Strive May Have His Point Right On The Rand But Got His Maths Wrong
20 April 2019
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A lot of publications have run with this story already. Here is what Zimbabwe’s richest man, Strive Masiyiwa said:

Let me put the proverbial cat among the pigeons, a loaf of bread in South Africa costs R9.50. It costs R30 in Zimbabwe. 3x!!! Eighty percent of imported goods in Zimbabwe come from South Africa. It’s not uncommon to find those same goods costing anything above three times the cost.

The people who pay for a lot of goods are Zimbabweans living in South Africa, through their remittances. The cost structure – labour and goods – in Zimbabwe is distorted by the arbitrage of the United States dollar as a currency of settlement for rand imports.

This is not the same thing as joining a rand monetary area, or customs union, which is a much more complex process. This one can be done overnight, and even voluntarily.

Where the math is wrong

The very example that Masiyiwa gave betrays the error and it’s not his fault. The currency issues in Zimbabwe are just as confusing for residents. A loaf of bread in Zimbabwe is NOT costing R30.00.

Zimbabwe devalued currency by introducing the RTGS$ and floating it against all other currencies including the USD and the Rand. This official position was already late. Everyone knew already that since the introduction of the bond note, the money in our bank accounts was not at par with the USD which was the currency of record.

Even now, we all know the real value of the RTGS dollar is not determined by the interbank market because that market is inaccessible to any of us if we need to buy the USD or Rand. Of course banks will gladly buy USD from us at that rate but none of us will accept that unless you are a tobacco farmer who is being compelled to do so by the RBZ, the state and its guns.

So what is the Rand price of bread in Zimbabwe? First let’s use the official inaccessible interbank rate. Here are the interbank exchange rates on the last day of trading before the long weekend:

From RBZ

Using the above rates, bread in Zimbabwe is costing just above R15.

On the same day, 17 April, the parallel market rate between the USD and the RTGS$ was 4.85 and it was 2.87 between the Rand and the RTGS$. This puts the price of bread at just above R10. Quite close to the bread price that Masiyiwa quoted for South Africa.

Why this matters

Someone is obviously going to comment that I am knit picking or that I want to sound smart or that I hate Strive Masiyiwa. It’s crazy how we have lowered the standard of debate in this country. Anyway, the above matters because it defines the problem in Zimbabwe differently.

We will be in error if we interpret the problem under false assumptions because we will switch things around including currencies of record and still be stuck in the same place.

If you do price comparisons between Zimbabwe and South Africa using the reality of the currencies we are using here in Zimbabwe you will not find much of the arbitrage that Strive Masiyiwa mentioned. If we use his math it would mean Masiyiwa’s business Econet is also benefiting from arbitrage and the cost of telephony in Zimbabwe is much more expensive than in South Africa. This is simply not true.

The problem in Zimbabwe is that we were robbed of US dollars that we had been earning and saving since 2009 and they were swapped with RTGS$. The RTGS$ itself was devalued, first by real market forces and then later by official decree when the interbank market was introduced. However, our earnings were not adjusted to reflect this devaluation.

The price of bread in real terms has not gone up (in some instances it has actually gone down) but our capacity to afford it has been eroded. This reality will persist even if prices are quoted in Rand. We will still be charged for goods in a currency we are not earning whilst the currency we are earning is continuing to lose value.

Where adopting the Rand may make sense

Masiyiwa’s comment on how 80% of our imports are coming from South Africa is accurate. Adopting the Rand thus makes sense but not just businesses quoting prices in Rand as he suggests because that may make things worse. What would make sense is what Tendai Biti proposed: total adoption of the Rand.

Zimbabwe definitely needs a stable currency and the US dollar is not too good. South African businesses and others from other countries will continue flooding their wares here hunting for the USD. A strong and high demand currency is a curse when in the position Zimbabwe finds itself in right now.

However, the problem above may be achieved by other currency reforms that are not necessarily the adoption of the Rand. This is why diagnosing the problem is important before administering medicine; it broadens up the possible solutions.

The government is insincere in saying the price adjustments are not justifiable. They must admit that the problem is that Zimbabweans are daily losing their capacity to afford basic goods and services because of chaotic currency regimes. Admitting that as the real problem is the first step to solving it. Whether the solution is Rand adoption or not doesn’t matter as long as the solution is structurally sound based on the real problem.