Cash crisis a source of poverty in Zim

THE recent media reports that the parallel market rates ranges between 60% and 65% for mobile money platforms like EcoCash and 75% for bank transfers on the parallel market as forex has become increasingly scarce are indeed shocking.

By David Mhlanga

Many households and individuals especially civil servants, smallholder farmers, youth, women will continue to be poor in Zimbabwe

There are many theories of poverty, some believe that poverty is caused by the people, while others say it is an individual phenomenon. On this view, people are in poverty because they are lazy, uneducated, ignorant, or otherwise inferior in some manner. Others on the other hand believe that poverty is a result of misfortune (munyama), last but not least others believe poverty is caused by the structure of the economy and the way the policy makers craft their policies. People are in poverty because they find themselves in holes in the economic system that deliver them inadequate income.

The World Bank estimated urban poverty in Zimbabwe in 1990/95 to be at 12% while the 1995 poverty assessment study found urban poverty to be 39%. In January 2009, Save the Children estimated that, 10 out of 13 million Zimbabweans, over 75% of population were living in desperate poverty. In April 2010, Unicef, noted that 78% of the Zimbabweans were absolutely poor and 55% of the population (about 6,6 million) lived under the food poverty line in December 2009.
The Zimbabwe Interim Poverty Reduction Strategy Paper 2016-2018, also noted that income poverty, as measured by the proportion of people whose income is less than the total consumption poverty line(TCPL) in Zimbabwe remained high, generalised and almost constant at above 70% since 1995.

IPRP estimates that, 92% of the extremely poor population and 91% of the extremely poor households reside in the rural areas. The proportions of poor population and households in rural areas are also high at 80% and 78% respectively.

This was also highlighted in the millennium goals development progress report of 2012 that; 76% of the rural households are considered poor compared to 38,2% of urban population. On individual poverty, 84,3% of individuals in the rural areas are poor compared with 46,5% in urban areas.

The question is what is the cause of poverty in Zimbabwe, is poverty individualistic, or is a result of the structure of the economy?

Cash crisis

Among many causes of poverty in Zimbabwe the cash crisis is becoming the major cause of poverty in the rural areas growth points, towns and cities.

The cash crisis is affecting Production. Foreign currency shortages in banks and the Reserve Bank is forcing businesses to rely on the black market for foreign currency needed in the procurement of inputs. This contributes to the reduction in production. When production is low, prices tend to respond by increasing, which affects the poor people who spend more of their incomes on consumption.

The cash crisis contributes to the reduction in disposable incomes of those who are working because when they are buying goods and services, consumers are charged premiums to get cash. This affects the poor households who need access to food, health care and other basic needs. The end result is poverty.

The cash shortages affect production in all sectors of the economy agriculture included. Agriculture occupies a central place in the Zimbabwean economy, which underpins the economic, social and political lives of the majority of the people. The under-performance of this sector will make many people in the country to remain poor. Agriculture contributes 15%-18% of gross domestic product (GDP), over 40% of national export earnings and 60% of raw materials to agro-industries. Over 70% of the population derives its livelihoods from the agricultural sector. Agriculture-related employment supports a third of the formal labour force.

In recognition of the importance of agriculture in economic development, the African Union Commission, through the Maputo Declaration of 2003, encourages member states to spend at least 10% of their national budget towards agriculture. One way of fighting poverty is to intensify production in the agricultural sector. With the ongoing cash crisis, production in agriculture obviously is affected, causing many people to remain in abject poverty. When agriculture is viable, it contributes a greater percentage towards employment, GDP, exports, food security and through the forward and backward linkages. The prices of many manufactured products’ prices fall, this automatically leads to a drop-in poverty levels.

On the other hand, the cash shortages are making it difficult for people who import various food stuffs to supplement the shortages as industries in Zimbabwe are operating below capacity.

Many people who are into buying and selling, especially cross border business, are hard hit by the shortages of cash.

The reality of the matter is many people in Zimbabwe are being affected by the shortages of cash in the economy.

 David Mhlanga Doctoral Fellow in Economics at the North West University, South Africa

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