Desperate Zimbabweans put their trust in the dollar

Flipping through the classified advertisements of Zimbabwe’s state-run daily paper The Herald, it is now common to see prices of houses and apartments for sale or lease being quoted in US dollars.

Cars are similarly being sold in US dollars or British pounds. Firms changing hands are also being sold for foreign currency, while petrol and diesel which are in short supply are also bought with dollars.

Although it is illegal to trade goods or services in a foreign currency, unofficial dollarisation is increasingly becoming the trend as people seek stability for their investments in a volatile economy, economists say.

”It comes about because of lack of stability of our exchange rate, lack of stability in our own economy,” said independent economist John Robertson.

While the government has fixed the exchange rate of the Zimbabwe dollar at 800 to the greenback, the US currency is not available on the official market. On the parallel market, one US dollar fetches up to 6 000 Zimbabwe dollars.

An economist with a leading insurance firm here said the hyperinflation environment the country is now operating in, ”has distorted asset prices”.

”Because inflation erodes the value of one’s currency, people are now willing to find alternative arrangements that preserve the value of their assets,” he said.

Zimbabwe’s annual inflation, which stood at 31,7% five years ago has now galloped to 426,6% as of last month.

By asking for payment in a foreign currency people are trying to ”get more value which is stable” said a financial expert from a Harare discount house.

Some sellers prefer to give a discount in transactions conducted in foreign currency.

A real estate agent said people prefer to sell or lease their properties in a foreign currency to ”hedge against inflation” fearing that by the time the sale is concluded the money could have lost value.

To illustrate the levels to which inflation has affected prices in real estate, the agent cited an example of a three-bedroom house in Harare’s upmarket suburb of Borrowdale, that five years ago would have cost two-million Zimbabwe dollars (US$2 500), but is now worth up to 350-million Zimbabwe dollars (US$437 500 at the official exchange rate).

It is mainly properties in upmarket northern suburbs of the capital Harare that are being advertised in US dollars.

Most buyers of properties with foreign currency are Zimbabweans who fled economic misery at home and are now working overseas, often in Britain, the United States of America and neighbouring South Africa and Botswana.

Economists forecast that unless the rate of inflation and the foreign exchange market stabilise, unofficial dollarisation will grow.

There are practical restraints on using foreign exchange to trade for good and services in Zimbabwe, however.

Not only is it illegal, there are not many US dollars floating around.

The lack of foreign exchange on the official market has seriously affected the country’s balance of payment.

The government has failed to service foreign debt on time, and it is now forecast to reach up to $5,3-billion by the end of the year.

It has been hamstrung by the acute shortage of foreign exchange which is a result of declining exports and a lack of balance of payment support which was frozen by international donors around five years ago.

Arrears on foreign debt have reached unprecedented levels and are projected to soar to US$1,9-billion by December according to bankers.

”It’s a reflection of the chaos around us,” Robertson said. – Sapa-AFP

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Susan Njanji
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