Source: Early signs of 2008? – NewsDay Zimbabwe September 27, 2017
CASH barons have hijacked the economy and are now holding it to ransom, as evidenced by the recent increments in prices which is driving inflation.
BY TATIRA ZWINOIRA
RBZ governor John Mangudya said it was high time that they dealt with the parallel market, as it was now contributing to growing market indiscipline.
“We need to work together to get these people. I have said it many times there is too much market indiscipline and that is what is behind all these challenges,” he said.
Inflation as at the end of August was -0,13% with a trajectory of going into positive territory.
The increments in prices stem from the fact that more and more different stakeholders in the economy are hitting the parallel market on a daily basis seeking foreign exchange, resulting in the number of dealers nearly doubling.
Since they are hitting the parallel market, prices across the economy go up due to businesses having to pass the cost of purchasing the cash on the consumer by factoring it into their cost structures.
This promulgated excessive premiums which as of yesterday were between 40% and 45% since the panic buying of last week up from 15% mid last month.
As such, the numbers of cash dealers has seen three points in the central business district in Harare increasing in parallel market activity. These are Eastgate shopping mall, Fourth Street and Copacabana bus termini.
The reason why businesses and consumers are hitting the black market is to remit foreign currency to suppliers faster than current processes and to either use for daily needs or keep at home respectively.
As a result of this demand, experts say bond notes have lost their value by nearly 50% on the back of their growing into the main currency being transacted.
The major concern from economists, research bodies and even the International Monetary Fund is that if the current currency woes deepen, prices could start to run leading to hyperinflation.
Prices increments
As of yesterday, TM Pick n Pay was selling cooking oil at $3,19 for a two-litre bottle, while a kilogramme of beef was $6,29, sugar was $1,79 (white), one kilogramme of Omo washing powder at $3,35 and 10kg bag of Super Power roller meal at $4,19.
In recent weeks, TM Pick n Pay managing director, Malcolm Mycroft confirmed the slight price increments.
At Food World, cooking oil was out of stock at some of the branches, but was being sold at between $3,20 and $3,40 for a two litre bottle, a two-kilogramme packet of sugar $1,90 (brown), one kilogramme of beef $6,44, 10 kilogram bag of roller meal $4,87 and one kilogramme of Omo washing powder $4.
The same was true of Spar Zimbabwe who was selling cooking oil at $3,99, two kilogramme bag of sugar $1,95, and one kilogramme of beef $6,50.
Lastly, at OK Zimbabwe, they were only selling 750 ml bottle at $1,65. The retail chain was not selling two-litre bottles.
While it may seem that these prices are not that much, a few months back, cooking oil was ranging from $2,80 and about $3,20, one kilogramme of beef $5 and $6, a two kilogrammes packet of washing powder between $4 and $5, which is now ranges between $5,50 and $7.
For sugar, a two-kilogramme packet was selling between $1,50 and $1,70.
Coinciding with these increments is a growth in cash premiums by an average of 27,5% to the current figures.
But, to understand the prices one needed to understand the parallel market.
Confederation of Zimbabwe Retailers president Denford Mutashu said the public must not panic, but admitted erratic supplies of cooking oil would exacerbate the issue.
“There is no shortage of basic commodities in stores,” he said.
Mutashu added that more needed to be done to allocate foreign currency for the importation of crude oil for cooking oil to avoid future shortages.
The rise of cash barons
Investigations by this paper found a Toyota Land Cruiser and Toyota Hiace (high roof) among several other hidden vehicles parked at the Fourth Street Bus Terminus opposite the Harare Roadport.
The Land Cruiser is managed by two brothers identified by several taxi drivers in the area as Nobert and Courage. These two are working for a cash baron, who suppliers them, with thousands of dollars, whom they meet twice a day in the morning and at night when the cash dealers knock off.
In the mornings, both Courage and Norbert meet the cash baron at the Holiday Inn where they are given huge amounts of cash, largely in bond notes and take it to distribute to a network of cash dealers.
“Sometimes what these cash agents do is hire us taxi drivers and take us to meet their bosses, the cash barons. Once there, we wait in the car, while they go and meet the barons. After sometime they came back and put huge amounts of cash at the back of the car. We then bring the cash, together with the agent, to be distributed to these cash dealers you see (Fourth Street terminus),” a taxi driver said.
Another dealer, who goes by the name Mai Sithole, revealed that there has been a drop in United States dollar supply and as such was trading in bond notes.
“We have not had a lot of United States dollars on the market. Right now what we are doing is trading bond notes because that is all we have,” she said.
Closer to Holiday Inn between Nelson Mandela Avenue and Kwame Nkrumah along Fifth Street, the paper identified a further four vehicles being run by these cash dealers.
One of the vehicles opposite the hotel was the only one parked there as Easi Parking attendants said it was being driven by someone operating under the guise of Zanu PF.
Of the better-known runners was a woman by the name Mai Tanaka, who got cash from one of the vehicles parked closed to the Holiday Inn.
As it stands, a person needs $140 worth of bond notes to buy $100, $120 bond notes to buy R1 250 and R1 280 to get $100. EcoCash transfers incur a 40% premium while bank transfers incur 40%.
Upon listening to one of the conversation among the cash dealers, NewsDay found out that of late the cash barons had been supplying their agents, with more bond notes as there had been a general decline of United States dollars.
The cash barons are believed to be people with access to two major banks.
However, the decline of United States dollars could be seen at the end of the half year reporting by some of top banks.
Bank cash and balances
With over 350 000 depositors and being the country’s largest bank, at the end of the period ending June 30, CBZ Bank reported having cash of $8,86 million and $1,9 million in nostro accounts.
For Stanbic Bank, the figure was slightly lower despite being part of the Standard Banking group headquartered in South Africa. As such, the bank reported having bank notes of $4,9 million down from $10,88 million from the start of the year.
Another South African-based bank, the African Banking Corporation Zimbabwe Limited (BancAbc) also had low cash in their vaults.
Though the bank grew their cash on hand by nearly three quarters at the end of the comparative period in 2016, they reported having $6,54 million cash on hand at the end of June 2017.
Local bank, FBC Bank, reported having notes and coins amounting $5,15 million at the end of June which was down 2016’s comparative of $6,9 million.
Of all the banks that reported at the end of the half year, Standard Chartered Zimbabwe seemed to be in a better positon, though not at encouraging levels.
At the end of the same period, the bank reported having $19,14 million.
Lastly, CABS, which also has a large depositor base of over 300 000, reported having a meagre $3,06 million and was the bank that recorded the steepest drop from the 2016 comparative of $10,07 million.
Other banks did not report having higher amounts of cash showing the drop in cash is very real and started well before these recent shortages experienced last week.
Results
Overall, the cash crisis is poised to worsen and inflation is set to run.
While RBZ will be tackling cash dealers in the coming weeks, the market indiscipline that has given rise to cash barons will only grow as long as they continue to have access to the financial sector.
Economist Prosper Chitambara said the cash barons were probably people with very specific connections within the financial system.
“Obviously there are people with access to foreign currency but it is really difficult to pin point where they are coming from but I would suspect that they are people who are quite connected,” he said.
“The only solution is to deal with the economic fundamentals. Remember these things have happened before if you look at the history of East Asia and how currency collapsed as a result of some of these activities. So I think without addressing some of these fundamentals you cannot really deal with these issues sustainably.”
Another economist Moses Chundu said since the introduction of the bond at par with the US dollar, the parallel market emerged immediately as was expected.
“However, as long as the players were ‘small’ and trading on margins the effect was not much distortionary. When you have a state actor for instance mopping real money for whatever urgent needs you have your cash barons, who are mandated to raise whatever amount is required,” Chundu said.
“They tend to be careless with the rates as they are not trading on margins and are using readily available bonds. Other barons also emerge on the sidelines leveraging the loopholes in the financial system disbursing the bond notes. The authorities may want to proffer whatever explanation but the experience of yesteryears is what informs the interpretation of what is going on.”.
Unless something is done, international research firm BMI Research inflation figure of 1,4% by year-end 2017 will come true.
If the situation deepens from there, it is predicted to accelerate to 8,5% in 2018 making it the steepest acceleration in price growth since the days of hyperinflation prior to dollarisation in 2009.
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