tomorrow's price. It's changing by the hour," one trader was quoted as saying.

 

Business consultant Luxon Zembe says the biggest problem is that the country has entrusted the management of scarce foreign currency to one person.  “What is needed is a committee comprising various stakeholders so that they can determine who should get the foreign currency,” he said.

Zembe said there was also a need to investigate who is fuelling the black market. It was not the small operators who were frequently rounded up by the police for illegally dealing in foreign currency, which is an offence.

 

“There is too much secrecy in the management of foreign currency and whenever things are done secretly this raises speculation,” Zembe said.  “There is a big player who is buying foreign currency from the market and is causing havoc with the rates. We need to establish who this player is because the sources of foreign currency are drying up by the day.”

 

Most foreign currency traders believe that the big buyer is the central bank. It enters the market to source foreign currency to pay for fuel for the government and for electricity which the country imports. Zimbabwe imports 40 percent of its power.

 

It is easy to blame it all on the central bank because it is never short of Zim dollars. It just prints when it needs them, fuelling inflation.

 

But figures of foreign currency inflows and utilisation released by the central bank in its quarterly and half yearly reviews seem to tell a different story.

 

Foreign currency inflows have been on the increase since 2004 shortly after Central Bank governor Gideon Gono took over. They rocketed from US$301.7 million in 2003 to US$1 710.8 million the following year. Inflows dipped slightly in 2005 to US$1 702.9 million before increasing to US$2 073.3 million last year.

 

But the country has been on a slide since 2005. This was probably due to the skewed exchange rate. In 2004, for example, when the central bank introduced an auction system, things almost returned to normal. Inflation dropped from 623 percent at the beginning of the year to 133 percent in December.

 

Though it dropped further to 123 percent in 2005, it has been on the increase since. Gono abandoned the foreign exchange auction system. The exchange rate was fixed and the parallel market rate began to spiral.

 

What is also interesting is that more foreign currency is now in the hands of commercial banks and not the central bank which implies that the big players could be commercial enterprises and not the central bank.

 

Out of the US$301.7 million that came in in 2003, the central bank used the bulk US$209.2 million. Payments for fuel were only US$37 million while electricity accounted for US$6.8 million.

 

Banks took the lion’s share in 2004. They accounted for US$964.6 million while the central bank used US$746.2 million. It spent US$155.6 million on fuel and US$92.4 million on electricity.

 

The situation was reversed in 2005 with the central bank using US$907.1 million and private banks US$795.8 million. The central bank spent US$231.1 million on fuel and US$69.5 million on electricity.

 

Last year the central bank spent US$135.4 million on fuel and US$84.3 million on electricity. It used US$740.3million while US$1 333 million was with commercial banks.

 

Loan repayments and payments to international financial institutions— the International Monetary Fund, the World Bank and the African Development Bank— have been modest. The central bank did not pay anything to the IFIs in 2003. It paid US$29.9 in 2004, a hefty US$169 million in 2005 and a paltry US$19.4 million last year.

 

Loan repayments, on the other hand, have been steady. They accounted for US$52.3 million in 2003, went up to US$122.9 million the following year, further up to US$165.1 million in 2005 and dropped to US$125.7 million last year.

 

With these figures, the question still remains: Who is playing havoc with the Zimbabwe dollar?

Authors Website: http://www.insiderzim.com

Authors Bio:
Rukuni is currently the Bulawayo Bureau chief of the Financial Gazette , a weekly paper. He has freelanced extensively for The Voice (South Africa), Gemini News Service (London) , Africa Magazine (London), The Daily Nation (Kenya), Radio Netherlands, Radio Deutsche Welle, South-North News Service (Hanover, NH), Africa Analysis and Africa Confidential (London). He was a fellow of the World Press Institute (St Paul MN) in 1983 and Poynter Institute ( Fl) in 2000.