Frederic Bastiat came up with the idea of the broken window fallacy.
In simple terms, a boy breaks a shop keepers window. The distraught shopkeeper is told not to be sad, for it is good for the economy. The glazier finally has a job.
The enthusiasm across GOZ is palpable. But should the economy share that enthusiasm? NO!
4/12
Who broke the window in Zim? Who is the shop keeper? Who is the glazier?
To be very direct, RBZ has forgotten that it broke the people’s window. With its 1:1 gedye. Since 2016, US$4bn deposits lost value.
In its enthusiasm it has forgotten US$2.8bn debt in blocked funds.
5/12
These are foreign creditors whose funds are stuck in Zim & RBZ must pay them.
These blocked funds accrue interest.
The US$1bn from IMF is not even enough to pay this due amount.
What of the high interest yielding loans from Afreximbank?
GOZ is not interested.
6/12
Rather what GOZ is interested in is shoring up the fixed Auction rate. Never mind the exporter ( shopkeeper) losing 70% of value.
RBZ increasing its allocations/ Fx rations from US$30m to current US$49m a week, despite backlog, has shown us its intention.
7/12
RBZ will artificially support its flawed auction. SDR’s will selectively target imports and importers.
While RBZ debt’s will continue to grow as interest accrue.
Notice how RBZ speaks of US$1.8bn in FCA (customers money) & never the US$5.4 debt on its balance sheet?
8/12
Because of the legacy debts & the nightmares of the past, Zimbabweans are net exporters of currency. Shipping their savings offshore. That is why despite US$2bn of remittances ( official & unofficial) that comes into Zim, it quickly goes back offshore.
9/12
The biggest risk of the SDR is that it will pass through Zim & go back overseas.
News of the SDR’s didn’t see ZWL appreciating on the parallel market.
The news actually saw more importers on the auction. Despite backlog. Why?
10/12
The market has correctly predicted what RBZ & GOZ will do. They will donate its largesse to importers.
Instead of a relieve to creditors & exporters it’s importers that will benefit.
Imports will come with imported inflation precisely because of IMF & world printing
11/12
IMF SDR’s will stimulate imports. Its importers that will be rewarded.
Broken windows make the wrong signals in an economy. The shopkeeper loses his savings & cannot expand. While glaziers will artificially increase their prices.
The economy is worse off
12/12
A year from now the Zimbabwean economy will have many importers (glaziers.)Some fake ones- for obvious reasons.
Offshore debt will have increased because of accrued interest. Resources will shift further from investment to consumption.
Unfortunately next year NO SDR
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There is certainly a wave spreading across the region. It happened in the 1990’s. Some took advantage & some chose the moment to become more intransigent.
Confirmation bias means we see what we want to see. In psychology it’s the invisible gorilla experiment.
My suggestion for political parties in Zimbabwe is to engage an impartial commissioned study of what happened in Malawi & Zambia. Of course it’s not to confirm what we already know. But to make us see the gorilla.
As far as the Economies of SADC are concerned. Another moment as it was in 1990 has arrived. Zambia & Malawi missed the opportunity and remained socialist despite multi party democracy. Zim went the opposite direction into hyperinflation. SA used the moment to end Apartheid.
1/5 Pension funds & financial institutions are complicit in a lot of the rot but certainly not the cause of it. 2008 the gdp went as low $5bn. If GDP recovered to $15bn. It means new member contributions are way higher than old contributions. New members have bigger piece of pie
2/5 This is because pension funds are a pyramid scheme. Nothing unique to Zim but worldwide. They rely on new members & new contributions to sustain them. It’s a huge problem in the UK. The US is different because of 401k. The individual has greater say in investing.
3/5 In other words. Most pension funds around the world have not kept pace with inflation. Pension funds invest in property, stocks & bonds. They’re forced to take up bonds which yield negative returns. In Zim it’s prescribed assets. Which never yield positive returns.
Ian Senior, Corruption,the World’s Big C: Cases, Causes, Consequences, Cures (2006), asserts no significant correlations between high degrees of personal honesty and religious practice and less bribe-taking around the world.
2/24
What do we learn from this significant conclusion on corruption? It means even the most ethical, religious & morally astute societies can be infested with the corruption scourge. Because corrupt states make it impossible to play or move without paying.
3/24
Under Roman statutes corruption was defined as
“whenever money is taken and a publicly-conferred duty is violated.”
An example may suffice to illustrate.
Why do governments erect toll gates? Let’s think of this in simple terms
Ken Flower the head of the CIO went to complain to Ian Smith about dodgy touts becoming government’s business partners.These individuals were meant to be in jail. Smith thought he could control these chaps. These chaps eventually funded Smith’s downfall. Unscrupulous.
Fay Chung in her book explains how a large donation came from Tiny Rowland. Chiwara, the Zanu representative in London was excited & relayed information to Lusaka. But , but, Ndaba Sithole chose to hide this information.. he wanted it for himself! He was forced to share.😂😂
Miles Tendi book on Mujuru recounts a Public Accounts Commitee led by Mangwende on MOD during Nhongo’s reign. It was a fest of irregularities & claims of untouchables & commanders resigning after allegedly receiving kick-backs from tenders. Mugabe turned a blind eye.