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Currency devaluation slashes wages by 90%

Zimbabwe’s rulers are finding that two decades of economic mismanagement and brutal repression have led them into a trap, from which there’s little chance of escape.

Zimbabwe’s rulers are finding that two decades of economic mismanagement and brutal repression have led them into a trap, from which there’s little chance of escape.

If they implement the political and democratic reforms needed to win the financial support the economy needs from international donors, they’re likely to lose the next election. If they don’t, their people, propelled by the extreme hardship brought about by austerity measures imposed by the International Monetary Fund and World Bank, may remove them through an uprising. Already, a currency devaluation effected in February has slashed the value of wages by 90% in six months.

That dilemma was manifest on August 16, in full view of journalists and tourists watching from the terraces of the best-known hotel in the capital, Harare. Below, a crowd of about 200 demonstrators, peacefully singing in protest, was violently broken up by riot police, who left a woman lying unconscious in the middle of a major intersection. Less than an hour earlier, a court had ruled the gathering illegal. “The desperation of most Zimbabweans means that future sustained protest movements are likely,” says Mathias Hindar, an analyst in London at Falanx Assynt, a risk consulting firm. “Continued brutal crackdowns will thus increase the risk of Zimbabwe reaching a tipping point, similar to movements in Sudan and Algeria, where sustained protests brought down entrenched regimes.”

A day before the protest, Finance minister Mthuli Ncube sat in his office and spoke of the country’s bright future and the weekly fuel price hikes he says are needed to balance the budget. “We can declare victory on the fiscal front,” he said. “Everything that I say, I implement.”

That progress is hard to see at street level. In downtown Harare, vendors line cracked sidewalks in hopes of selling their meagre goods—single heads of garlic, loose batteries, and bits of ginger. “It’s not easy, but I have to look after other members of the family, including my grandmother,” says Solomon Mufandaedza as he crouches behind a sheet of plastic from which he displays pieces of ginger, small parcels of roasted peanuts, and a few avocados. The 22-year-old starts selling his wares at 6am, six days a week, in Harare.

A basic refrigerator retails for the equivalent of about seven months’ gross salary for a civil servant, a member of the country’s middle class. Few can afford to shop for such items. Ncube, a Cambridge-trained economics professor, says the situation is similar in neighbouring South Africa, where he once lived. “That’s untrue. In South Africa, an average monthly salary for a government worker is enough to buy six refrigerators.”

There’s a lot to fix. In 2000, former President Robert Mugabe sanctioned the violent takeovers of white-owned commercial farms to bolster his support in rural areas. The result was a collapse in exports, the rapid contraction of the economy, a series of famines, and a bout of hyperinflation that led the country to abandon its own currency in favour of the United States dollar in 2009.

From 2010 to 2016, pay for the 400 000 government workers was raised to a level where it accounted for more than 90% of the tax revenue. The country is saddled with US$9 billion in external debt and unable to borrow more until its arrears to international creditors, such as the World Bank ,are met. About a quarter of the population of about 14 million, once considered to be Africa’s most educated, has emigrated.

Ncube was appointed in September last year by President Emmerson Mnangagwa, who succeeded Mugabe after a coup in 2017. The Finance minister introduced an unpopular tax on mobile money, reintroduced the Zimdollar in June, and boasts that the country has been running budget surpluses since January.