News today that Zimbabwean President Robert Mugabe and opposition leader Morgan Tsvangirai have reached a powersharing agreement, brokered by South Africa’s Thabo Mbeki.
As the FT notes, the pace of economic decline in the country is accelerating daily, with the parallel market rate for the Zim dollar collapsing to Z$30,000 to the USD yesterday from Z$7,500 a week ago.
So is this the beginning an economic recovery?
JP Morgan seems to think so, at least in the context of mining company Mwana Africa:
It was announced overnight that a power sharing agreement has been reached in Zimbabwe between Robert Mugabe’s ZANU-PF and the MDC. The details of the agreement have not been made public at this stage but appears to mark the first stage towards a socio-economic recovery in the country.
The market is likely to take this news positively and we expect Mwana to do well today. A material improvement in economic conditions in Zimbabwe and the mining industry in particular still seems to be some way off, given the extent of hyper-inflation and the loss of key skills to South Africa and further afield. Nonetheless, this announcement appears to remove the key obstacle to that process beginning. Our base-case SOTP valuation for Mwana is 43.7p/share, 72% above the current share price.
FT Alphaville put in a call to Harare-based independent economist John Robertson this morning, who’s rather more pessimistic:
“We do not know what the deal exactly is just yet. The fact that they are taking a few days to write it up is worrying. There’s a precedent, in 2000, when they were writing the constitution. What was presented to the commissioners to sign was different to what they had agreed to. But they were under pressure to sign, and so the constitution that was presented to the population in 2000 was not what the commisioners had agreed to. I can see this happening again in the next few days and Morgan Tsvangarai being under a lot of pressuure, especially from Mbeki, to agree… If [the ruling party] are clearly entrenching their own existing attitudes we’re not going to fix anything.
A snap shot of how bad things are in the country — half a loaf of bread, if you can find it, costs about Z$500, according to Robertson. And that’s after the redenomination that lopped 10 zeroes off the national currency last month – a novel, if temporary solution to inflation rates of about 11.2m per cent.
To complicate matters, Zimbabweans are only allowed to withdraw Z$500 from the bank per day — reducing daily life to a choice between a Z$500 half loaf or bus fare. Zimbabwe’s solution thus far? Get rid of cash altogether. Zimbabwe’s Reserve Bank Governer, Gideon Gono, is quoted in the Harare Herald yesterday:
There has been an outcry from the banking public that the withdrawal limit of $500 is now very insignificant taking into account the rapid increase in the prices of goods and services.
He said that the cash challenges were a temporary phenomenon, which will pass, and Zimbabweans will look back and laugh at themselves.
However, Dr Gono said as a central bank their desire was not to keep promoting the use of cash but to transform the economy into a cashless one as the country is the only one where the demand for cash continues to go up.
“We are desirous of promoting a cashless society that is in conformity with best economic practices,” he said.
He added that they were keen to follow in the footsteps of other countries, which had now abandoned the use of cash and cheques and are now using plastic money such as credit and cash cards.
From bartering to credit cards then, with barrels of meaningless cash in between. The mad markets of Zim continue…
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