After defying economic gravity for a year, Zimbabwe’s homemade U.S. dollars have fallen to earth with a bump.
Rumours the central bank was buying up black market U.S. dollars last month with one of its own versions of the currency created panic in a country scarred by the hyperinflationary spiral of 2008 that wiped out people’s savings. The worthless Zimbabwe dollar was replaced by the U.S. dollar in 2009 but the economy has struggled over the last 18 months because of a massive domestic shortage of greenbacks.
As a result, cash, especially crisp, new, $100 bills, has enjoyed a steady 10 percent to 20 percent premium over dollars stored electronically in bank accounts – nicknamed “zollars”.
But two weeks ago, the rumours that even the central bank had run out of hard currency sent the premium soaring to nearly 50 percent, according to black market traders and unofficial measures of the zollar value.
“I am really scared that I will wake up one day and find my money in the bank is worthless,” said Jethro Nkosi, a computer technician at a hotel in the capital Harare.
The central bank has not published currency reserves since dollarisation and Zimbabweans worry it is creating zollars without the backing of sufficient reserves or gold, leaving the system vulnerable to a crisis of confidence. Another currency implosion would also be a major headache for 93-year-old President Robert Mugabe as he seeks to extend his 37 years in power in an election in less than a year.
On Friday, buying $100 in cash via a bank transfer cost 145 electronic zollars, a marginal improvement on 160 last week. But on Sept. 23, when rumours of the central bank buying black market dollars swept Harare, the rate spiked to 185. The price of everyday goods has also leapt as importers of food to fuel to medicine are forced to turn to an increasingly unfavourable and risky black market to pay for their wares.
In just one week, the cost of cooking oil, cereal and butter imported from South Africa leapt by as much as 30 percent.
Dollars Bollars Zollars?
One Harare banking source said the Reserve Bank of Zimbabwe’s (RBZ) Fidelity Printers and Refiners division sparked the panic two weeks ago by offloading a large quantity of dollar “bond notes” to buy gold from small-scale mining firms.
When the newly minted notes, nicknamed “bollars”, hit the streets, currency dealers assumed the central bank was mopping up greenbacks from the black market, sending the value of real dollars soaring.
Bond notes are the third form of dollars used in Zimbabwe, besides cash and zollars. Like their electronic counterparts, the quasi-currency notes are meant to be equivalent to dollars issued by the U.S. Federal Reserve but they are now worth less. The notes, backed by an opaque $200 million loan facility from the Cairo-based Afreximbank, were first introduced in November. This week they were trading at 1.3 to the dollar after weakening to as much as 1.5 in late September.
The banking source said RBZ’s Fidelity, Zimbabwe’s sole gold trader, was paying mining firms for gold 60:40 in dollars and bond notes, compared with only dollars a month ago – and that had fuelled suspicions the RBZ was running out of hard currency.
Reserve Bank of Zimbabwe Governor John Mangudya denied Zimbabwe was locked in another currency crisis. He told Reuters the bank was spending $1 million in bond notes a week to buy gold but said that should not affect currency market values.
“In an economy with $180 million of bond notes, I am not very sure whether that amount could have been responsible for a few days’ change in economic fundamentals of premiums in the parallel markets,” he told Reuters.
Cars, houses or stocks?
However, the situation is febrile and fluid. To try to prevent a run on the domestic banking system, the government has tried to kill the black market with decrees giving the police more powers and stating that illegal currency traders face up to 10 years in prison. Despite the warnings, illegal currency dealers continue to trade on Harare’s streets, albeit more discretely than usual because of plain-clothes police lurking in the shadows.
“This is the only way I can look after my family. But it will now be difficult to trade openly like we used to do,” said currency trader Theresa Chirwa, glancing over her shoulder as she shoved a wad of bond notes and dollars into her satchel.
Assessing the true value of zollars is difficult but economists have revived a gauge used during the hyperinflation era – the Old Mutual Implied Rate – which compares share prices of the Old Mutual insurance firm traded in Harare and London. As the central bank rumours swirled last month, the premium for Harare shares over their London counterparts surged, meaning Zimbabweans need far more of their electronic dollars to buy the shares than someone in London using ordinary U.S. dollars.
Besides trying to get their hands on hard cash, Zimbabweans are also converting zollars into tangible assets such as cars or property, or piling into the stock market in the hope shares will hold value even if their bank balances are obliterated.
As a result, Zimbabwe’s main stock index, the ZSE Industrial , has surged 77 percent in the last month to a record high of 433 this week. The index has tripled so far this year. “I‘m investing in equity funds – hopefully that should give me some value for my money,” said Nkosi, the computer technician. “We don’t know what tomorrow holds.”
Following TfL’s decision to withdraw Uber’s license to operate in London, there has been a widespread picking over of the ride-hailing app’s recent history – and speculation about its future. A fairly common conclusion is that Uber needs to become more ethical if it is to survive.
I want to suggest that this may not be possible. After the calamitous year Uber has had, it should not be difficult for the company to improve its reputation – simply by avoiding many of the unnecessary embarrassments heaped upon itself in 2017. However, merely improving its PR will not get Uber out of the hole it has now dug for itself. It is looking as though, in many territories such as London, Uber’s survival will rely on concrete measures to better care for both its drivers and customers.
Herein lies the problem. It is not that Uber is incapable of such ethical measures. But for this company specifically, the additional cost that is required to look after drivers and customers is likely to be too great. It all comes down to the economic model on which Uber is built.
There is a great tendency among commentators to focus on the capabilities of Uber’s app, when making sense of its explosive growth across the world. This is a mistake. Figuring that Uber’s app explains its growth is like putting the birthday cake’s appeal down to the candle on top. The engine of Uber’s growth to date has been the US$11.5 billion it has raised from banks and investors. The company has never made a profit, and in 2016 alone lost nearly US$3 billion.
These are staggering amounts, and to make sense of them we need to understand that Uber’s business model is the same as Amazon’s. Amazon became the largest online retailer on the planet by burning through huge sums of investment on the way to becoming dominant in an ever-increasing number of sectors, and a de facto monopoly in some such as books.
Now Amazon is able to use its position to generate the vast profits expected by those that funded its expansion. Effectively, what both companies surely rely on is investors subsidising the prices customers pay in the short term, in return for a long-term monopoly with higher prices.
In reaching this point, Amazon has itself received plenty of criticism, particularly around its tax arrangements and working conditions in its Orwellian “fulfilment centres” (warehouse to you and me). But Amazon has benefited, throughout its growth, from a trump card: its use of a virtual shopfront makes its overheads significantly lower than bricks-and-mortar rivals.
Uber’s fundamental problem is that it does not have this advantage. In his comprehensive critique of Uber, transport expert Hubert Horan made a key observation about the taxi business, which separates it from retail. While shops have used economies of scale to operate first nationally, then internationally, for over a century, taxi companies have remained highly localised. The reason for this, argued Horan, is that the economies of scale are not there for the taking in this market. Some 85% of taxi company costs are drivers, cars and fuel, and this applies whether you cover one city or a dozen.
Not only does Uber not avoid these costs, its model actually introduces new ones. Most dramatically, the costs of becoming established in new markets is vast. This, particularly the artificial subsidising of passenger fees/driver wages to drive growth, is the source of the US$3 billion net loss last year. Ultimately – whether in the form of debt or equity – these sums will have to be paid back, and then some.
Eventually, this additional cost will be felt. Either the driver has to bear it, and so is motivated to look to rival employers, or the customer does, with the same outcome. Uber’s hope must be that when it gets to this stage there will be no alternatives left to chose from.
So can Uber afford to become ethical? Its growth to date has been so costly that even after the raft of regulations it has managed to sidestep, and measures forcing down the income of its drivers, it is losing billions every year. In a properly regulated market, in which Uber has to give its drivers appropriate employment protections, and passengers the safeguards they need, its goal of apparently aping Amazon becomes even harder.
If Uber can achieve market dominance before it runs out of funding, the inefficiencies in its model cease to matter. Society will simply have to carry the cost of higher fares and lower driver wages.
If it fails to achieve near monopoly status and has to continue to compete against local firms, in my view it has little hope of ever repaying its investors. For customers that travel to different cities frequently, Uber’s scale gives them a clear edge. For everyone else, is an app slightly shinier than its competitors’ clones enough to outweigh the higher fares that should come with Uber’s model?
Should Uber ultimately fail, it would open up the possibility of a taxi company fit for the 21st century. One that harnesses the possibilities of digital technologies not to enrich venture capital, but drivers themselves, in the form of cooperatives like the one currently developing in the absence of Uber in Austin, Texas.
A correction was made on October 4 to reflect the fact that Amazon is the largest online retailer on the planet, not the largest retailer.
South Africa’s finance minister ordered the government pension fund on Friday to investigate possible irregularities at the fund to help ally concerns that politicians are trying to “influence” it.
The Public Investment Corporation (PIC), which holds a large chunk of government bonds and stakes in leading South African companies, has come under the public spotlight after reports that the finance ministry had requested 100 billion rand ($7 billion) from the fund to bail out struggling state firms.
Finance Minister Malusi Gigaba has denied making such a request, which drew sharp criticism from opposition parties and civil society. Gigaba said in a statement on Friday he was concerned about the “politicisation” of the PIC and asked its management to conduct a “forensic investigation” into its operations.
“We need to assure pension holders that those with political or economic power will not be allowed to unduly influence the PIC,” Gigaba said. Gigaba also asked the PIC to provide a list of all its beneficiaries and the investments it has made.
The PIC, which was given two weeks to respond to Gigaba’s request, could not immediately comment on the matter. The PIC board said last week its chief executive Daniel Matjila had been cleared of any wrongdoing following an internal audit triggered by allegations that he had allocated funds improperly.