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A philanthropic spirit encompassed with an entrepreneurial mind, I am passionate about technology and the things technology can help people to achieve.

Saturday, May 7, 2016

The Bond Notes: The Confusion & The Bloodbath

I have been following the story of Bond Notes introduction in Zimbabwe with keen interest. The different schools of thought are divided and the man on the street is now confused mostly resorting to settling for what they know, “the Bearer Cheque” experience and lessons. For a few people they are able to make sense of what is happening while for the majority they just assumed it is Zimbabwean dollar or paper so it is bound to cause chaos, pain and suffering. But where is the truth, where is the sound economic debates about the Bond Notes? I wish we could simply open up textbooks about monetary policy and find an answer, throw in a “ceteris paribus” maxim and solve the problem. But my love for economics has also opened my eyes to its biggest shortcoming, “ceteris paribus” will never happen in the real world. It helps understand things one moment in time but once the seconds tick on economies everything changes and you are observing too many moving targets you can only guess which one is the cause and effect. Even if you are very wrong, you can always be right because there is no wrong answer in economic debates, only the future can provide some pointers of what the past has been. I’ve read pieces by people like Edmund Kudzayi (of the Baba Jukwa fame), he believes the bond notes will do no harm to the economy, Sharon Bwanya an astute legal person sees the holes in Edmund’s discourse. Thomas Masiya of the Maison De La Marsia stands by Edmund, Obert Mundevere Ncube thinks that Edmund had a damascene moment ever since his troubles with the Zimbabwean authorities so he no longer sees or hear evil. I have decided to jump into the Bond Notes debate, I hope I can come out alive and able to defend my thoughts so here goes.

It’s Just Same as Bond Coins, No Big Deal

The fine argument for Bond Notes is that they are being injected into the economy the same way the Bond Coins came which were a success. The notes will have the same value as the United States dollars in circulation so it makes sense. Today if I go to an ATM I can withdraw money I get crisp US dollars and buy what I want. Tomorrow I can go to the same ATM and withdraw another amount and get Bond Notes and buy what I want without suffering loss of value. So what the US dollar can buy, the Bond Note can buy too so there is no problem there. According to this notion, people are just making a fuss out of nothing. We are told that government will only print equivalent of $200 million Bond Notes and they will not print more than that and the Bond notes will be printed outside the country. There is the talk of the $200 million being backed by Afreximbank as well.

So what is the Big Picture?

I love the arguments being put forward for and against the Bond Notes, all make sense. One side trusts government to do the right thing, the other does not. However I am going to look at the evil that lurks in the darkness. I have often seen two male animals in a fight for females especially gazelle or impala, in the thicket is a lion or cheetah waiting to pounce on the situation. In a short time the gazelle or impala feel sorry they were fighting for pleasure instead of paying attention to the life threatening predators. Zimbabweans are in the same situation, I have no doubt in my mind that the predators have already taken a position and while we try to make sense of the Bond Notes situation they are positioned to strike. People are right to be paranoid but not because government will print money but for the following reasons.

Proposed Bond Notes

Predator 1: Big Brother (Government) Money Allocation

There is not enough United States dollars in Zimbabwe, currently the banks determine who gets how much. Usually it is queuing system and when your turn comes you get something usually a rationed amount. Maybe the bank managers are giving their friends and family more but we can be sure it is not to a catastrophic level. Now government says we want to determine who gets dollars and who gets Bond Notes. Can government be trusted to give citizens money using some form of fair assessment? I am betting against Zimbabwean government in this instance. Sir Wicknell and Phillip Chiyangwa will get more or all the money compared to me. So the government allocation of the scarce dollars will not be fair. It will be based on who you are and who you know. Amidst this cash crisis how many times have you seen Sir Wicknell Instagram & Facebook wads of United States dollars?

Predator 2: The Big Black Market

It is agreed that the US dollar is scarce in Zimbabwe but government introducing Bond Notes will likely cause the black market to rear its ugly head. Since they will determine who can get US dollars they are indirectly determining who can survive and who can die. The ordinary man or woman who wants to go to South Africa and buy stuff to sell and feed the family will likely be denied access to US dollars, their demand for dollars is consumption. There is another company that sells goods that are not deemed to be important for the economy, they will also be denied dollars. These ordinary people and companies will have to sit at home, close shop and wait for better days. But we know human behaviour informs a different reaction, survival mode kicks in and they bid the price of dollars up. Effectively the black market has come back to life. This is where it gets interesting, people like Sir Wicknell will likely begin to trade dollars on the black market, $1000 bond notes for 500 US dollars, and they go back to source and get 1000 US dollars for $1000 bond notes. This is how people connected to ZANUPF made it big during black market days, get it cheap, and spin it expensive. One day everyone might have to account for their riches you will see many millionaires who fleeced the government this way.

What then do Bond Notes Solve?

I think the Bond Notes will create more problems than solve anything, they will not address the underlying problem which is scarcity caused by a non-performing economy. Zimbabwe imports will continue to grow especially if the lack of US dollars cause companies to close shop. In the short term it is possible to eliminate the import of non-essentials by controlling who gets US dollars even though we know ZANUPF people will supply at black market for these purchases. Currently the nation is faced with a drought and will need to import a lot of food, it is the import of essential goods and services that will continue to send the US dollars abroad whether government likes it or not. If they decide not to import essentials then the economy will collapse even further and chaos will rear its ugly head. The government of Zimbabwe needs to do the right thing, get the economy ticking stimulating exports so that for the dollars that fly out, some are flying in. Some choices which the government made looked noble for example South Africa tried to get Zimbabwe to use the South African rand a move which was resisted favouring the US dollar, it worked a charm then but it did not last long.

We have seen that appetite for freebies has increased with the president’s nephew proving the hungriest in demanding 3% of Old Mutual. They will now aim their trade on the forex market no doubt so those money changers are coming back into business on behalf of the sharks. It feels like going back in time. One thing is certain, ZANUPF is a clueless party which cares only for its belly and survival. Of course some people who are against the Bond Notes are on recording supporting this party. We must pray that these days be shortened and we dash to 2018 and speak with one voice as a nation and say enough is enough. ZANUPF has failed and recycling its stupid economics of plunder is testament to that fact.

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