In Conversation With Trevor: The crisis is worse than 2008, warns Hawkins

Prominent economist Tony Hawkins says Zimbabwe is in a worse off situation compared to 2008 when the country’s economic crisis culminated in the collapse of the local currency.

Hawkins (TH), a leading economic expert in the country, told Alpha Media Holdings chairman Trevor Ncube (TN) that “the fabric of the economy has weakened.”

Below are excerpts from the interview.

TN: Professor Tony Hawkins, welcome to In Conversation With Trevor.

TH: Morning Trevor.

TN: Tony, I do not take for granted your being here. I know you are busy, but I thought given the crisis that we are going through let me see if I can tap into your wisdom.

• I have been reflecting Tony, I cannot remember being in such a chaotic environment economically speaking where there is lack of consistency and lack of predictability.
• Is that your sense too? When were we last here?

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TH: I think it is a close call, but 2007/08 would probably be the time that is most similar, but different.

Different because in that dozen years or so things have got worse in terms of unemployment, in terms of poverty and in terms of the state of infrastructure, the level of investment and so on.

So, in that sense, the fabric of the economy has weakened, we are now more dependent than before I think on mineral exports and tobacco and particularly dependent on remittances and so on.

It is different, some regards worse and, in some regards, not as bad.

So that is a bit of a cop out answer.

TN: What are the similarities when you look back between now and 2008?

TH: The similarities I think are that we have had two bouts of hyperinflation since the turn of the century.

We have had now, this week we will probably get 100% plus inflation figures.

So we will back to three  figure inflation for the third time in less than 15 years I suppose.

So, the similarities are there, a bit like Groundhog Day where we are sort of going around the block and coming back where we started.

We have changed the currency, first to the United States dollar, now for a dozen years we have been trying to find a way out of dollarisation.

Officially we are de-dollarising, but last week we announced we are going to pay 30% of grain purchases in US dollars and so on.

So, it is, as you said in your intro, it is policy inconsistency.

Whether policy was as inconsistent as it was a dozen years ago, I cannot remember.

But the similarities are that we have not grappled with, the problem has not been solved, it is still there.

I think it is a structural problem in terms of the balance of payments and the exchange rate, and I would argue that without successful reengagement, to give Zimbabwe an element of debt restructuring, debt forgiveness and resume that first with global capital markets I really do not see where the endgame is.

TN: Now the way you have out it, balance of payments, restructuring that, engagement.

• That looks like a very big one. President (Emmerson) Mnangagwa and his government have been saying they are trying to reengage.
• Are you seeing anything that is moving us toward a solution to the crisis that we face?

TH: Well, I would have thought we were moving away from reengagement in the sense that for example, the stance taken on the Russian invasion of Ukraine has obviously widened the gulf with the West.

I do not think there was any doubt about that.

Whether it will affect reengagement time alone will tell.

We cannot make that assumption at this stage.

Without access to international capital we are as a country under investing.

In fact, that has been the problem going back probably 40-50 years now.

That is why per capita incomes are probably no higher than they were at independence, why we have pretty much static employment in the formal sector and we rely so much on the informal sector to generate income.

There are a lot of structural issues that as I say, I sound like a broken-down gramophone record, but need a solution that goes beyond economics and it has to be political.

TN: So it appears to me that it is lack of political will?

From what you are describing we have been here before, we know what the problem is.

So why don’t we move on and deal with the problem and find a solution to our economic problems?

TH: I do not think I would agree with lack of political will because I think it is just a question of disagreement on political basis and principles and so on.

You see if you see what is happening in the world economy today, the global economy is de-globalising, probably two or three years now.

Probably the pandemic set it off.

This has given us a different world in which we live and we are now back, it is fair to say, into Cold War 2, but it is a different cold war in the sense that it is a cold war between authoritarian governments and democratic governments if you like, rather than just purely East and West which is what it was before.

So then if you make that kind of assumption, where does Zimbabwe stand?

Is Zimbabwe authoritarian with its ties with China and Russia?

The statements that have been made by political leaders in the not too distant past, are we as a country are we lurching or edging towards the authoritarian side.

Does that mean that reengagement may never happen or it will be very difficult to achieve.

We will be reengaging with the authoritarians rather than West, that is one possible explanation.

TN: What hope is there for us? Reengaging with China, reengaging with Russia?

Can we examine those two possibilities?

I mean Russia is in a war with the rest of the world and Ukraine.

China seems not to be so focused on Africa as it were, at least not according to the terms that we thought China would be engaged with us or rather we do not seem to be in charge of those terms?

TH: I think it is true certainly that we are not in charge of those terms.

I think it is a bit difficult to know quite where China’s thirst is at the moment.

I think they have a number of issues on their hands.

Obviously, the problems they are having with Covid is very critical at the moment.

But also, the extension of the existing leadership for a third term and so on which is a break from the past.

I think China in some ways has been a disappointment for the West.

Let me put it this way, it was always thought (former British prime minister) David Cameron and (former US presidents) George Bush and (Barack) Obama and others that it would be possible to have a positive economic relationship with China, but only political differences.

Now the thought is that the economics are not so easy to organise, that China is a very strong economic power and a real threat to Western economic norms and I think that is a problem.

TN: With that being the reality that we face one would have said what is our self-interest?

Our self-interest is to put our house in order so that we create jobs, so that we have a vibrant economy and that should dictate, which direction we go.

TH: I agree, but politics is the art of the possible.

There is no doubt in one of the things that the Russian invasion has brought home to me and I am sure to a lot of other people is the way that a number of African countries, many African countries, still feel the strong attachment to people like Russia and China for what happened in the last half century or post-colonial period and pre-colonial period, whatever you want to call it.

I think that has certainly coloured thinking even in countries like South Africa through its ties with the Brics and so on, does have strong ties, economic ties with the likes of Russia and China and so on.

One can understand that. Just the other day the US treasury secretary Janet Yellen said look countries are going to have to choose, are they on our side or their side, and I think that is the kind of talk that governments must be thinking about, African governments all over.

TN: Let us look at our problems as reflected by what has happened this week and last week.

• So we had 100% depreciation of the local currency, and we had a threatened shutdown by citizens.
• Then we saw the president come up to announce what were supposed to be measures to restore confidence, preserve value, restore macroeconomic stability.
• What is your assessment of those measures?

TH: I think one needs to put all of this into context.

TN: Sure.

TH: We have gone back over the last quarter of a century with sets of measures of different kinds, (former Reserve Bank of Zimbabwe) governor (Gideon) Gono when he was sort of the economic czar up until dollarisation in 2009.

Then we had the attempt to de-dollarise, which is what we are still doing.

Then we have had one set of new measures after another, and people standing like (RBZ) governor (John) Mangudya remember in 2019 him saying he is preserving value, we have a stable currency and so on, saying the same thing now three years down the road.

What is difficult about it is that, for example, the freeze on bank lending lasted all of seven days and it is very difficult.

People have been organising seminars and breakfast meetings and so on to analyse the president’s statement, but it has changed in fundamentals even before you have had the breakfast.

So events are moving pretty quickly and that I think goes back to your first question, is the situation worse than it was in 2007/8.

There are hopes that by marginalising the auction you now are shifting foreign currency trading to the interbank market, but you have this limitation of US$10 000 a week per client.

That obviously cannot last, it is going to have to change I think.

The problem that is bothering Government, and one has sympathy with them, is that all we are seeing so far is the market chasing the parallel.

Obviously, the aim is to converge.

There is no sign of that yet, maybe it is coming hopefully, but that is the aim of the policy.

Even then you have to ask the question, what are we converging with? I mean who wants a Zimbabwe dollar?

And that to me is the key issue, how do you restore confidence in a currency which wherever you go you do not see it used any longer?

You talk to businesses and they will tell you 70% and over probably, something like that is US dollars.

The ZWL (Zimbabwe dollar) has lost traction, let us use that word, and going back it is going to be very difficult. Is it too late to go back or does Zimbabwe have to re-dollarisation again?

I think that is the choice facing the country at the moment.

TN: There is a sense Tony, that there is no country in the world that dollarised and was able to get out of dollarisation?

• Is that the quandary that we find ourselves in?

TH: Yes, I think that is probably true. There are cases like Israel and so on where there were very high levels of dollarisation and they have now gone back to their own currency, but it is very difficult.

I struggle to think of any country that has abolished use of its own currency as has happened here in 2009 and then gone back to it.

That is slightly more difficult than we think.

Quite a lot of countries in emerging markets; Asia, Latin America, Africa have quite high levels of dollarisation in terms of dollars as a proportion of total.

• “In Conversation With Trevor” is a weekly show broadcast on YouTube.com//InConversationWithTrevor. Please get your free YouTube subscription to this channel. The conversations are sponsored by Nyaradzo Group.