A FEW days ago during an informal chat with George Guvamatanga, the managing director of Barclays Bank, he brought up something that I thought was both sobering and frightful enough to deserve wider attention and better circulation. Financial Sector Spotlight with Omen Muza
The gist of his drift was that by the time we transitioned from the hyperinflationary era, we had become so utterly soaked in speculative behaviour and thoroughly accustomed to the persistent devaluation of our unloved/unlovable ZWD currency that we dragged the notion of devaluation – kicking and screaming – right into the unfamiliar territory of the dollarised environment.
In no time at all, we had achieved something quite extraordinary – devaluation of the US dollar. We ascribed a value to it that was much lower than the value ascribed to it everywhere else – almost like having our very own “Zimbabwean US Dollar.”
So how did we achieve this incredible feat? For the most part, this was achieved by ill-informed decisions to pay significant US$ salaries that had no bearing whatsoever to underlying productivity.
Resultantly, even the pricing of some goods and services was not based on any good old fundamentals, but just on sentiment.
Only in Zimbabwe, for instance, do newspapers cost US$1! Of course, not much thought was given to the sustainability of this situation and in order to continue financing operating expenditure which in many instances did little to enhance the capacity to generate hard currency because of its consumptive nature; we loaded ourselves with expensive debt.
I guess its payback time now as this “psychic of conspicuous consumption” starts to manifest itself in scandals such as “Salarygate.”
Nowhere, but at ZBC – with its expenditure bill of $2,3 million pitted against monthly revenue of only $275 000 is – is this situation more keenly illustrated.
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So what price are we paying for this?
Guvamatanga reckons that over the years, the prices of some goods and services in Zimbabwe have become plain absurd. To put this in perspective, he notes that a goat costs in the region of $25 – $40 depending on where you buy it. So when a poor old woman who is unwell and must be seen by Chiremba is asked to pay $50.00 for consultation, she is effectively being asked to part with two goats each time she visits the doctor.
Enter Goatnomics! The true test of this pricing matrix is whether she would take kindly to parting with two goats each time, just so that she can be told what’s wrong with her before even buying medication or being hospitalised.
The price we have to pay in order to restore some sense of fairness for Ambuya from Gutu-Mupandawana, — or Dotito as Tendai Biti would say – is the inevitable price correction whose onset some people are mistaking for deflation, according to Guvamatanga.
It’s not deflation, it’s price correction! “People complain about deflation . . . it’s not deflation, it’s price correction,” argues Guvamatanga. Whether they like it or not; know it or not; accept it or not, local companies will have to reduce their prices, especially now that competing goods from across our borders are landing at much cheaper prices, thanks to the devaluation of of the South African Rand (ZAR) which continues to pile more misery on local producers because it makes goods from South Africa as much as 50% cheaper.
Without doubt, local producers have become uncompetitive partly because of their cost structure and recent reduction in sales of goods that would otherwise be price inelastic such as beer bears testimony to this. Shall we conclude that people are now indeed consuming less beer or it’s just that they have switched to less expensive imported substitutes?
Guvamatanga believes that if prices do not start falling, it won’t be long before consumers start crossing borders in droves to buy goods in bulk just as they did at the height of Zimbabwe’s economic meltdown.
So, how else are we perpetuating US$ ‘devaluation’? Starving the economy of coinage for purposes of change has played havoc with both retailers and the transacting public’s perception of the value of money in Zimbabwe’s economy.
And to put this in perspective, Guvamatanga remembers that as a kid he would ask for 5 cents from his parents to buy “enough” sweets and was quite content with its value and what it could buy for him. However, thanks to the general lack of coins in the monetary system, nowadays kids ask for around $5, an otherwise princely sum that has been devalued by Zimbabwe’s skewed economics.
So we now have a generation of children who are being raised on a diet of skewed appreciation of the value of money.
Maybe we need more “Goatnomics” in order to understand the true value of money better.
Guvamatanga said that this is why solving the country’s coinage issue is a top priority in his second and last term of office as president of the Bankers Association of Zimbabwe.
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