Lessons from Zimbabwe: Economics

To start 2019, I took a vacation to Zimbabwe for two weeks on my way back to the US from working in China. While it was a short trip, being in another African country was an important experience, and allowed me to compare and contrast with my own country, Ethiopia. I thought I would write a few reflections on my time there, beginning with this one. This is not intended to be instructional or objective — I hope no one ever goes to a nation as a tourist and pretends to be an expert afterward. But I did have some useful takeaways from my experience, which I wanted to record and share.

The economy of Zimbabwe is in a crisis right now, one which I don’t fully understand but seems similar to (but not as bad as) Venezuela now and Germany post-World War II. In my cursory internet search I didn’t find much scholarly research or articles explaining the economics of the crisis, and I’d really like to know more about how or why exactly this happens.

In its current state, Zimbabwe has a foreign currency shortage and a cash shortage in general. The government issues Zimbabwean bond notes that are supposed to be pegged to the US dollar, however, the actual exchange rate is dictated by black market money changers.

I traveled to Zimbabwe to visit my friend Bothabo, and to see the Mosi Oa Tunya (also known as Victoria Falls). I’d met another friend, Elvis, in a hostel in Denmark last spring, and Elvis owned a rafting company that operates on the Zambezi river, downstream of the falls. Before we start our road trip to Mosi Oa Tunya, we need local currency, and I am taken by my friend to meet a woman in a car. He greets her and tells me to get in the back of the car, while he sits in the passenger seat. Another woman is at the backseat, next to me. Bothabo explains that we want to change 100 US dollars. The woman in the driver’s seat gives him a rate of 1 to 2.8, so we receive 280 bond notes. I shove my fingers in my pocket and clumsily pull out five twenty dollar bills, exchanging portraits of Andrew Jackson for families of giraffes. We leave the car and I laugh, telling Bothabo that this felt like the sketchiest thing I’d ever done in my life, and had a similar vibe to a drug deal. If we were to exchange at a bank, they would give us a rate of 1 to 1, and furthermore, we may not have been able to withdraw the full amount. The bank sets a limit each day for how much cash you can withdraw.

A 5-bond note.

It’s important to realize how unrealistic an exchange rate of 1 to 1 is. With a 1 to 1 exchange rate, we could have been charged $50 USD for dinner for two people — at a fast food place. Groceries would be ridiculously expensive. So it’s clear that the government cannot really dictate what the exchange rate is, even if they want to — there’s a holistic economic issue, and especially a currency issue, that needs to be resolved first. Ethiopia also has black market money changers with a significantly higher rate than the banks, but not at the level of Zimbabwe. What’s more, things in Ethiopia are still relatively cheap. In Zimbabwe, even with the black market rate, that dinner was still $17.87 USD. A comparable meal in Ethiopia could have been up to half that much, or less.

Zimbabwe (or at least, Bulawayo and Victoria Falls) also felt strange to me in a way that’s hard to explain. I tried describing what I meant to Bothabo, but the best I came up with was that Zimbabwe felt…inconsistent. In Addis Ababa, the rich areas are nice places, and the middle income and poorer areas are similarly moderate or destitute. You could say the same of the US too. But in Bulawayo, very nicely furnished eateries or bright supermarkets would be in the middle of run down shops and broken roads. It felt like many of the goods widely available to purchase in Zimbabwe were actually better quality and nicer looking than what I’d seen in Ethiopia on some level. It seemed like many of these spilled over from South Africa, whereas Ethiopia is the strongest economy in its region and doesn’t have neighbors to import much. But this is only a personal theory, and I wanted to know what might be the actual reason. In Ethiopia too, areas where people have less money, goods are also cheaper. In Ethiopia in general, things are cheaper. In Zimbabwe, that was not really the case, even compared to the US, for some goods or services.

One day while driving with Bothabo and his sister, we pass a long, long queue of people.

“School fees,” she says. People are queuing to withdraw school fees for their children in cash, since it is one of few things that cannot be paid with EcoCash.

Despite Zimbabwe’s economic crisis, I was surprised to find that mobile payments were far more normalized there than in the United States. Zimbabwe matched China in the acceptance of mobile payments, using a system called EcoCash, where a sender can text or dial an amount of money to a receiver. You can load money into EcoCash with physical cash at shops, or by linking your phone to your bank account, and bypassing the hassle and uncertainty of withdrawing physical cash from a bank. However, EcoCash has pesky transaction fees — unlike Venmo, paypal, or credit cards which only charge a merchant and usually don’t charge the customer, Ecocash charges both the recipient and the sender a small fee. So, to correct for this, the black market exchange rate from USD to EcoCash is 1 to 3, rather than 1 to 2.8. Zimbabwe is ahead of many developed nations in payment innovation, and mobile payment was almost as ubiquitous as China, where it was nearly impossible for me to live a normal life without an Alipay or Wechat Pay account. Many people go out and carry only their phone — no wallet needed; even street merchants can accept payments on their personal phones. Everything is electronic. Zimbabwe, in the middle of its economic crisis, was actually far closer to this reality than most Western countries. I cannot overstate how surprised, confused, excited and distraught I was by this realization, because while African countries innovate at a breakneck and hope-inducing pace, we are often still held back by poor governance and the shadow of colonialism. I’ll talk more about that in a different post later.

The other issue with a foreign currency shortage, and a USD shortage in particular, is that oil is bought almost exclusively in US Dollars. So, since Zimbabwe has a USD shortage, it also has an oil shortage. You will find long, long queues for gas at every station with fuel, and if there’s no queue, there’s no gas. People will park there cars in a queue and sleep there overnight, waiting for fuel trucks to come in the morning. Meanwhile, France protests in the streets over a carbon tax.

I waited in a fuel queue with Bothabo one day, and joked that this should earn me honorary Zimbabwean citizenship. He was moving two cars in the queue — his sister’s and a colleague of his sister. So, I helped him move one of the cars, starting it and inching forward each time the line moved up, praying that revenue-seeking police wouldn’t walk up and start asking for my drivers’ licence (I had my Colorado one…which would have been useless). Bothabo started at 11AM, I joined him around noon and we didn’t finish until almost 3PM — four hours in a line, waiting for gas. Except, we didn’t really finish either. Close to 3 o’clock, a dreaded sight approached us, one of the gas station workers waving his hands in an “empty” motion, indicating that there was no gas left. Bothabo turned to me and said that actually, they would still have some gas left — they were saving it for people they knew, or for other, corrupt reasons. “Will they take USD?” I asked him. He thought they likely would.

A few minutes later, we pulled into the station and I participated in a small act of corruption, handing a man twenty U.S. dollars. Those with only bond notes to pay would wait until the next day.

We drove away. “Should we pick up this guy?” Bothabo asked me, a question he would also ask when we were on a road trip to Victoria falls, as frequently there’s no regular transport along the road and people will pay whoever passes by to take them. We would take people for free in our car, as a small act of kindness.

“We should,” I sighed, “maybe it will offset, somehow, what just happened at that gas station.”

We drove away from the city, past lines and lines of cars, waiting for the same fuel.

I wrote most of this post on January 10th, 2019, waiting at the Johannesburg airport for my flight back to Boston. Today (the date of posting) is January 16th. Two days ago, Bothabo was telling me that people started protesting over national fuel price hikes. After that, we’ve been unable to connect over internet, because Zimbabwe’s internet has been shut down due to all the protests and demonstrations. An article from Quartz detailing the recent events is below:

MIT grad, robotics engineer, mixed. A place I write.

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