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News outlets are once again showing images of smoke and fire in Zimbabwe, a country that has come to epitomise societal decline. At $800, Zimbabwean real GDP per capita is lower than in 1960, having dropped by more than a third since the late 1990s. The very landscape tells a story of demise: empty grain silos tower over abandoned fields, disused railway tracks lead to silent factories. The former bread basket of Africa turned into a basket case. Against this background, the recent protests may at first seem like feeble pleas for change that will never come. Robert Mugabe has ruled for 36 years. But something is different. The economic disaster that he has created is imposing limits to his politics. And for the first time, he does not have a way out.
The ruling Zimbabwe African National Union (ZANU-PF) party’s unexpected defeat in the referendum of 2000 is often considered the launch of disaster. Mugabe, who had led the battle against white-minority rule two decades earlier, was visibly shaken by his people’s choice not to extend his executive powers. Determined never to be challenged again, the government set in motion a number of policies, the most important of which was to abolish private ownership of land. Politically, this achieved two things: by presenting the move as anti-colonial, Mugabe rejuvenated his liberation credentials, and by transferring all land to the government, he suddenly controlled an enormous resource to be given or taken at a moment’s notice to whomever he saw fit to punish or reward.
But setting up this modern version of feudalism had two immediate impacts on the economy. It lowered investment in land since people feared loss of property which, in turn, meant lower production. And it removed the ability to use land as collateral. Both of these meant dramatic destruction of value for white and black Zimbabweans alike as the near-collapse of the agricultural sector reverberated through the whole economy.
Around the same time, the government began increasing print-runs of the national currency, the Zimbabwe dollar, as a way of covering expenses now that it had shrunk its tax base. Deficits financed by printing money while cutting the supply of goods was the recipe for a perfect monetary storm. With a peak of close to 80 billion percent monthly inflation by late 2008, Zimbabwean hyperinflation surpassed that of the Weimar Republic by a wide margin. The local currency became worthless. Since the use of foreign currency was illegal, Zimbabweans—many of whom had belonged to the middle class—resorted to bartering and black-market transactions to find food and ways of protecting their savings.
The elections of 2008 took place in the midst of this. Despite ZANU-PF’s most violent efforts to the contrary, Zimbabweans returned a parliamentary majority for the Movement for Democratic Change (MDC). Mugabe—though he remained president—was forced into a Government of National Unity together with the MDC.
Above all, the new government was tasked with ending inflation which it achieved by “de-illegalising” the use of foreign currencies. Overnight, the US dollar replaced the Zimbabwe dollar and, for some time, the monetary mess seemed sorted. The economy exhibited double-digit growth as consumers and producers could transact in currencies they trusted. Moreover, the presence of a coalition government offered a degree of confidence that the politics which had wreaked havoc with the economy had been curbed.
Not so. Skilfully, Mugabe used MDC’s time in government to expose and exaggerate its weaknesses. By the time of the elections in 2013, MDC had lost much of the saviour status enjoyed five years earlier and the electoral support it still did receive was undermined by election irregularities. To the surprise of both domestic and international observers, ZANU-PF was once again the sole ruler of Zimbabwe. The post-dollarisation boom ebbed.
With most of the agricultural sector raided and the election victory behind him, Mugabe turned his attention to the rest of the economy, particularly the mining sector. “Foreign ownership,” including ownership by white Zimbabweans, was to be indigenised in the name of national empowerment. In practice, this often meant handing over assets to important supporters who lacked the experience to keep the businesses going. Not only did this worsen the already-struggling unemployment and export-earnings situation, it also meant that even more goods had to be imported. By 2014, almost $3bn more dollars left than entered the country. Zimbabwe was quickly running out of money.
At the start of this year, the lack of US dollars had become painfully clear to the government. In earlier years, it could have printed more Zimbabwe dollars to ease the demand for hard currency. Since hyperinflation, that is no longer an option. In even earlier years, it could have borrowed on the international capital markets. Since defaulting on the IMF in the late 1990s, that is not an option either. Instead, the government is experimenting with various forms of local supplements to the US dollar, including introducing so-called "bond notes" which the opposition failed to block through the High Court earlier today. These experiments notwithstanding, liquidity remains a huge challenge.
For ordinary Zimbabweans, the disappearance of cash has created a situation similar to that in 2008 when money existed but was worthless: they have no way of transacting and getting on with their lives. That is the reason why protests have erupted. But this time, there is no dollarisation to alleviate the situation and buy the government time. That pill only works once. The costs of its policies have caught up with the regime: it has raided almost everything worth anything without allowing regrowth and it is now running on fumes. Short of a large donation from some foreign benefactor, there is no way out. President Mugabe is at the limit of his politics. Zimbabwe is about to be a place of hope and aspiration once again.
News outlets are once again showing images of smoke and fire in Zimbabwe, a country that has come to epitomise societal decline. At $800, Zimbabwean real GDP per capita is lower than in 1960, having dropped by more than a third since the late 1990s. The very landscape tells a story of demise: empty grain silos tower over abandoned fields, disused railway tracks lead to silent factories. The former bread basket of Africa turned into a basket case. Against this background, the recent protests may at first seem like feeble pleas for change that will never come. Robert Mugabe has ruled for 36 years. But something is different. The economic disaster that he has created is imposing limits to his politics. And for the first time, he does not have a way out.
The ruling Zimbabwe African National Union (ZANU-PF) party’s unexpected defeat in the referendum of 2000 is often considered the launch of disaster. Mugabe, who had led the battle against white-minority rule two decades earlier, was visibly shaken by his people’s choice not to extend his executive powers. Determined never to be challenged again, the government set in motion a number of policies, the most important of which was to abolish private ownership of land. Politically, this achieved two things: by presenting the move as anti-colonial, Mugabe rejuvenated his liberation credentials, and by transferring all land to the government, he suddenly controlled an enormous resource to be given or taken at a moment’s notice to whomever he saw fit to punish or reward.
But setting up this modern version of feudalism had two immediate impacts on the economy. It lowered investment in land since people feared loss of property which, in turn, meant lower production. And it removed the ability to use land as collateral. Both of these meant dramatic destruction of value for white and black Zimbabweans alike as the near-collapse of the agricultural sector reverberated through the whole economy.
Around the same time, the government began increasing print-runs of the national currency, the Zimbabwe dollar, as a way of covering expenses now that it had shrunk its tax base. Deficits financed by printing money while cutting the supply of goods was the recipe for a perfect monetary storm. With a peak of close to 80 billion percent monthly inflation by late 2008, Zimbabwean hyperinflation surpassed that of the Weimar Republic by a wide margin. The local currency became worthless. Since the use of foreign currency was illegal, Zimbabweans—many of whom had belonged to the middle class—resorted to bartering and black-market transactions to find food and ways of protecting their savings.
The elections of 2008 took place in the midst of this. Despite ZANU-PF’s most violent efforts to the contrary, Zimbabweans returned a parliamentary majority for the Movement for Democratic Change (MDC). Mugabe—though he remained president—was forced into a Government of National Unity together with the MDC.
Above all, the new government was tasked with ending inflation which it achieved by “de-illegalising” the use of foreign currencies. Overnight, the US dollar replaced the Zimbabwe dollar and, for some time, the monetary mess seemed sorted. The economy exhibited double-digit growth as consumers and producers could transact in currencies they trusted. Moreover, the presence of a coalition government offered a degree of confidence that the politics which had wreaked havoc with the economy had been curbed.
Not so. Skilfully, Mugabe used MDC’s time in government to expose and exaggerate its weaknesses. By the time of the elections in 2013, MDC had lost much of the saviour status enjoyed five years earlier and the electoral support it still did receive was undermined by election irregularities. To the surprise of both domestic and international observers, ZANU-PF was once again the sole ruler of Zimbabwe. The post-dollarisation boom ebbed.
With most of the agricultural sector raided and the election victory behind him, Mugabe turned his attention to the rest of the economy, particularly the mining sector. “Foreign ownership,” including ownership by white Zimbabweans, was to be indigenised in the name of national empowerment. In practice, this often meant handing over assets to important supporters who lacked the experience to keep the businesses going. Not only did this worsen the already-struggling unemployment and export-earnings situation, it also meant that even more goods had to be imported. By 2014, almost $3bn more dollars left than entered the country. Zimbabwe was quickly running out of money.
At the start of this year, the lack of US dollars had become painfully clear to the government. In earlier years, it could have printed more Zimbabwe dollars to ease the demand for hard currency. Since hyperinflation, that is no longer an option. In even earlier years, it could have borrowed on the international capital markets. Since defaulting on the IMF in the late 1990s, that is not an option either. Instead, the government is experimenting with various forms of local supplements to the US dollar, including introducing so-called "bond notes" which the opposition failed to block through the High Court earlier today. These experiments notwithstanding, liquidity remains a huge challenge.
For ordinary Zimbabweans, the disappearance of cash has created a situation similar to that in 2008 when money existed but was worthless: they have no way of transacting and getting on with their lives. That is the reason why protests have erupted. But this time, there is no dollarisation to alleviate the situation and buy the government time. That pill only works once. The costs of its policies have caught up with the regime: it has raided almost everything worth anything without allowing regrowth and it is now running on fumes. Short of a large donation from some foreign benefactor, there is no way out. President Mugabe is at the limit of his politics. Zimbabwe is about to be a place of hope and aspiration once again.
