Thread by @zimboguide

#BlackFriday in Zimbabwe 1997: a #thread
1/The late 1990s were a difficult time in the country due to a changing economy, increasing civil unrest and the beginnings of an unsustainably inflationary environment.
@zenzele @Wamagaisa @happ_zenge

2/As a percentage of Gross Domestic Income, the share of wages had dropped from 57% in 1987 to 39% in 1997, while the ratio of profit increased from 47% to 61% during the same period. Inflation increased from 11.6% in 1985 to 32.6% in 1996, falling to 25% by 1997.

3/Real wages had fallen by nearly 25% and employment growth declined from an index of 2.4 to 1.5. Poverty levels had increased from 40.4% in 1990/91 to 63% in 1996. By November 1997, nearly 100 job actions had taken place in the country.

4/The crash is attributed to a number of factors: The failure of ESAP is always cited as a contributory cause or controversial govt policies including un-budgeted expenditure on war vets to the controversial land reform and involvement in the DRC (Zimbabwe’s was from Aug 1998).

5/All of these played a part in exacerbating the crisis but there is perhaps another catalyst to consider: the letter from Clare Short to Minister of Agriculture Kumbirai Kangai on 05 November 1997.

6/This letter did not become public knowledge until much, much later but it nonetheless set the tone for government’s attitude and strategy for the next three years. Apart from its patronising and insulting tone, this letter communicated many things to the Zimbabwean leadership.

7/It made it clear that the British Government was wrongly attempting to absolve itself of any responsibility towards assisting land reform and supplying the necessary fiscal support to achieve the same.

8/There was intense pressure to honour the promises made during the war of liberation to re-distribute land and to look after those who had sacrificed so much for Zimbabwe’s Independence.

9/The fact that the British, and thus presumably other international donors were trying to extricate themselves from their voluntary promises of support signalled a need to change tactics to achieve these aims, creating an internally-focused combative approach.

10/Under charismatic new leadership in 1996, the the Zimbabwe National Liberation War Veterans Association (ZNLWVA) began insisting on compensation for their wartime sacrifices via the War Victims Compensation Act (1993).

11/Demands were also made for them to receive pensions & other benefits enjoyed by civil servants which included once-off payouts of Z$50,000 (then US$3,570), a monthly pension of Z$2,000 (then US$143) in addition to funding for their family health care, education & burial needs.

12/The government acceded to these demands after multiple demonstrations and protests. Although it was arguably the moral thing to do, some economists believe it could have been done in a staggered and productive manner.

13/With at least 50,000 registered war veterans, this amounted to an immediate, extra Z$4,2 billion (US$300 million) cost for the national budget, with no indication where the money would come from. Investors began to panic.

14/Shortly after trading began on 14 November, a run began which was arguably fuelled by speculation & import demand. The Z$ fell by 71,5% against the US$, while the stock market crashed by 46% as investors rushed for the US$. Z$ traded between Z$19 and Z$25 in the afternoon.

15/Later the RBZ intervened with a US$15 million forex injection to shore up the Z$. The day ended with the Z$ trading between Z$14 to Z$18 to the US dollar. This was, at the time, the lowest value of the Z$ ever recorded, all the more frightening with the rapidity of the crash.

16/So why did this fall happen? The traditional story, widely accepted today, is that the govt announced that it would print the money to pay for the war veteran gratuities. Knowing there was no budgetary provision for such a large payout, investors decided to exit.

17/Reading the various newspapers of the day shows that this is perhaps incorrect, but made legitimate through much repetition. Herbert Murerwa, then Minister of Finance was quoted in the Herald of 15 November 1997 as saying that the government had a plan to pay i.e. taxes.

18/The role of the ex-combatants is important not least because of their rowdy behaviour in their demands which frightened conservative investors & donors. This is obvious in the decision by the European Community to withhold Z$300 million support of ESAP awaiting clarity.

19/Matters were not helped by the fact that at the time, the RBZ had not disclosed the extent of its forex holdings & rumours spread that the coffers were empty, i.e. less than two months reserves to cover imports, leading to panic buying during the week especially on 14 November

20/Thus it is clear that a failure by the RBZ to provide timely, accurate information to the market intensified fear & speculation. There were false rumours in the week that the IMF would be suspending its balance of payments support as ongoing negotiations had broken down.

21/What is perhaps forgotten in the publicity over the events on 14 November is the fact that the Stock Market also crashed by 560 points in the week of 19 November, then its largest ever fall. The Industrials fell from 9686,01 to 9126,5 while the Mining stayed put at 654,54.

22/This 6% point decline was blamed on the continued uncertainty over the payouts, the designation of over 1,500 commercial farms for forced acquisition, news of increased taxes (less disposable consumer income), & a lack of progress on balance of payment support for ESAP.

23/The RBZ forced all corporates to liquidate their FCAs by 21 November 1997 in a vain attempt to push at least US$160 million onto the local market and further stabilise the Zimdollar. Banks would only be allowed to hold US$5 million or 20% of their capital.

24/Exporters faced the real threat of losing access to their own forex for importing essential inputs. Heavy losses were reported for Delta, Meikles, Barclays, BAT, Capri Group, Border Timbers and Chemco; overall Z$4 billion was wiped off the value of quoted companies that week.

25/Unprecedented inflation was experienced in the immediate aftermath of Black Friday, leading in January & October 1998 to urban riots over price increases for maize, bread and fuel. The govt became dirigiste.

26/Companies, already struggling due to the shrinkage imposed by ESAP, began to close by the score. Consequently, the informal sector bloomed massively to the extent that in the 1999-2000 fiscal year it was estimated by the World Bank to be 59.4% of GDP, the highest in Africa.

27/In November 2000, the Confederation of Zimbabwean Industries (CZI) reported that at least 1,7 million people were being supported by the informal sector.

28/Many people chose to leave Zimbabwe before 2000, citing a lack of “opportunities,” and thus we see the beginnings of the massive diaspora whose remittances continue to underwrite the economy.

29/Black Friday irrevocably changed the Zimbabwean financial landscape & has continued to influence socio-economic directions for more than twenty years.