AN incident last week during which a foreign currency dealer was shot dead in an attempted robbery illustrates vividly the emergence of a vibrant secondary economy beyond the remit of the sta
The few details in the state media revealed that the two foreign currency dealers had more than $460 million in their car. Despite the inherent dangers involved in illicit deals, foreign currency dealers at Road Port have continued with their business.
Here the value of the Zimbabwe dollar is determined and pegged according to the market and regardless of what the Reserve Bank of Zimbabwe says its should be.
This community, bound by their will to eke out a living, determines the price of the South African rand and the United States dollar.
Although it is called a black market or parallel market, its magnitude resembles a vibrant secondary economy which government and the central bank have lost control over.
As the economy crumbles, a parallel market for almost everything from sugar to fuel has emerged in Zimbabwe.
Ironically, it is this black market that has kept the economy running since the crisis started almost six years ago.
If RBZ governor Gideon Gono’s evidence in former Finance minister Christopher Kuruneri’s case is anything to go by, then it is the parallel market that made the 2000 parliamentary election possible. Gono claimed in his court evidence that government secured foreign currency from Kuruneri for a national cause, which turned out to be importation of indelible ink for the election.
Government departments are buying foreign currency on the parallel market. The city of Harare recently bought foreign currency on the parallel market to buy spare parts and water chemicals. Other parastatals like Noczim have also bought foreign currency on the black market.
In short, illegal traders have taught the government that if it can’t run the economy they will take it over and run it in ways they deem necessary. The growth in the black market activities is a clear sign that government has lost its grip on the economy.
Analysts say no matter how many policies government announces, it will be very difficult to eradicate the black market amid rampant shortages of basic commodities. They say government is now hostage to parallel market traders who ironically were created by its own skewed policies.
Economist John Robertson says the rise of the parallel market is a sign that business is frustrated with government interference with market forces.
Government has over the years insisted on taking a lead role although it has limited muscle to control the forces of demand and supply.
“It (parallel market) is a rejection of government’s interference with market forces,” Robertson said. “The black market is an expression of the power of the market,” he said.
Government’s disastrous policies have turned the country into a vendor economy where people are constantly searching for something to sell instead of producing.
While manufacturing companies are battling with counter-productive price controls, dealers who buy commodities at fixed prices make massive premiums on the parallel market where price is determined by demand. For instance, people who buy cement at Circle Cement at government fixed prices end up making more than 200% on the black market.
“Such cases are a result of government’s interference. It undermines production,” Robertson said.
“There is a dearth of production. Vendors are making more money than manufacturers yet they produce nothing. They have not invested in anything,” Robertson said.
The government has trapped the manufacturers who produce while letting the vendors trade in the same controlled goods at huge mark-ups.
Prosper Chitambara, an economist with the Zimbabwe Congress of Trade Unions, said the blame lies squarely with the government. He said although the RBZ was trying to let market forces determine the foreign currency market, the damage has already been done.
“It’s clear that the government has lost the battle. But the crisis is that the whole government is still in denial,” Chitambara said.
The recent relaxation of the forex market has not improved the situation. The black market is still the major source of foreign currency. While the interbank rate of the greenback is about $67 000, the parallel market its offering about $87 000. Most companies still source their forex on the black market.
Perhaps one of the major causes of this crisis is that people no longer trust the government with anything. People with foreign currency prefer to sell it to strangers on the black market despite the risk because they don’t believe in the government.
“The people believe government might say bring your money to the bank as part of a plan to trap them,” Chitambara said.
Cases like that of Kuruneri actually explain why the parallel market will continue to thrive. Kuruneri is being prosecuted after he heeded Gono’s invitation to sell his foreign currency to government. Nobody will make that mistake again!