The New York Times  
 
 

May 21, 2005

Zimbabwe, Long Destitute, Teeters Toward Ruin

By MICHAEL WINES
 

BULAWAYO, Zimbabwe - In the weeks before parliamentary elections in March, the leaders of this threadbare nation threw open the national larder, wooing voters with stocks of normally scarce gasoline and corn and a flood of freshly printed money.

It may have helped: the ruling party, President Robert G. Mugabe's ZANU-PF, was installed for another five years. But Zimbabwe's Potemkin prosperity has evaporated since the elections, replaced by penury and mounting signs of economic collapse.

Here in the second largest city, lines of cars stretch a quarter mile and more at fuel-parched service stations, and drivers spend the night in their cars' back seats lest they lose their place in line. Milk, cooking oil and, most of all, corn, the national staple, are a distant memory at most stores. At one downtown grocery, tubes of much-prized American toothpaste are kept in a locked case.

Zimbabwe's currency, which traded on the black market at 120 to the dollar in April 2002, went for 6,200 to the dollar last December, 12,000 on April 1, and 17,000 in early May. By mid-May a single American dollar brought as much as 25,000 Zimbabwean dollars, though the rate has since steadied at about 20,000.

[Zimbabwe's government steadfastly maintained an official exchange rate of about 6,100 Zimbabwean dollars per American dollar until Thursday, when the nation's reserve bank announced a devaluation. But business managers here say the new official rate - 9,000 per American dollar - is unlikely to have more than a brief impact on the economy.]

"It's running out of control," one Bulawayo manufacturer said in an interview. "When you're going down a path of destruction, you can keep putting patches on the tires - patch, patch, patch - but eventually the tire is going to burst."

Business executives interviewed for this article almost uniformly refused to be named, fearing that criticism of economic policies would doom their scant chances of receiving government assistance.

One persistent critic, John Robertson, a former government economist, said the government appeared to have exhausted its reserves on the feel-good campaign before the parliamentary elections and was now paying the price.

For years, of course, Zimbabwe's economy has been a chewing-gum and baling-wire affair, with 70 percent unemployment, triple-digit inflation and a currency no foreign creditor will accept. Prosperity has been receding since the late 1990's, when the government's attacks on international creditors and its seizure of commercial farms set off a cascade of economic backlashes.

Past economic plunges have provoked food riots, gas-line protests and government crackdowns. This time the government has sent the police to quell mobs outside groceries and gas stations, and started rounding up street merchants who deal too openly in black-market goods and selling currency at illicit rates.

Yet some say that the current crisis, perhaps the worst since the economy began foundering, may mark a turning point. Zimbabwe's main economic problems - capital flight, a dire shortage of foreign exchange with which to buy imports, and turbocharged inflation - are now so severe that they are eroding what remains of the industrial and agricultural base.

Manufacturing has slowed to a trickle, hamstrung by shortages of fuel and imported components. Businesses have been driven to barter and the black market, adding to the inflation. Appeals for government help are mostly fruitless. The government is all but broke.

"The scarcities now are coming from manufacturers who can't deliver enough to retailers to fill their shelves," Mr. Robertson said in an interview in Harare, the capital.

Initially the problem was that manufacturers could not cobble together enough supplies to make their products. "Now that there are more critical shortages in things like fuel," he said, "it's almost academic whether they can get the material, because they can't deliver the products anyway. The end result of the shortages is that prices are rising."

In Harare in the second week of May, rumors that a shipment of sugar had arrived created a line half a mile long outside one suburban supermarket. Yet the problem, Mr. Robertson said, was not so much a shortage of sugar as a shortage of the imported polyethylene bags that hold it.

Coca-Cola is being rationed because the gas used for carbonation is in short supply and the local bottler cannot find foreign currency to buy the imported syrup. Virtually any product made of steel is hard to find, because most rolled steel is imported from South Africa, and South African steel mills are demanding cash up front from Zimbabwean customers.

"It's what I call a chain-link economy," said one Bulawayo maker of a basic steel commodity. "Company A manufactures parts for Company B, and Company B manufactures a part for Company C, and so on until company F makes the finished product. What's happening is that the links are falling apart."

That manufacturer offers a line of 25 products. Only four are being made, because he cannot find paint, abrasives and braces to make the others. "They're all imported," he said of the materials, "and if there's no foreign currency, then my supplier can't buy them to sell to me."

Zimbabwe's immediate problem is that it has run out of foreign currency. But that is only one domino in a long chain that threatens to bury the economy.

Agricultural exports were an economic mainstay. But in the last five years, Zimbabwe's parceling out of 5,000 commercial farms among squatters and peasants has caused the collapse of commercial farming. That has destroyed the businesses that supported it, from tractor sales - the nation needs 50,000, and has fewer than 400 working ones - to irrigation suppliers.

That only deepened the export tailspin: Zimbabwean tobacco production is down two-thirds in five years, for instance, and the quality, once world renowned, is so poor that buyers are scarce.

Falling exports made foreign currency more expensive, causing exchange rates to rocket. But the government has generally chosen to print more money instead of readjusting the value of its currency; Zimbabwe's money supply rose 226 percent in 2004.

The result has been hyperinflation and a thriving black market in money and goods. Hyperinflation and the artificial exchange rate, in turn, have crippled gold mining, Zimbabwe's other big export industry. Production fell 18 percent in the first quarter of 2005.

[The government's latest devaluation of the Zimbabwe dollar sets special, higher exchange rates for exports of gold and cotton, two major industries facing collapse in the current crisis. The loss of either would crimp foreign-currency receipts even more; a collapse in cotton would pull Zimbabwe's textile industry down as well.

[The higher exchange rates effectively are subsidies, costing the government the equivalent of scores of millions of American dollars. Asked how the government would get the money to subsidize the two industries, the economist, Mr. Robertson, said, "My feeling is that they'll print it."

[The government said Friday that it would also budget more money to import grain, hoping to avert what some experts say is a looming famine when the harvest that ends in May - by all accounts a dismal failure - has been consumed.

[Zimbabwe needs about 1.6 million tons of grain a year, and officials say they intend to purchase 1.2 million tons. But corn imports from South Africa, Zimbabwe's only supplier of note, totaled a bare 37,500 tons in the last month, far short of demand. It is unclear where the government will find the foreign currency it needs to buy grain abroad.]

Starved for foreign currency to import crucial supplies, the government now requires all businesses to trade 25 percent of their foreign income at the official exchange rate. That hits businesses with a double whammy: they have less foreign money to buy imported raw materials, and they must raise prices to make up their currency losses.

If that seems a formula for more shortages and more inflation, few business managers here would disagree.

Tony Rowland, the chief executive of Bulawayo-based Zimplow, employs 400 people to make animaldrawn plows from steel rolled at one of Zimbabwe's few domestic mills. To hedge against the constantly rising price of domestic steel, he reinvests his profits in something that rises with inflation: nuts and bolts.

"I've become a steel dealer," he said. "I've had to expand my business to things beyond my core business to keep going." Were he forced to buy and sell at the official exchange rate, he said, "I'd be dead in the water."

Mr. Rowland and others say that even partial devaluations of the currency by the government will not revive the economy or save businesses and that an economic overhaul that reflected reality would impose unacceptable suffering on ordinary citizens who already undergo too many hardships.

"Something's got to give," said another Bulawayo manufacturer, a major exporter. "The problem is that the decisions to be made are so radical, and would affect the average man so badly, that they'll never be made. Not under the current environment, anyway."

So Zimbabweans muddle through. In Harare, the chief of a major consumer products company said recently that he had junked his accounting software until programmers could adapt a Turkish version to his requirements. The problem: the Zimbabwe spreadsheets cannot accommodate the flood of zeros required for transactions that now run into the billions - even the trillions - of Zimbabwean dollars.

"We've run out of noughts," he said.