10 trillion Zimbabwe dollars!

Monday August 31 2009

Counting a bunch of Zimbabwean dollars.

Counting a bunch of Zimbabwean dollars. Picture: Reuters 

By Ian Parker

THE CHEQUE HAD SPACES FOR NOT ONLY BILL-ions, but trillions, quadrillions, quintillions and hexatillions: the last three being words I had never encountered before.

One hears of Zimbabwe’s problems, but it is not until you actually see its cheques and bank notes, that reality strikes home. What seems like an awful lot of money is worth nothing. The 10 trillion dollar note above was offered to a hawker on a Harare street for one avocado and he refused to accept it.

What madness led Zimbabwe to even print such worthless currency? Now, of course, its government has given up and the only acceptable currency is the US dollar. How the man in the street is expected to obtain American dollars is a mystery.

There was a time when the Zimbabwe dollar was nearly as strong as the US dollar, and, just as Kenyans are confident in their shilling, so Zimbabweans were happy to measure wealth in their national dollar.

The majority who once held robust bank accounts watched with amazement and horror as their dollars became ever smaller until, as is the case now, they are worth zero. Akiba ni mali? Wacha Bwana. Akiba ni upuzi! (Savings is wealth? No way. Savings is nonsense!)

MONEY RUNS AWAY FROM BAD POLICY. AT independence, the three East African nations shared a common currency. Politicians didn’t like this because if they made bad policy, their citizens could quickly move their money across the nearest border.

Mwalimu Nyerere wanted to experiment with socialism, but knew that while his country shared a common currency with Kenya and Uganda, money would run away from his policies over the borders into his two neighbours. Only after having achieved a national currency, was he free to experiment.

If money cannot run away (that is, you cannot move it where you want to), it shrinks in value.

So it was not long before the Tanzanian shilling, which started at parity with Kenya’s shilling, was only 10 per cent of the latter currency’s value. Money held in Tanzanian banks bought less and less and less.

That was the product of bad political decisions.

Interestingly, the Maasai were among the least affected because they did not trust money and preferred their traditional criterion of wealth — cattle.

Because cows did not have Nyerere’s head stamped on them like coins and bank notes, they held the same value as cattle in Kenya, where they could be traded for Kenya shillings. In the circumstances, Maasai conservatism was not so much backward as common sense.

Other Tanzanians followed suit. During research in 1980, I was amazed at the volume of potatoes coming out of Kenya’s Kajiado district — where the Maasai were not farmers, needless to say.

Of course, the potatoes were being produced by the Chagga on Kilimanjaro, and it was easy for them to market their produce across into Kenya. Like cattle, potatoes were not stamped with the national emblems and were freely negotiable in Kenya.

In times of monetary instability, it is sensible to buy things whose value cannot be controlled by politicians — like gold and land.

Seeking to block such escapes, Nyerere monopolised trade, prevented people from holding gold and nationalised all land, trying to remove these traditional refuges as the value of his shilling fell.

Despite being a good man and not corrupt, his experiments failed and he ruined his country financially. Tanzanians abandoned Nyerere’s currency and reverted to barter.

To get manufactured goods from the outside world, they smuggled commodities — coffee, hides, gold dust, ivory etc — whose Tanzanian origin was difficult to prove once across borders, particularly into Burundi and Kenya.

ZAMBIA WAS ANOTHER CO-untry that followed a similar economic trajectory, reaping the same bitter harvest of impoverishment. Both Tanzania and Zambia have since recovered from the low points they reached and now enjoy relative stability.

They nevertheless illustrated what can happen when politicians control the value of money.

Zimbabwe’s spectacular monetary collapse reflects the same problem exacerbated by a degree of corruption unmatched in Tanzania and Zambia.

It was coupled to the destruction of land value — the shelter to which many run when a currency loses value. The Zimbabwe land issue had similarities to that in Kenya, though there were also profound differences.

Historically Rhodesia’s incoming white colonists seized a greater proportion of the country than happened in Kenya.

Indeed, the scale of their acquisition directly influenced London’s insistence that in the British East Africa Protectorate (Kenya), white settlers could not buy land from Africans; they could only acquire it from the government which, theoretically, was supposed to ensure it was free of native tenure.

Throughout the colonial era, Kenya’s peoples were vocal about the land they had lost, and it was always an issue in the public eye.

Faced with an Independence that they could not delay, Kenya’s whites were never sufficiently numerous to oppose the process by force. The British government eased their predicament by giving the Kenya government funds to buy white farms on a large scale.

There was a certain justice to this as the white Kenya settlers were initially invited to Kenya by the British government. The process was regulated and there have been few instances in history in which a transition on this scale took place so peacefully.

Proof of the success lay in the sustained value of the Kenya pound (Ksh20) which, until the early 1980s, and long after the major land buyouts were concluded, retained its parity with the British pound.

Southern Rhodesia (Zimbabwe’s colonial name) had internal self-government in 1923, a larger white population than Kenya and fewer native people. With the Unilateral Declaration of Independence in 1965, the Rhodesian government rebelled against Britain.

At the time Harold Wilson, the British Prime Minister, told white Rhodesians that if they went ahead they would thereafter be on their own. There followed a 15-year guerrilla war that ended in African rule.

With Mugabe in power, things went smoothly initially. Most high potential agricultural land remained in the hands of a white minority — now called “commercial farmers.” Their output was exceptional, giving Zimbabwe the title of Central Africa’s breadbasket.

The country’s commercial farming output, its relatively high level of industrialisation and, even after 15 years of guerrilla war, its strong economy, reduced the urgency for the government to address the land issue.

The commercial farmers, wrongly believing that their economic value would act as a shield against transferring land from white to black hands, put the idea to the back of their minds.

Britain did eventually put up some money to buy white farms along the lines of the Kenya precedent. However, the money was nowehere near as much as promised and it was not spent on the intended purpose. Corruption was gathering pace.

Mugabe’s performance was coming under rising criticism from his own people. Bereft of any solution, he fell back on land, simply allowing people to take it.

Rising corruption and disregard for law — which are more or less the same thing – sent the Zimbabwe economy into steep decline, but it was the attack on land tenure and values that produced the 10 trillion dollar note worth nothing portrayed at the beginning of this article.

Where Zimbabwe was concerned, politicians from across the board played their cards badly. Everyone lost. The commercial farmers lost their land and their investments.

The war veterans (most of them too young to have fought in the war before 1980) acquired land they were not equipped to farm. Agricultural production plummeted. In reaction, the value of Zimbabwe’s money melted like ice cubes in hot sunlight.

And so we are back on my hobbyhorse: Land policy in Kenya. We have some of the elements that have brought Zimbabwe to its tragic situation today. We have corruption. The proposed land policy will constrict private land ownership and challenge its value as an asset.

One has only to look at Tanzania and Zimbabwe to see that tampering with land tenure risks an avalanche of dangerous consequences. Remember, money runs away from bad policy and, if it cannot run away, it loses value, ending up as worthless paper.

Mark you, while thinking of Zimbabwe’s trillion dollar notes, I happened to read in a newspaper article that the US is in debt to the tune of $30,000,000,000,000. May be it might make sense to follow the Maasai and stay with cattle.

All these noughts frighten me.