Utter the name ‘RBZ’ in front of most adult Zimbabweans and you’ll hear a ‘tsk tsk’ in return. For all the good that the Zimbabwean central bank has ever done, its failures are just so large as to eclipse it all.
My friend, consider this – some teenagers have gone through multiple hyperinflation periods in their lifetime in this country. I do not think trust in the institution could be any lower.
The same applies to the government as a whole. Zimbabwe is not a bastion of excellence and for all the sanctions talk we can have, the government will have to take a significant piece of the blame pie. My whole life we have talked about a bloated civil servant wage bill and yet civil servants are underpaid. It’s ridiculous.
Then come the state-owned enterprises. While there are some like Telone that are not complete failures, they would probably do much better without government interventions. Let’s not even talk about Air Zimbabwe and ZESA, we all know how successful they have been.
The above is depressing but let’s take comfort in knowing we are not alone on this boat. So many countries out there are unhappy with their governments, central banks and state-owned enterprises.
Some dude in Argentina thought to himself, what if I got into power and did something about it? What if I got rid of the central bank and privatised parastatals?
The crazy Argentine experiment
Javier Milei, Argentina’s soon-to-be president, is shaking things up with some wild ideas. One of his craziest plans is to say adios to the Central Bank of Argentina (BCRA).
Milei thinks the BCRA is like a toothless lion – not doing its job to control inflation and keep the economy steady. You could be forgiven for thinking he’s talking about the RBZ here.
Milei wants to try a new game plan: ditch the central bank and bring in a currency board that ties the Argentine peso to the US dollar. This move would stop the central bank from setting interest rates and printing money.
For context: as revealed by the Mid-Term Monetary Policy Statement, the bank policy rate (commonly just called interest rate on the streets) is 150% in Zimbabwe whilst it’s 133% in Argentina. The USA sits between 5.25 and 5.5%.
Annual inflation in Zimbabwe as measured by the RBZ is 103% whilst Argentina’s is somehow worse at 138%. You know how the Americans have been complaining about high inflation, well, it’s 3.2%.
Can we say the RBZ and Argentina’s central bank are doing a great job in controlling inflation? Milei says, ‘Why should the central bank still exist when it has shown that it is incompetent?’
This is a crazy idea and many economists, even those highly critical of the RBZ would not suggest that we do away with a central bank altogether. However, I guess they will be tuning in to see what happens in Argentina if Milei follows through with his campaign promises of doing away with the central bank.
There’s more. Milei has some other interesting ideas up his sleeve:
- Austerity for Prosperity: Milei wants to trim the fat from government spending by 50% over the next four years. He thinks the government is too big and slow, and these cuts will slim down the budget deficit and help the economy recover.
- MaObama: Milei is talking about going all-in with the US dollar and ditching the local currency. Dude, this guy just keeps sounding Zimbabwean. We have flirted with this idea in Zimbabwe for years but the govt is adamant it would make things worse. Milei thinks this would stop the risk of money losing its value and make investors cheer.
- Govt can’t run no business: Milei also wants to put the ‘For Sale’ sign on some government-owned companies, like the national energy giant YPF. This is eerie, how many people have called for ZESA to be privatised in Zimbabwe? He figures selling them off will make things more efficient and get investors excited.
What’s the Big Picture?
We can look at Argentina as our very own lab rat. We can grab our popcorn and see how it all plays out and then factor in the differences in our economies and assess whether we could pull it off here.
One thing we kind of have experience with is the fixed exchange rate that Milei is proposing. That doesn’t work out if our experience is anything to go by but who knows, it might work out over there. Milei thinks the perks of a free-market approach to monetary policy would outweigh the risks.
Milei’s other proposed policy changes, such as drastic cuts to government spending and full dollarisation, could also have a significant impact on the economy. These changes could lead to job losses and social unrest in the short term, but Milei’s supporters believe that they would be necessary to put the economy on a sustainable path to growth in the long term.
Say what you want about Mthuli Ncube but at some point, he successfully managed to drastically cut government spending in the ‘austerity for posterity’ days. Unfortunately, we felt the austerity bit but are still waiting for the prosperity bit. So, good luck to Milei on that one. On paper, it should work but maybe Zimbabwe is just cursed.
We abolished a local currency at some point and many Zimbos swear we had it good during that period. Yes, there was deflation and the economy was not growing but after experiencing hyperinflation, the masses did not mind.
The debate rages on in Zimbabwe on whether we should fully dollarise or get rid of the US dollar. Let’s see what happens in Argentina and maybe it can help us make a good decision.
It’s good that we get to do this because we got to see how making Bitcoin legal tender turned out in El Salvador – not great. Showed we need not even consider the crazy idea.
Keep your eyes on the Argentine show. Milei’s plans are still just sketches on paper. Whether he can turn them into action and what it means for Argentina’s economy is a story yet to unfold.
Also read:
The RBZ’s digital gold coins are a good idea but may be undone by just one word – trust
The RBZ still accepting input on upcoming digital currency (CBDCs), participate
Zim has much in common with country which made bitcoin legal tender, so…
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16 comments
That inflation figure for Zimbabwe is suspsect.
I kind of see it though, to say prices have doubled from this time last year sounds about right. However, there have been underhanded price controls on basic essentials and so I can also see how YoY inflation could be much higher than 103%.
That guy is making bold moves all over the place. Definitely makes for an interesting watch 🍿
We get to watch and formulate our own informed ideas.
Tendai Biti once suggested getting rid of the RBZ and replacing it with a Currency Board. It’s not an entirely new Argentine solution!
Dollarisation worked in Zimbabwe. The Powers-that-be only brought back the printing press in order to buy their way onto office because you can’t print the USDollar.
Oh yeah, Biti suggested it. I don’t know if it’s because I’m just that disappointed in the RBZ, I kind of think we could do well without a central bank, for all the risks that would bring.
On dollarisation having worked, I don’t know man. It had limited success, is what I’d say. We were in deflation and a shrinking economy is not something we can call a success even if it was much needed relief after hyperinflation.
I’m all for radical change because if you are doing the same thing over and over and expecting different results, well that’s just stupidity.
I think Zim needs radical change but informed radical change is just as stupid. So, we get to see if some of these radical ideas work in Argentina, kind of like how we saw that Bitcoin does not work as legal tender in El Salvador.
A most interesting article. Thoroughly enjoyed it.
l have some thoughts which l would like to share.
Getting rid of parastatals for me is foolhardy. Look at the UK they privatised water, gas, power, trains and recently Royal Mail. Some have been successful maybe British Airways to an extent but others are a disaster. The water companies have been dumping record levels of sewerage into the streams, rivers and seas yet they claim to have no funds for the necessary upgrades etc. They instead want to ask the Govt for rate hikes so they can do this.
However, in the very recent past they have been giving billions back to shareholders which are ironically sometimes owned by ‘hostile’ Govts not Companies but Govts.
So for me, l do not subscribe to this notion of privatisation, Zim privatised what was called the Cotton Marketing Board, which became Cottco. Where is it now? A pure disaster.
Govt agencies are by their nature more responsive, usually, to the needs of the country and the people. Yes they may be inefficient, however the reverse is worse. How would you feel if after privatisation all the big players were suddenly owned by foreign hands. That is the reality, it has been said that the World Bank and the IMF have pushed the agenda of privatisation knowing fully well that when this takes place the locals would not have the means to buy them.
So guess what, other players who at those times of ESAP etc would be western would do that and they could acquire assets for a song. Which l do not think serves us well. The converse is the Russian model were state assets were sold or given by Yeltsin to a select group, this then led to the fantastic fortunes of the likes of Ibrahamovich et al. Clearly not a good situation also.
Hence l would say keep them in Govt hands, beef up the management and governance structures, have frequent audits, have more accountability and hopefully have some shall we say competent and credible politicians and you may have a chance. I think despite their inefficiencies they help the country. The haves or business people will turn to the private sector whilst the have nots will be served by the public sector.
China has done very well, virtually all the big companies are what are termed SOEs – State Owned Enterprises – all their banks, power, etc are SOEs, hence the Americans and others rightfully argue when Chinese companies buy assets, its not necessarily a private purchase but State capitalism. Most are well run others of course are less so but if they can dominate the world, or so it seems, why would we want to destroy or sell ours.
Of course you can go the route of SA, where Zuma appointed a lot of dubious people like the Miyeni lady who finally managed to run the firm into the ground. To think SAA was once the pride and best run airline in Africa. Right now it is a pale shadow of what it used to be and l am not too optimistic that the turnaround will succeed but l will be rooting for them. The irony is the company which replaced them as Africa’s best is itself an SOE being Ethiopian, so the notion that we need to privatise, is simply saying we need to gift our largest entities to foreigners and nowhere in the world has that ever worked out.
As for this man, he is what l hear is called a Libertarianian, whatever that means. l think what l do get is this is a form of creature which is so opposed to the idea of Government that it wants by all means to remove the so called ‘strictures’ of Govt, in favour of a very basic and very weak form of Govt.
The idea being that the less Govt there is the more freedom there is for people, companies and societies as a whole. For reference, Madame Truss, she of the 45 or so day Govt, is an alleged admirer of this form of Govt.
Personally l think we do not need less Govt, we just need better Govt. In my own opinion the economic theories of the ‘invisible hand’ theory do not work. If companies are left to run riot, we will soon be paying for air – they are already selling water which they do not manufacture, so think about it. Can we entrust companies to do what is good for society? Even a fool can see this is not the case.
Down in Oz PwC, is in a bit of a stink. Its Govt consulting arm which makes obscene amounts was seen to be shall we say in real terms a traitor. This very respected firm was privvy to the ATO – Australian Tax Office’s thinking regarding how to tax very large foreign tax payers.
Now why would the taxman, in his right mind, engage the same criminals in suits who provide ‘tax planning’ for corporates, which essentially rob Govt of dollars which would help with schools, roads, defence and so on?
Anyway so there is this absurd situation where the Firm, is hired as a consultant to Govt to advise on tax policy, l kid you not and it is also at the same time a consultant to all manner of tax dodging, ahem ‘tax efficient’ companies.
So the fact that this self interest was not even considered astounds me. Anyway predictably, the Firm given a choice between, treason and the so called ‘public interest’ which all accountants claim to promote. They chose treason for profit.
I call it treason because they sold this very secret and sensitive information to the very same companies the Govt was targetting. It is crazy noone was charged with treason. Had it been a person, that guy would have spent the rest of his natural life in solitary confinement if he was not executed. However, as it is a Big 4 Firm, the company merely lost some money, reputational damage and that is about it. The entity did close this particular unit meaning a lot of people lost their jobs for the actions of a few but such is life it seems. Millions, if not billions suffer for the decisions of a few.
Interestingly there was a case in the US, where l believe the incumbent tax firms sued the IRS (Taxman) from rolling out a free tax programme. This takes craziness to a new level in my view. For whatever reason, people in the US either have to file taxes themselves or are forced to do it. Anyway the point is this is a very lucrative market for mostly accountants and lawyers. Naturally a free Govt service would severely impact their profits hence of course these companies launched such a suit.
The point l am trying to make here is, libertarianism as promoted by this fellow, is probably not in the interests of most citizens. If you are a business owner, then you are probably going to be licking your lips but as an ordinary citizen this is the worst thing which could occur.
As for a dollar linked currency, the so called managed currency is an option favoured by many countries. Allegedly Japan and China make sure their currencies do not rise too high despite how well their respective economies are behaving. As export dependent countries, especially for Japan and a country which tries to limit certain consumption, a strong local unit is not good for the country.
This has naturally led to tensions with the US who have accused the two at various points for ‘currency manipulation’ or for deliberately weakening their currency harming US exports and jobs.
Anyway this is a tricky thing as the management is now left in the hands of Govt policy not economic policy and Govt policy is not always the best.
An alternative is the unmanaged floating currency, where the markets determine the rates. Now this one fully leaves a country exposed to the vagaries of other countries and l wonder who would want to endure such risk?
SA has just learnt that Standard Chartered Bank, was actively involved in currency manipulation. Therefore if you have a fully free floating currency you run the risks of the financial mafia causing havoc in your economy at the press of a few buttons or a few well placed rumours.
I think cutting Govt expenditure leads to the obnoxious and expensive situation where the private sector becomes the public sector. A confidante of mine who is in the NHS informs me the rates he can earn as an agency worker (private) are about almost double what he earns from the NHS (public).
It seems illogical to me that the NHS is happy to pay billions to the private sector scoundrels but is not willing to pay doctors and allied staff a reasonable wage. There is a very interesting trick which some of the junior doctors are doing, they have resigned from the NHS but are then joining the agencies where they earn huge amounts for doing the same job. Others are simply leaving for Australia and other markets were the work is less stressful and pay and weather are infinitely better.
So to me where you cut down on the public sector one of two things will happen, an overall worsening of things for everyone, or paying more for the same services which could be offered in-house but Govts are not the most logical of institutions.
The saddest part for me is the hollowing out of the public sector by such actions as cut backs and the worsening of services for the public in general. If work is being given to ‘consultants’ it means there is less money to train and upgrade the existing civil service. It also means a loss of skills as people are frustrated out due to roles they could work being taken by consultants.
At the same time, most consultants start by cutting jobs which adds to more loss of skills as people either jump or are pushed out. Ironically these same firms are not averse to poaching such talent given their better and deeper understanding of the workings of Govt Bureaucracies.
In a nutshell all the above moves seem a disaster to me however, let us give the man a chance to surprise us but if Trussonimics did not work, l doubt his will.
I do not know about you but it seems we live in very exciting, perilous and evil times.
A good day to you!
What a contribution to the discussion. I pondered your points for a while and I have thoughts.
On the main point of ‘we don’t need less govt but better govt,’ I agree. However, the question becomes, ‘Can we get a better govt?’ Many Zimbabweans would give an emphatic “NO” to that. Especially if the same party that plunged us into this darkness retains power, which they will.
So, if we cannot get a better govt, might we not try our hand at privatisation? I’m not sure what the success rate of privatised entities around the world is. I know there are some successes though and so for our failing SOEs, we lose nothing by trying something different. They are not getting competent managers with integrity any time soon for as long as appointments to the boards of these SOEs is done as a political reward.
You mentioned the failing Cottco but Dairbord has been a moderate privatisation success.
We do lose something as you said – ownership of these multimillion dollar companies. That means the question before us is, ‘Do we want to retain ownership and ensure affordable rates and prices but get terrible/no service or do we want to risk losing ownership of critical entities and get possibly better service at higher rates?’
On currency management I agree, it’s a nut we haven’t cracked in Zimbabwe despite trying all sorts of novel solutions including pseudo-currencies. What’s unique in Zimbabwe is that any local currency is doomed to fail for as long as the same party is in power and probably for as long as the generations they burned are alive. The Common Monetary Union is an interesting case study though.
On govt expenditure cuts, I don’t even know what to think. W’ve done it here but realised it doesn’t work when in isolation. So, why even bother if the other fundamentals are not in place. However, there are those risks of making the private sector the public sector that you mentioned. Which would just cost more for pretty much the same service. I still would prefer this over letting these politicians decide how to spend our money as they have shown they have their own priorities.
Hello Leonard
Glad you enjoyed the post. l was inspired by yours which l sent to many people and quite a few were impressed by it. l will share some thoughts and l want to warn you first, l tend to ramble sorry about that.
Privatisation is not necessarily an evil thing, the question is if a country allows it will that same country have the teeth, ability, means and will to control it.
The private sector has and continues to do amazing things for us, most of these things we take for granted are as a result of the private sector but we must be careful with it.
In a perfect world, or at least in my view, there would be roles which each would play the private sector as well as the public sector, they would complement each other seamlessly and Govt or its agencies would regulate such actions.
You point to Dairibord which l had thought of but did not include. l think it has done well, l am not too sure how it is doing ever since the long serving MD retired. However, l recall going to the supermarkets and virtually all the products l could find there where Dendairy, to my knowledge or at least my local OK/Spar, l am actually surprised when l see Dairibord products. The Cheeseman and Cortina, l think have taken over the cheese and ice cream side of things, at least given the offerings l see. So Dairibord is not quite what we grew up with but yes, it is successful. Actually the emergence of Dendairy, the Cheeseman, Cortina is a good sign that there is healthy competition. l share your concerns about the dominance of certain players in our economy particularly, telecomms and payments. l once did a bit of research on the payments sector where l think Ecocash dominated approximately 95% of the payments at some point, l think the figure is lower but hey that is either a sign of how good they are or how incompetent the rest are.
So to answer your question. You are right, privatisation could work but we would need a new way of thinking. Give the management enough leeway to get the job done but have effective mechanisms to monitor them. There are possible solutions in having properly appointed and qualified boards to manage them as well as the Govt auditors. If there is one agency which is generally critical of Govt’s handling of affairs it is that one. Of course noone really listens to them but same for SA where the AG complains but there is still a lot of questionable spending and waste.
The thing is people need to understand there are consequences for incompetence or worse. This should start from the reviews of the management to Acts of parliament that actually focus on that. In my view countries should have special courts to handle promptly issues of large scale corruption be it public or private.
What l mean here is if say manager X of DD SOE does something, he should not be able to spend 10 years living the life, usually at the taxpayers expense whilst the case drags on. Which normally ends with the files conveniently disappearing, or suspect judgements in favour of the accused or at worst a slap on the wrist. All of these undermine public confidence and engender this culture of abuse and corruption.
l admire the Asian model, wherein if they do get prosecuted, it ends in long prison sentences and a loss of assets. China takes it a step further some are executed and others handed life sentences. If that does not act as a deterrent then nothing will.
The other thing is maybe the country as a whole needs a change of culture. l think the first or at least the one l remember the most important example of this was the former and now late minister of education Edmund Garwe, who quit after his daughter, somehow guessed he had the paper with him and cracked his briefcase. Let us not get into the absurdities of the case, she knew his password, it was ZJC paper and she was at the Convent. Seems at one time even local exams were worth something.
At least he did the honourable thing and quit. If others in similar situations would, that would help but instead they resist even though it is blatantly clear what they have done. The biggest issue is they normally know that a few well placed calls here and there will usually have the issue magically disappear and that is the biggest problem. There will be no restraint as long as the potential culprit thinks he can get away with it or the risks far outweigh the costs.
In auditing there is a theory called the fraud triangle, which comprises three elements being motivation, opportunity and rationalisation. In simple words, if someone sees a chance to steal, he will if he sufficiently motivated and he can therefore justify his actions. As long as people know the loopholes, the poor or lack of an appetite to prosecute or the pitiful fines they will carry it out most of the time.
Talking of privatisation, l think fundamentally we really ought to let citizens own these things whether they can that is another story altogether. Singapore, Dubai and many others have Sovereign funds which are enjoying varying degrees of success. So instead of outright selling them we could run them as they were meant to be and retain ownership. However, if the Malaysian fiasco is anything to go by where their version ended up with a Prime Minister being incarcerated and the main man Jho Low fleeing the scene with billions and going underground. That is not quite so encouraging and that is a very likely situation if people do not change.
I greatly admire the Arab model of management of what l think are their SOEs which are the gas/oil companies. However, they have managed be it hiring mostly expatriates or having foreign entities produce the product but they own it or share the proceeds, it has really been successful hence they are some of the wealthiest people on the planet. l have often been perplexed as to why countries like Nigeria and many on the continent do not simply copy them? l mean surely their model is successful so what is stopping Africans from adopting those.
Not to be cynical but l think we come back to culture and consequences. They have strict consequences for any breach and l think that really dampens the enthusiasm to be found on the wrong side of the law. l am not saying it does not happen but the instances are greatly reduced.
In an former life, l had the occasion to visit an ARDA estate just outside Bulawayo for work purposes. The gentlemen there told me this place used to be humming in the 80s, wherein the place was doing all sorts of crops including wheat, which greatly surprised me. ARDA by all accounts was thriving concern.
That was until a certain Joseph arrived on the scene and he completely ran it down. l recall ARDA at some point not being able to pay its workers on time or not having enough cars to do its work. The most ridiculous thing about all this, is that the same destroyer in chief was then appointed Minister, so he could spread his chaos far and wide. We all know what he did with the ministry of Agriculture. He who once famously said, l flew in a plane over farmland and everywhere was green. The nation had to import food shortly after, that is the level of his ineptitude.
Botswana has the BMC – Botswana Meat Commission which is thriving, while Z has the carcass of CSC which l respect for its various attempts at resurrection but which to this point have not succeeded. Hope remains eternal. So that is the stark contrast we have of either succeeding or failing.
So parastatals can be successful if well managed but people are the issue as with many things in life. l think it starts with this mindset, why am l at work? If someone were to understand that their primary function is to perform certain duties which in the greater scheme of things are to deliver certain organisational goals then we may get somewhere. However, most people are only in their jobs to get what they want or to use them to make money privately. How many do you know who during working hours, are actively pursuing their personal projects. l think those types of people should leave to pursue these full time, it is both dishonest and immoral to me to be doing so, however given the pay and other issues, some may claim they are forced to.
So to sum it all up, until the mentality, legislation, morals and regulation improve we may try many things but we may just arrive at the same situation or even worse. It is ironic Z considers itself a Christian country but given how we conduct ourselves it is debatable.
One student based in Asia, said one of his lecturers, said that the reason Africa is poor is Christianity. l do not agree but it is something to think about. Sorry for rambling but once l started writing so many things came to mind.
Javier Milei is influenced by Austrian Economics, a school of economic thought that emphasizes individual action, subjective value, and the importance of free markets. Austrian Economics, championed by economists like Ludwig von Mises and Friedrich Hayek, aligns with Milei’s views on limited government intervention and the promotion of free-market principles.
Milei often advocates for reducing government involvement in the economy, promoting fiscal responsibility, and supporting the idea that individuals, rather than centralized authorities, are best equipped to make economic decisions. Austrian Economics’ focus on the importance of entrepreneurship, the market process, and the subjective nature of economic value aligns with Milei’s advocacy for a more liberalized and dynamic economic environment.
I’m curious, has any country actually tried this economic model so we can check how that panned out. Or is Argentina the first ‘real’ experiment we will see? Cause after years of an incompetent govt in Zimbabwe, I’m ready for as little govt intervention as possible. Which might be blinding me to the downsides of Austrian economics.
Chile’s Pinochet had a period of rapid liberalisation spurred on by the Chicago School. To call it a failure is an understatement. Liberal economists would record impressive indicators and growth. But ordinary Chileans suffered terribly from a sadistic regime propped up by a Reagan administration. Henry Kissinger was also the Secretary of State as well. The experiment paved the way for the radical socialist movement that is in currently in power. In my opinion a healthy relationship between state power and corporations must be maintained by a responsible and resolute government. In Zim this is kind of impossible because there is little to no separation between state and corporate interests we also have a weird patronage/relationship with our SOE to foreign interests. Recently liberal economics have taken control of the narrative and I expect more pain for the ordinary Zimbos.
Argentina might actually win here! They still have some competent people in charge, versus Zimbabwe, which doesn’t! Ok, rigged elections are the main problem, but there doesn’t appear to be any way of stopping that, despite opposition boasts about detecting it, (yes, they claimed they could “detect rigging”, but, as usual, were completely clueless, when it came to minimising, never mind stopping it! Citizens of Zimbabwe are just as much to blame though! Quite a few have been stupid enough to vote zpf from the get-go, whilst others haven’t bothered, or spoiled their ballots! Argentina could be an example to follow. Let’s see how they do. Zimbabwe might be able to copy their plan, if it works, but with zpf still in charge, they’ll either ignore it, or make a complete cock-up of the whole thing, like they have with everything else!
Mmmmm we have a lot of economist
I have seen chain comments mmmmmm